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Composition scheme eligibility denied where stock on appointed day was purchased inter state, imported, or received from outside State.
Persons below the turnover threshold who hold stock on the appointed day cannot opt for the composition scheme if that stock was purchased inter state, imported, or received from an out of State branch, agent or principal; possession of such goods on the appointed day disqualifies a registered person from the composition levy.
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Composition scheme eligibility barred for casual and non-resident taxable persons; cannot claim composition as casual dealer.
A taxpayer acting as a casual taxable person or a non-resident taxable person is expressly excluded from the composition levy; therefore casual dealers and non-resident taxable persons cannot avail the composition scheme while operating in that capacity.
Act Rules GST
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Composition scheme ineligibility: manufacturers of ice cream, pan masala and tobacco and certain suppliers cannot opt.
Section 10(2) excludes five categories from the composition scheme: suppliers of services (except restaurant services), suppliers of non taxable goods, inter State suppliers, persons supplying through electronic commerce operators, and manufacturers of notified goods. Rule 5 adds further ineligible classes. A notification further specifies that manufacturers of ice cream, pan masala, and all tobacco and manufactured tobacco substitutes are not eligible for composition levy.
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Composition scheme lapse triggers transition to regular tax liability and requires issuing tax invoices and filing withdrawal notice promptly.
Crossing the aggregate turnover threshold causes the composition option to lapse from the day the threshold is exceeded; the person is liable to pay tax under section 9 from that day and must issue tax invoices for every taxable supply made thereafter. The person must also file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of the occurrence of such event.
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Composition scheme eligibility may be available for suppliers using e-commerce operators while TDS/TCS provisions remain inoperative.
Eligibility for the composition scheme is negated for suppliers making supplies through an electronic commerce operator required to collect tax at source; however, because the TDS/TCS provisions are not yet operative and ECOs are not required to collect tax, suppliers using ECOs may currently opt for the composition scheme until the collection provisions are brought into force, and an administrative clarification from the government is recommended to remove uncertainty.

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Comparison of section 395 "Certificates." between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

15 September, 2025

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Section 395 Certificates.

Income-tax Act, 2025

At a Glance

The Document under commentary is Clause 395 of the Income Tax Bill, 2025 (Old Version) titled "Certificates." It sets out procedures for applications to the Assessing Officer for certificates permitting lower deduction or collection of tax at source, and for issuance of certificates evidencing deduction/collection. It matters to payees, payors, buyers/licensees/lessees, employers and non-residents; the effective date or enactment timing is Not stated in the document.

Background & Scope

Statutory hooks: the provision is part of the Chapter dealing with "Deduction and collection at source" in the Income Tax Bill, 2025. The clause provides a statutory mechanism for obtaining certificates from the Assessing Officer that alter the rate or quantum at which tax is deducted or collected at source. The clause contains five sub-sections that address (1) payee applications for lower deduction, (2) special procedure for payments to non-residents (proportionate determination), (3) applications by buyers/licensees/lessees for lower collection, (4) mandatory issuance of certificates by deductors/collectors (and employer-specific certificate requirements), and (5) cancellation of AO-issued certificates. Definitions of terms used in the clause (for example, "Assessing Officer", "payee", "person responsible for paying") are Not stated in the document.

Statutory Provision Mode

Text & Scope

The clause applies where tax is required to be deducted or collected under the Chapter. Key ingredients: (i) an eligible applicant (payee; buyer/licensee/lessee; person responsible for paying to a non-resident) may apply to the Assessing Officer; (ii) the application must be made "in such form and manner as prescribed"; (iii) the Assessing Officer must be "satisfied" about the applicant's total income justifying a lower deduction/collection (or in the case of the Bill, a "lower deduction" / "lower collection"); (iv) the AO may issue a certificate specifying the rate at which tax shall be deducted/collected "till its validity"; (v) for certain payments to non-residents (other than salary), the payer may seek a determination of the proportion of the sum chargeable to tax, and tax is to be deducted only on that proportion; (vi) persons deducting/collecting must issue certificates to deductees/collectees specifying amount, rate and other prescribed particulars within prescribed period; and (vii) the AO may cancel issued certificates after giving reasonable opportunity.

Interpretation

The text indicates a legislative intent to provide administrative relief and certainty to withholding and collection regimes by enabling assessment-level certificates that modify withholding/collection obligations. The recurring phrase "subject to the rules made under this Act" and "in such form and manner as prescribed" evidences that detailed procedure, forms, timelines and the content of certificates are intended to be governed by delegated legislation (rules/notifications). The AO's power is conditioned on satisfaction as to the payee's/collectee's income which implies an income-driven standard for relief. The Bill focuses on "lower" deduction/collection; it does not expressly contemplate "no deduction" relief in the operative phrase, which may inform a narrower interpretive approach unless clarified by rules.

Exceptions/Provisos

No explicit exceptions or provisos are set out besides the parenthetical exclusion in sub-section (2) that excludes salary from the non-resident proportionate-determination procedure. Temporal limits, validity periods, appeal mechanisms, or conditions for issuance (other than AO satisfaction) are Not stated in the document and are left to prescribed rules.

Illustrations

  • Illustration 1: A resident payee who anticipates low total income applies to the AO for a certificate for lower deduction on interest receipts. If the AO is satisfied, a certificate is issued specifying a reduced withholding rate which the payer must apply until the certificate expires. (This is consistent with clause text.)
  • Illustration 2: A buyer procuring goods who is statutorily liable to collect tax at source believes its total income justifies collection at a lower rate; it applies to the AO and, upon satisfaction, obtains a certificate specifying the lower collection rate to be applied during the certificate's validity. (This follows clause (3).)
  • Illustration 3: A payer to a non-resident (other than salary) considers that only a portion of a payment is taxable; it applies for a determination of the chargeable proportion, and tax is withheld only on the determined taxable proportion. (This paraphrases clause (2).)

Interplay

The clause expressly defers details to rules under the Act ("subject to the rules made under this Act", "in such form and manner as prescribed", "as prescribed"). Interaction with other provisions in the Chapter is implied (references to section 392 and 393 appear elsewhere in the Chapter), but cross-references or procedural interlocks (appeal to AO, review, scope of AO's satisfaction, or relation to assessment proceedings) are Not stated in the document. The clause imposes obligations on persons responsible for deduction/collection that will operate in conjunction with other statutory provisions on tax payment, return filing and crediting; specifics of those interactions are Not stated in the document.

Differences between Document 1 (Section 395 of the Income-tax Act, 2025) and Document 2 (Clause 395 of the Income Tax Bill, 2025 (Old Version))

  • Document 1 (Act) expressly permits the payee to apply for "deduction of income-tax at a lower rate or no deduction of income-tax, as the case may be" (i.e., includes expressly the possibility of no deduction). Document 2 (Bill) refers only to application "for deduction of tax at a lower rate" (no explicit reference to "no deduction").
    • Practical impact: The Act text broadens the express relief available to payees to include certificates for nil deduction; the Bill text is narrower on its face and may be read as not authorising certificates of nil deduction. This affects taxpayers seeking a certificate for no deduction - under the Bill text that position is not explicitly available.
  • Terminology consistency: Document 1 consistently uses "income-tax" and "income or sum" and in sub-section (2) refers to "any sum as mentioned in section 393(2) (Table: Sl. No. 17)". Document 2 uses "tax" and in sub-section (2) says "any sum chargeable under this Act (other than salary)".
    • Practical impact: The Act version narrows the cross-reference to a specific table entry (section 393(2) Table Sl. No. 17) while the Bill uses a broader phrase but excludes salary expressly. Depending on interpretation, the Act's wording may limit the special procedure to the specific listed sum; the Bill may appear broader but excludes salary. This difference can affect which non-resident payments qualify for the proportionate determination procedure.
  • Sub-section (1)(b) standard of satisfaction: Document 1 states the Assessing Officer is to be "satisfied that the total income of the payee justifies deduction of income-tax at a lower rate or no deduction of income-tax"; Document 2 states the AO is to be "satisfied that the total income of the payee justifies a lower deduction".
    • Practical impact: The Act text reiterates both lower rate and nil deduction as possible outcomes; the Bill text only contemplates a lower deduction. The practical standard of satisfaction is similar but the outcome set contemplated differs.
  • Sub-section (2) scope and wording differences: Document 1 sub-section (2)(a) refers to "any sum as mentioned in section 393(2) (Table: Sl. No. 17)"; Document 2 refers to "any sum chargeable under this Act (other than salary)". Document 1's (2)(a) includes prescribed form and manner "where he considers that the whole of such sum would not be chargeable"; Document 2 similar but adds "(other than salary)".
    • Practical impact: The Act text ties the provision to a specific listed sum (Table Sl. No. 17) whereas the Bill text appears to target any sum chargeable (excluding salary). This can change which categories of non-resident receipts can seek proportionate determination for withholding purposes.
  • Typographical/grammatical variations: Document 2 has a stray duplicated semicolon in sub-section (3)(a) ("and;") and slightly different phrasing like "such income or amount" vs "such income or sum". Document 1 cleans up some language and explicitly includes "no income-tax" phrasing in (1)(c) and "(3)(c)".
    • Practical impact: Minor; Act wording is clearer and more explicit on nil deduction/collection and on the objects to which the certificate may apply.

Practical Implications

  • Compliance and risk areas: Persons responsible for deducting/collecting must implement processes to accept and act upon AO-issued certificates; failure to deduct/collect at the certified rate may attract liability. Payees/collectees seeking relief must ensure accurate disclosure of total income to the AO since the AO's satisfaction is income-based. The Bill text's omission of explicit authorization for "nil deduction" certificates may create additional risk or administrative friction for taxpayers seeking complete exemption from deduction unless rules clarify otherwise.
  • Record-keeping/evidence: The clause requires issuers of certificates (deductors/collectors and employers) to issue documentary certificates specifying amounts and rates within prescribed periods; accordingly, taxpayers should retain certificate copies, AO orders, correspondence, and records demonstrating reliance on certificates and corresponding withholding/collection actions. Specific retention periods and form content are Not stated in the document and are expected to be prescribed.

Key Takeaways

  • Clause 395 establishes an AO-based certificate mechanism to vary withholding/collection rates where the AO is satisfied about the applicant's total income.
  • It provides a special procedure for payers to non-residents (excluding salary in the Bill) to determine the proportion of sums chargeable and limit withholding accordingly.
  • Deductors/collectors and certain employers must issue certificates to deductees/collectees specifying amounts, rates and other prescribed particulars within prescribed periods.
  • Details of forms, manner, validity, timelines and other procedural rules are left to subordinate legislation and are not specified in the clause.
  • The Bill text does not expressly mention certificates for "no deduction" (nil deduction), which narrows the express relief compared with later Act wording that does include nil deduction; this may affect taxpayers seeking complete exemption from withholding unless clarified by rules.
  • The Assessing Officer may cancel issued certificates after giving reasonable opportunity; grounds and procedure for cancellation beyond opportunity to be heard are Not stated in the document.

Full Text:

Section 395 Certificates.

Topics

Acts Income Tax