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    Legal and Practical Implications of TDS on Goods Purchases in India : Clause 393(1)[Table: S.No. 8(i...
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    TDS on purchase of goods: buyer withholding required, with precedence rules to avoid overlap with other withholding provisions.
    Clause 393(1)[Table: S.No. 8(ii)] imposes a TDS obligation on the buyer to deduct tax on purchases of goods from resident sellers once aggregate purchases from a seller in a financial year exceed the specified threshold, with deduction due at credit or payment, and a broad exclusionary clause preventing application where tax is deductible or collectible under any other provision of the Act.
    Act RulesBills
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    TDS on specified senior citizens centralises tax deduction at banks, relieving return filing when tax is correctly deducted at source.
    Specified banks are required to compute a specified senior citizen's total income after allowing Chapter VIII deductions and rebate, deduct tax at rates in force with a nil threshold, and remit TDS; an express precedence clause ensures this provision overrides other TDS provisions. The mechanism centralises compliance with banks obtaining declarations, maintaining evidence and records, thereby relieving eligible senior citizens from return filing provided the bank correctly applies deductions and remits tax.
    Act RulesBills
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    TDS on e-commerce: operators must withhold on gross platform-facilitated sales, with a small-seller exemption on conditions.
    E-commerce operators must withhold TDS on the gross amount of sales or services facilitated through their platforms, with withholding due at the earlier of credit or payment and including direct buyer payments as deemed payments by the operator. Deductions apply on a gross basis without netting fees, exclude operator receipts for unrelated services such as advertising, and take precedence over other TDS provisions. Individual and HUF participants with annual turnover below the legislated threshold who furnish PAN or Aadhaar are exempt from withholding.
    Act RulesBills
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    TDS on large cash withdrawals: deduction at payment with exemptions for banks and regulated intermediaries, non filer rule absent here.
    Clause 393(3) requires banks, co operative societies engaged in banking and post offices to deduct two per cent TDS at the time of cash payment where aggregate withdrawals from one or more accounts of a recipient exceed prescribed thresholds, with a higher threshold for co operative societies; Clause 393(4) exempts payments to the Government, banks, post offices, regulated business correspondents and authorised white label ATM operators. The Bill mirrors the existing framework but, in the extracted text, omits an explicit non filer regime and express central government notification powers, creating potential operational and interpretive uncertainty.
    Act RulesBills
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    TDS on high-value payments by individuals/HUFs expands withholding obligations for contractual, professional and commission disbursements.
    Clause 393(1)[Table: S.No. 6(ii)] requires TDS by individuals or HUFs (not otherwise liable under specified TDS entries) on payments to a resident for carrying out work (including supply of labour), fees for professional services, or commission/brokerage (excluding insurance commission) where aggregate payments to the payee in a tax year exceed a prescribed threshold; deduction is at the time of credit or payment and the clause is integrated into a tabular TDS framework necessitating aggregation, with definitions and certain procedural relaxations left to rules or guidance.
    Act RulesBills
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    TDS on interest for foreign borrowings consolidated under new clause, keeping concessional framework but raising definitional and transition issues.
    Clause 393(2) consolidates concessional TDS treatment for interest to non residents on foreign currency borrowings, rupee denominated bonds and IFSC listed bonds, aligning mechanics and cut off windows with Section 194LC while differing in presentation and reliance on external definitions; Central Government approval remains a condition for specified instruments and drafting gaps on limits, definitions and transitional treatment may require subordinate rules to avoid interpretive disputes.
    Act RulesBills
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    TDS on securitisation trust distributions: uniform 10% for residents, treaty rates for non-residents, no threshold.
    Clause 393 mandates TDS on distributions by a securitisation trust: Clause 393(1) imposes 10% TDS on any income paid to resident investors with no threshold, deducted at the earlier of credit or payment by the trust; Clause 393(2) requires withholding on non-resident investors at rates in force, permitting treaty relief. Both provisions treat credits (including to suspense accounts) as TDS events and require trusts to maintain documentation of payee status and treaty claims.
    Act RulesBills
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    TDS on investment fund distributions: withholding applies, with treaty relief and exemptions for non taxable income.
    TDS on distributions by investment funds requires withholding at applicable resident and non resident rates at the earlier of credit or payment, excluding any portion of income that is statutorily exempt. Funds must determine and segregate taxable versus exempt portions of mixed income, apply treaty or domestic rates for non residents upon proper documentation, and maintain records to support exemptions or reduced rates, while coordinating these obligations with other TDS provisions to avoid double deduction.
    Act RulesBills
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    TDS on business trust distributions: differentiated resident/non resident rates and SPV contingent exemptions under the Income Tax Bill, 2025.
    Clause 393 of the Income Tax Bill, 2025 mandates 10% TDS on distributed income to resident unitholders, differentiated rates for non-resident unitholders (including lower rates for certain interest-type distributions and "rates in force" for others), and exempts specified distributions from TDS where the underlying SPV has not opted for the concessional tax regime, thereby tying withholding obligations to the SPV's tax-regime choice.
    Act RulesBills
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    TDS on infrastructure debt fund interest: concessional withholding retained for non-resident investors, deducted at credit or payment.
    Clause 393(2)[Table: S.No. 5] retains a concessional TDS regime for any income by way of interest paid by an infrastructure debt fund listed in Schedule VII to a non resident (including foreign companies), requiring deduction at source at the specified concessional rate at the earlier of credit or payment, with no monetary threshold, and integrated within the Bill's harmonised TDS framework that addresses procedural rules, exceptions, grossing up, and interaction with double taxation treaties.
    Act RulesBills
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    TDS on land acquisition compensation maintained; threshold and RFCTLARR Act exemptions preserved, procedural consolidation introduced.
    Clause 393 of the Income Tax Bill, 2025 mandates TDS at 10% on any sum in the nature of compensation or enhanced compensation, or consideration or enhanced consideration, for compulsory acquisition of immovable property (other than agricultural land), when amounts paid or credited to a resident exceed Rs. 5,00,000 in a financial year; Clause 393(4) exempts awards or agreements exempt from income-tax under the RFCTLARR Act, and deduction is required at the earlier of payment or credit.
    Act RulesBills
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    TDS on mutual fund distributions: withholding required at source with exclusion for capital gains, subject to threshold rules.
    Clause 393 consolidates TDS on income from units of specified mutual funds and analogous instruments, requiring deduction by any payer at the prescribed rate at the time of credit or payment, subject to an aggregate threshold, while expressly excluding receipts that are of the nature of capital gains; the provision retains deeming rules for suspense accounts and links to cross referenced exemptions and schedules for definitions, thereby centralising administrative obligations and necessitating payer systems to characterise payments and aggregate receipts for threshold application.
    Act RulesBills
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    TDS on professional and technical services clarified: consolidated rates, threshold and personal-payment exemption streamline withholding obligations.
    Clause 393(1) requires TDS by a specified person on resident payments for professional services, technical services, director's fees (non-salary), royalty and related sums, with distinct lower rates for certain technical, cinematographic and call-centre payments and a higher rate for other cases, deductible at the earlier of payment or credit and applicable only above the prescribed threshold. Clause 393(4) exempts individuals and HUFs from TDS where payments are made exclusively for personal purposes.
    Act RulesBills
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    TDS on monetary consideration under development agreements - deduction at credit or payment with no threshold.
    Clause 393(1)[Table: S.No. 3(ii)] requires TDS on any monetary consideration under agreements referred to in section 67(14), applying to any payer, excluding in-kind consideration, with deduction at the earlier of credit or payment, no monetary threshold, and an explicit rule that where both general immovable property TDS and S.No. 3(ii) apply, deduction is to be made only under S.No. 3(ii).
    Act RulesBills
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    TDS on rent expanded to include equipment and furnished premises, increasing withholding scope and compliance for individuals and HUFs.
    Clause 393(3)[Table: S.No. 2(ii)] expands TDS on rent by subjecting payments for use of land, buildings, furniture, fittings, machinery, plant and equipment to withholding by specified persons where monthly payments exceed the threshold; it prescribes asset based rates and requires deduction at the earlier of credit or payment for the last month of the tax year or tenancy, while providing a declaration mechanism for nil deduction and procedural reliefs for small non business payers.
    Act RulesBills
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    TDS on immovable property transfers requires deduction on the higher of consideration or stamp duty value at payment or credit.
    Clause 393(1)[Table: S.No. 3(i)] requires TDS on transfers of immovable property (excluding agricultural land) where either the consideration or the stamp duty value exceeds the threshold. The transferee is the payer required to deduct tax at a fixed percentage of the higher of consideration or stamp duty value, with deduction at the time of credit or payment. Aggregation of amounts across multiple transferees and transferors applies, and the table provides tie breaker rules and specific exclusions such as compulsory acquisition.
    Act RulesBills
    Show AI Summary
    TDS on rent: payer-based uniform and differentiated withholding alters withholding obligations and REIT exemption treatment.
    Clause 393 requires TDS on rent to residents where monthly rent exceeds the threshold, with deduction at the earlier of credit or payment. Non-specified payers withhold at a uniform low rate for all asset types, while specified persons withhold at differentiated rates for machinery/plant/equipment versus land/building/furniture/fittings. The Bill maintains an exemption from TDS for payments to REITs in respect of directly owned real estate assets and preserves rules treating suspense-account credits as payment for withholding purposes.
    Act RulesBills
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    TDS on commission and brokerage: Bill preserves current threshold and rate and maintains targeted exemptions for telecom franchisees.
    Clause 393(1) mandates that a specified person deduct TDS at two percent on resident commission or brokerage payments (excluding insurance commission) when aggregate payments exceed the statutory threshold, with deduction at the earlier of credit or payment and anti avoidance deeming for suspense accounts. Clause 393(4) preserves a targeted exemption for certain telecom franchisee payments, maintaining continuity with existing sectoral relief and reducing compliance burdens.
    Act RulesBills
    Show AI Summary
    TDS on lottery-related payments: unified withholding on commissions and prizes with harmonized threshold and deduction rate.
    Clause 393(3)[Table: S.No. 4] consolidates TDS on payments to persons engaged in stocking, distributing, purchasing or selling lottery tickets, requiring any person making payments of commission, remuneration or prize to deduct tax at the earlier of credit or payment; it includes a deeming fiction treating credits to suspense or intermediary accounts as credit to the payee and imposes standard deductor duties of deposit, certification and return-filing, while leaving aggregation rules and characterization of complex incentive structures unclear.
    Act RulesBills
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    TDS on national savings withdrawals: mandatory deduction at source with defined threshold and exemptions for individuals and heirs.
    Clause 393(3)[Table: S.No. 6] requires any person responsible for paying amounts referred to in section 80CCA(2)(a) to deduct income-tax at the rate of 10% at the time of payment where the amount or aggregate amount paid during the tax year exceeds Rs. 2,500; the Table under sub-section (4), Sl. No. 19, exempts payments made to an assessee who is an individual and to the heirs of an assessee, and payers must deposit TDS, file returns, and issue certificates in accordance with the procedural framework.

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      Comparison of Section 199 "Tax on income of certain manufacturing domestic companies." between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

      4 September, 2025

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      Section 199 Tax on income of certain manufacturing domestic companies.

      Income-tax Act, 2025

      At a Glance

      This document is Clause 199 of the Income Tax Bill, 2025 - (Old Version), which proposes a concessional 25% tax rate for certain domestic manufacturing companies subject to specified conditions. It matters to domestic companies engaged in manufacture or production (and related research/distribution) that were set up on or after 1 March 2016, and to the tax administration in determining eligibility and compliance. The document does not state an explicit effective date beyond the reference to "tax year" or enactment; no decision date is provided in the text.

      Background & Scope

      Statutory hooks: Clause 199 is placed within the "New tax regime" part of the Income Tax Bill, 2025. It operates "Irrespective of anything contained in this Act, but subject to the provisions of Parts A, B and this Part other than sections 200 and 201," thereby creating a standalone concessional regime subject to limited interplay with other Parts and sections. The provision applies to "a person, being a domestic company," and allows computation of income-tax at a flat rate of 25% at the option of the company, subject to enumerated conditions. Definitions or further explanations (such as definition of "manufacture" or "domestic company") are not stated in the document.

      Statutory Provision Mode

      Text & Scope

      Clause 199(1) authorises, by company option, computation of income-tax at 25% for a domestic company for any tax year, subject to three key conditions:

      • Condition (a): The company must have been set up and registered on or after 1st March, 2016.
      • Condition (b): The company must be engaged solely in the business of manufacture or production of any article or thing, and research in relation to, or distribution of, such article or thing manufactured or produced by it. In other words, the business must be limited to manufacturing/production and related research/distribution activities.
      • Condition (c): The company's total income must be computed without certain deductions listed in sub-clause (i) and without set-off of any loss carried forward attributable to those deductions per sub-clause (ii).

      Clause 199(1)(c)(i) specifies that the computation must be without deduction under (A) sections 45(2)(c) and 47(1)(b); (B) Chapter VIII-C, other than the provisions of section 146; or (C) sections specified in section 205(1)(a) to (g). Clause 199(1)(c)(ii) bars set-off of earlier year losses that are attributable to such disallowed deductions.

      Interpretation

      The clause expresses a legislative intent to create a preferable, simplified tax rate for qualifying manufacturing companies, while preventing duplication or continuance of other specified tax benefits. The language "Irrespective of anything contained in this Act" indicates a non-obstante clause intended to give the concessional rate primacy over other general provisions, but the carve-out "subject to the provisions of Parts A, B and this Part other than sections 200 and 201" indicates preserved interaction with certain Parts and specified sections. The option-based framework (see sub-sections (3) and (4)) suggests a taxpayer election that, once made, binds the company to the regime unless a separate option u/s 200 is exercised.

      Exceptions/Provisos

      Not stated in the document: any express exemptions other than the listed exclusions from deduction. The clause contains implicit carve-outs:

      • Chapter VIII-C benefits are excluded except for section 146 (i.e., section 146 remains available, while other provisions in Chapter VIII-C are not). The document does not elaborate on the content of Chapter VIII-C or on the policy reasons for preserving section 146 only.
      • Sections specified in section 205(1)(a) to (g) are also excluded; the content of those sections is not reproduced in the clause.
      • Losses attributable to the disallowed deductions are barred from set-off; subsection (2) deems such losses to have been given full effect to, preventing future deduction-this is an absolute prohibition with no stated time limitation.

      Illustrations

      • Example 1: A domestic manufacturing company incorporated on 1 April 2017, carrying on only manufacture and distribution of its products, opts into Clause 199. It cannot claim tax deductions under Chapter VIII-C (except section 146), nor can it claim deductions u/ss 45(2)(c) or 47(1)(b). If it has earlier year losses attributable to those disallowed deductions, such losses cannot be set off in the option regime. (All specifics about amounts, calculation mechanics, and interplay with other sections are Not stated in the document.)
      • Example 2: A domestic company set up on 1 February 2016 would be ineligible because incorporation predates 1 March 2016. (The document does not state any transitional provisions.)

      Interplay

      The clause expressly limits interaction with Parts A and B and "this Part" (i.e., the Part containing the clause), excluding sections 200 and 201. It excludes Chapter VIII-C benefits (except section 146) and the listed sections in section 205(1)(a)-(g). The clause calls for an option exercised "in the manner as prescribed" with a reference point to the due date specified u/s 263(1) for filing the first return; thus, it anticipates additional procedural rules to be prescribed. Specific interaction with other Rules, Notifications, or Circulars is Not stated in the document.

      Practical Implications

      • Compliance and risk areas grounded in the document: Companies seeking the 25% rate must ensure eligibility-date of registration (on/after 1 March 2016), exclusive engagement in manufacture/production with related research/distribution, and careful computation of total income excluding specified deductions. Non-compliance with these conditions would jeopardise entitlement to the concessional rate. The clause's election mechanism, including timing linked to section 263(1), creates a procedural compliance risk if the option is not validly exercised.
      • Record-keeping/evidence points suggested by the text: Companies should maintain incorporation/registration records to evidence the registration date; detailed books and documents to demonstrate the nature of activities (manufacture/production, research, distribution) and to segregate income/expenses attributable to other businesses, if any; and documentation linking prior-year losses to specific deductions listed in Clause 199(1)(c)(i) to determine whether losses are barred from set-off.

      Key Takeaways

      • Clause 199 offers an elective flat 25% tax rate for qualifying domestic manufacturing companies incorporated on or after 1 March 2016.
      • Eligibility requires exclusive engagement in manufacture/production and related research/distribution; other business activities disqualify a company under the clause.
      • Certain deductions are expressly disallowed for companies opting into the regime-specifically sections 45(2)(c) and 47(1)(b), most of Chapter VIII-C (except section 146), and sections referred to in section 205(1)(a)-(g).
      • Losses carried forward attributable to those disallowed deductions cannot be set off; subsection (2) deems such losses to have been given full effect to.
      • The concessional rate is elective, requires prescribed procedural exercise by the due date u/s 263(1) for furnishing the first return, and once made, is binding unless section 200 is invoked; the document contains no detail on the prescribed manner.
      • The clause contains a non-obstante opening but preserves certain Parts/sections, indicating limited interplay rather than complete override of the Act.
      • Operational details (definitions, examples, prescribed forms/procedures, transitional rules, or effective date specifics) are Not stated in the document.

      Differences Between Documents and Practical Impact

      TopicEarlier Position (Clause 199 - Bill Old Version)Later Position (Section 199 - Act)
      Parts referenced as subject to"subject to the provisions of Parts A, B and this Part other than sections 200 and 201""subject to the provisions of Parts A, B, E and this Part (other than sections 200 and 201) of this Chapter"
      Reference to section 45(2)Disallowance references "sections 45(2)(c) and 47(1)(b)"Disallowance references "section 45(2) or 47(1)(b)"
      Prescription wording for exercise of option"in the manner as prescribed""in the manner as may be prescribed"
      Typographical/clerical varianceSub-section (4) references "section section 200" (duplication)Sub-section (4) references "section 200" (single)

      Practical impact of each change:

      • Inclusion of Part E in the Act's version (Section 199) expands the set of statutory provisions that the new regime is "subject to." This broadens potential interactions and conditions that survive the non-obstante clause; companies and practitioners would need to consider Part E compliance where relevant. The Bill version omitting Part E would have left such interactions narrower. (Specific contents of Part E and practical consequences are Not stated in the document.)
      • The Bill's specific reference to section 45(2)(c) narrows the disallowance to a particular sub-paragraph of section 45(2), whereas the enacted Section 199's reference to section 45(2) more broadly excludes deductions under the whole of section 45(2). The broader reference in the Act can widen the range of deductions that are incompatible with the concessional regime, increasing the number of prior benefits/losses that may be denied. This is a substantive change affecting eligibility and post-election tax position.
      • The change from "in the manner as prescribed" to "in the manner as may be prescribed" is modest; the latter is a more conventional legislative drafting phrase indicating prescription power. It likely has no material effect beyond standardising drafting.
      • Correction of a typographical duplication ("section section 200") clarifies the cross-reference; it has no substantive legal effect beyond removing ambiguity.

      Full Text:

      Section 199 Tax on income of certain manufacturing domestic companies.

      Topics

      ActsIncome Tax