The Government has proposed an amendment to Section 400(2) of the Income Tax Act, 2025 to make guidelines issued for TDS and TCS matters binding on both income-tax authorities and persons responsible for deduction or collection of tax.
The amendment seeks to remove an unintended gap in the law and align the new Act with the long-standing intent under the Income-tax Act, 1961.
Existing Framework Under Section 400(2)
Section 400(2) of the Income Tax Act, 2025, empowers the Central Board of Direct Taxes (CBDT), with prior approval of the Central Government, to issue guidelines to remove difficulties in implementing the provisions relating to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS).
These guidelines are required to be laid before both Houses of Parliament, ensuring legislative oversight.
However, unlike the corresponding provisions under the Income Tax Act, 1961, the new Act does not explicitly state that such guidelines are binding on tax authorities or on the persons liable to deduct or collect tax.
The Issue: Missing Binding Effect Clause
Under the Income-tax Act, 1961, guidelines issued to address difficulties in TDS/TCS provisions were expressly binding on income-tax authorities as well as on deductors and collectors. This ensured uniform application and reduced disputes at the field level.
The absence of a similar clause in section 400(2) of the Income-tax Act, 2025 created ambiguity regarding:
- The enforceability of CBDT guidelines
- Their binding nature during assessments, audits, and proceedings
- The extent to which deductors could rely on such guidelines for compliance
Proposed Amendment: Binding Nature Restored
To address this gap, it is proposed to amend section 400(2) to clearly provide that any guidelines issued to remove difficulties in the TDS/TCS chapter shall be binding on:
- Income-tax authorities, and
- Persons liable to deduct or collect income-tax
This amendment restores the position that existed under the Income-tax Act, 1961 and ensures that administrative guidance carries legal force for all stakeholders.
Effective Date
The amendment will come into effect from 1 April 2026, coinciding with the operationalisation of the Income-tax Act, 2025.
Why This Amendment Matters
Making TDS/TCS guidelines binding will:
- Ensure uniform interpretation and application across tax authorities
- Provide greater certainty and confidence to deductors and collectors
- Reduce avoidable litigation arising from differing interpretations
- Strengthen trust in administrative clarifications issued by the Board
Key Takeaway
By explicitly making TDS/TCS guidelines binding on both tax authorities and taxpayers, the proposed amendment to section 400(2) reinforces the principle of certainty in tax administration and aligns the new law with established practice under the earlier Income-tax regime.
Official copy of the Clause is as follows
Guidelines to be binding on income-tax authorities and person liable to deduct or collect income-tax
Section 400(2) of the Act provides that the Board with the previous approval of Central Government, may issue guidelines to remove any difficulties arising in giving effect to provisions of TDS/TCS chapter and such guidelines shall be laid before each House of Parliament.
2. Corresponding provisions in the Income-tax Act, 1961 also provided that such guidelines shall be binding on income-tax authorities and on the person liable to deduct or collect income-tax. However, section 400(2) of the Act does not contain aforesaid clause which binds the guidelines.
3. In order to align with the intent of the provisions of the Income-tax Act, 1961, it is proposed that any guidelines issued to remove difficulties in giving effect to provisions of TDS/TCS chapter shall be binding on income-tax authorities and on the person liable to deduct or collect income-tax.
4. It is proposed to amend section 400(2) of the Act.
5. This amendment will take effect from 1st April, 2026.
[Clause 77]
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