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Finance Bill 2026 - Clauses 74 to 76: Making TDS Simpler, Faster and Clearer

CA Raj Jaggi

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Before the Law Takes Effect: Setting the Context for Reform

The amendments discussed in this article originate under the Income-tax Act, 2025, which is scheduled to come into force on 1 April 2026. It is imperative to clarify at the outset that these amendments do not alter the provisions of the Income-tax Act, 1961, which remains applicable for TDS compliance until 31 March 2026. Instead, the Finance Bill, 2026, intends to refine certain procedural provisions within the forthcoming Income-tax Act, 2025. From a legislative standpoint, these amendments aim to strengthen and refine provisions of a statute that has yet to take effect, thereby demonstrating a proactive approach to ensuring administrative clarity prior to the full implementation of the new tax framework.

Under the existing TDS provisions of the Income-tax Act, 1961, numerous taxpayers seeking lower deduction certificates often encounter delays—not due to deficiencies in their cases, but because procedural processes sometimes progress more slowly than the substantive entitlement. In several instances, deductors acting in good faith have found themselves navigating overlapping TDS provisions for the same transaction, creating uncertainty about the appropriate compliance pathway. Similarly, automated notifications generated under processing mechanisms sometimes include broad statutory references, leaving taxpayers with a challenge to reconcile computational adjustments with precise legal provisions. These situations rarely stem from tax avoidance; rather, they reflect procedural structures that are adapting to an evolving economic and technological landscape.

Against this well-established professional context, Clauses 74 to 76 of the Finance Bill, 2026 must be comprehensively understood. The proposed amendments collectively seek to make the TDS framework simpler by eliminating procedural redundancy, faster by facilitating decentralised and electronic certification mechanisms, and clearer by enhancing statutory precision within automated processing systems. In doing so, the legislative framework advances TDS administration toward being not only enforceable but also pragmatic, predictable, and aligned with contemporary compliance standards.

Why Procedural Efficiency Defines Modern TDS Compliance

The Tax Deducted at Source (TDS) system is not intended solely for the early collection of government revenue. It also acts as an important compliance monitoring tool. It helps in maintaining transparency in various economic transactions. The provisions that impose tax determine when and how tax is payable. However, the procedural provisions—such as those relating to certificates, exemptions, and automated processing—decide how efficiently and fairly the TDS system works in practice. Keeping this practical reality in mind, the Finance Bill, 2026, proposes specific amendments through Clauses 74 to 76. These amendments relate to Sections 395, 397, and 399 of the Income-tax Act, 2025.

To understand these amendments, it is important to review the statutory headings and the scope of the relevant provisions. Each section deals with a specific compliance requirement under the TDS framework. The Memorandum explaining the Finance Bill does not specifically discuss these amendments. However, their purpose is quite clear. They reflect the changing nature of digital tax administration. They also aim to remove unnecessary procedural duplication and improve administrative efficiency.

This broader view of procedure as a facilitator of compliance leads to the first statutory amendment being considered. Clause 74 pertains to Section 395, a provision that has historically linked the actual tax liability to real-world cash flow.

Clause 74 – Amendment to Section 395

Before discussing the amendment proposed under Clause 74, it is useful to first understand the basic provision relating to lower or nil deduction of tax at source. The amendment is not a stand-alone change. It modifies a provision that has long been an important relief measure for taxpayers under the TDS system. By understanding the purpose and scope of this provision, readers can better appreciate how the amendment aims to increase accessibility while maintaining necessary regulatory safeguards. With this background, it is helpful to briefly examine the statutory heading and scope of Section 395.

Statutory Heading and Scope of Section 395

Section 395 – Certificate for Deduction of Tax at Lower Rate or No Deduction

Section 395 allows a taxpayer to apply for a certificate for a lower rate of tax deduction or no tax deduction. This can be done when the taxpayer’s estimated tax liability is lower than the normal TDS rates prescribed under Section 393. The purpose of this provision is to protect taxpayers from excess tax deduction in advance. It also helps in avoiding unnecessary blockage of working capital. At the same time, the section imposes a clear legal duty on the deductor to strictly adhere to the rate specified in the certificate for the period it is valid.

Proposed Amendment applicable with effect from April 1, 2026

"In section 395 of the Act,—

(a) in sub-section (1), for clause (c), the following clause shall be substituted, namely:—

“(c) when a certificate is issued under clause (b) or sub-section (6), as the case may be, the person responsible for paying the income or sum shall deduct the tax at the rate specified in such certificate, or deduct no income-tax, as the case may be, till its validity.”

(b) after sub-section (5), the following sub-section shall be inserted, namely: —

“(6) The application referred to in sub-section (1)(a) may also be filed before the prescribed income-tax authority, subject to such conditions as may be prescribed, and such authority on electronic verification of the contents of the application, may—
(a) either issue a certificate for deduction of income-tax at lower rate or no deduction of income-tax; or

(b) reject such application on account of non-fulfillment of the prescribed conditions or on account of the application being incomplete.”

This amendment proposes an important change to the certificate system. It clearly explains the responsibilities of deductors and also allows certificates to be issued by additional authorities. The amended clause (1)(c) requires deductors to follow certificates issued under both the existing provisions and the newly added sub-section (6). This clarification confirms that certificates issued by different authorities are legally binding. It also brings greater certainty in the TDS deduction process.

The insertion of Section 395(6) indicates a shift toward a decentralised, technology-based certificate system. It allows taxpayers to submit applications to designated income tax authorities rather than relying solely on the jurisdictional Assessing Officer. It also enables electronic verification of application details. This proposed change is expected to reduce delays and make the certification process more accessible and efficient for taxpayers. It will also support the Government’s move towards faceless tax administration. At the same time, authorities have the power to reject incomplete or incorrect applications. This ensures that certificates are issued only after proper verification and helps protect government revenue.

Court decisions under earlier certificate provisions also support the purpose of this proposed amendment. In Tata Teleservices Ltd. v. DCIT (2016) 74 taxmann.com 226 (Mumbai ITAT), the Tribunal stated that the authority issuing a lower deduction certificate performs a quasi-judicial role. Therefore, the authority must independently review the taxpayer's financial details before issuing the certificate. Similarly, in Bongaigaon Refinery & Petrochemicals Ltd. v. Union of India (2006) 287 ITR 120 (Gauhati HC), the Court observed that the certificate provisions are intended to prevent over-deduction of tax and to avoid financial hardship for taxpayers. These judicial principles continue to guide the application of Section 395, even after the changes introduced by Clause 74.

From a practical standpoint, sectors characterised by fluctuating income streams, such as consultancy services, export-oriented enterprises, or infrastructure service providers, are likely to benefit significantly from the amendment. To better understand the practical impact of the amendment to Section 395, it is useful to examine a simple, real-life example. This illustration shows how the amended provisions would operate in practice and how they are expected to ease compliance for both taxpayers and deductors.

Illustration 1:

Anish and Associates, a consultancy firm, expects lower taxable income due to carried-forward losses and significant allowable deductions. In such a case, it may apply for a lower deduction certificate. Under the amended provisions, the application can be processed electronically by the prescribed income-tax authority. Once the certificate is issued, the deductor is legally required to deduct tax strictly at the rate mentioned in the certificate for the period of its validity. This helps Anish and Associates avoid excess tax deductions and improve cash flow. At the same time, it provides the deductor with clarity and certainty when complying with TDS obligations.

This illustration shows how the amendment transforms the lower or nil deduction certificate process from a time-consuming procedure into a practical compliance relief measure, while maintaining the necessary discipline for both taxpayers and deductors.

The Next Area of Reform

While Clause 74 focuses on improving access to lower- or nil-deduction certificates, the next amendment addresses another important compliance concern—overlapping TDS obligations in specialised transactions. In this context, Clause 75 seeks to refine the exclusion provisions under Section 397, which play a crucial role in preventing duplication of compliance requirements.

Clause 75 aims to improve compliance rules for certain specialised transactions by changing an exclusion provision under the TDS system. The proposed amendment identifies transactions in which multiple TDS compliance requirements should not apply simultaneously. To properly understand this change, it is helpful to first understand the purpose and scope of the existing provision. Understanding the statutory heading and compliance objective of Section 397 the rationale and practical effect of the proposed amendment.

Statutory Heading and Scope of Section 397

Section 397 – Certain Transactions Where Specified TDS Provisions Shall Not Apply

Section 397 acts as a rationalisation provision within the TDS framework. Its main purpose is to simplify compliance by clearly identifying transactions for which specific TDS provisions do not apply. In many situations, more than one deduction or collection provision may appear to apply to the same transaction. This can create confusion and lead to duplication of compliance obligations. Section 397 helps prevent such overlap by specifying cases in which certain TDS requirements do not apply. By doing so, the section ensures that taxpayers and deductors are not burdened with unnecessary procedural requirements. It also promotes clarity and helps maintain efficiency in the overall TDS compliance system.

Proposed Amendment applicable with effect from Oct 1, 2026

"In section 397 of the Income-tax Act, in sub-section (1), for clause (c), the following clause shall be substituted with effect from the 1st October, 2026, namely: ––

“(c) the provisions of clause (a) shall not apply to––

(i) a person in respect of a transaction where he is required to deduct tax under section 393(1) [Table: Sl. No. 2(i), 3(i) or 6(ii)]; or

(ii) a person referred to in section 393(4) [Table: Sl. No. 12.C(a)] in respect of a transaction where he is required to deduct tax on consideration for transfer of a virtual digital asset under section 393(1) [Table: Sl.No.8(vi)]; or

(iii) a resident individual or Hindu undivided family in respect of a transaction where he is required to deduct tax on any consideration for the transfer of any immovable property under section 393(2) [Table: Sl. No. 17]; or

(iv) a person notified in this regard by the Central Government.”

The substituted clause (c) under Section 397 expands the list of transactions to which certain TDS compliance provisions do not apply. The purpose of this proposed amendment is to remove overlapping compliance requirements in specific situations. In practice, some transactions were getting covered under more than one TDS or related compliance provision. This created confusion for taxpayers and deductors and sometimes led to unnecessary reporting duplication. The amendment recognises that duplication of compliance does not improve tax collection and may instead increase procedural burden and litigation. The following proposed changes, introduced under Clause 75, identify specific transaction categories where such overlap should be avoided:

Sub-Clause (i): High-Value Contractual and Similar Payments

This sub-clause covers transactions for which tax is already required to be deducted under specified entries in Section 393(1). These entries generally relate to contractual or service-related payments that cross prescribed monetary limits. In such cases, the TDS obligation already exists under specific provisions that clearly define the rate and compliance procedure. If additional compliance provisions were also applied to the same transaction, it could create duplication and increase compliance complexity. The proposed amendment clarifies that once tax deduction responsibility arises under these specified entries, certain other overlapping provisions do not apply. This ensures that deductors follow a single, clear compliance path for such transactions.

Sub-Clause (ii): Transactions Relating to Virtual Digital Assets (VDAs)

This sub-clause addresses transactions involving virtual digital assets, such as cryptocurrencies and similar digital instruments. These transactions are governed by specific TDS provisions introduced to regulate this emerging sector. Since digital asset transactions already have specialised compliance requirements, applying additional overlapping TDS provisions could create confusion and compliance difficulties. The amendment, therefore, excludes such transactions from overlapping provisions when tax is already required to be deducted under the dedicated VDA TDS entries. This reflects legislative recognition that new financial sectors require specialised compliance treatment rather than multiple parallel compliance obligations.

Sub-Clause (iii): Immovable Property Transactions by Individuals and HUFs

This sub-clause applies to transactions involving the transfer of immovable property where the buyer is a resident individual or a Hindu Undivided Family. Such buyers are generally occasional deductors and not regular tax compliance professionals. Under existing property transaction provisions, these buyers are already required to deduct tax at prescribed rates. If additional TDS compliance provisions were imposed on the same transaction, it could create unnecessary procedural burden and increase the chances of inadvertent default. The proposed amendment, therefore, excludes such property transactions from overlapping provisions. This simplifies compliance for individuals and HUFs while ensuring that the primary tax deduction obligation continues to operate effectively.

Sub-Clause (iv): Power to Notify Additional Persons

This sub-clause provides the Central Government with the flexibility to notify additional categories of persons or transactions for which overlapping TDS compliance provisions should not apply. This proposed enabling provision is important because new business models and transaction structures continue to evolve. Instead of requiring legislative amendment each time a new compliance issue arises, this provision allows the Government to respond quickly through notifications. This ensures the TDS framework remains adaptable and able to address emerging compliance challenges.

Judicial Support for Compliance Rationalisation

Courts have consistently held that tax compliance provisions should be practical and should not create unnecessary procedural burdens. In Ansal Landmark Township (P.) Ltd. v. CIT (2015) 377 ITR 635 (Delhi HC), the High Court held that TDS provisions should be applied in a practical manner, keeping in mind the true nature and substance of the transaction. Similarly, in Hindustan Coca Cola Beverage (P.) Ltd. v. CIT (2007) 293 ITR 226 (SC), the Supreme Court observed that once tax liability has been properly discharged, additional procedural duplication of TDS compliance should not be imposed unnecessarily.

The proposed amendment relating to immovable property transactions also reflects this practical approach. Resident individuals and Hindu Undivided Families usually act as occasional deductors and may not have specialised tax compliance infrastructure. The amendment, therefore, reduces unnecessary procedural burden on such taxpayers while continuing to protect revenue interests.

Illustration 2:

Manoj Jaggi, a resident individual, purchases immovable property from another resident individual. Under the property transaction provisions, the buyer is already required to deduct tax. The proposed amendment clarifies that buyer Manoj Jaggi is not required to comply with any additional overlapping TDS provisions for the same transaction.

This illustration explains the amendment's main purpose. It helps avoid duplicate compliance requirements. It ensures that TDS compliance remains simple, practical, and aligned with the nature of the transaction.

Overall Impact of Clause 75

Collectively, these amendments aim to simplify TDS compliance by ensuring that a single transaction is not subjected to multiple overlapping compliance requirements. The amendment promotes clarity, reduces reporting duplication, and lowers the risk of procedural disputes. At the same time, it does not weaken tax enforcement because the primary TDS obligation remains in force under the relevant provisions. Buyer

The Next Procedural Refinement

While Clause 75 addresses duplication of compliance at the transaction level, the next amendment shifts focus to the processing stage of TDS and TCS administration. Clause 76 proposes a refinement to Section 399, which governs automated processing of TDS and TCS statements and plays a vital role in ensuring accuracy, transparency and timely communication within the compliance system.

Clause 76 – Amendment to Section 399

The amendment proposed under Clause 76 makes a limited but important change to the processing provisions relating to TDS and TCS statements. It does not alter the overall structure of the processing mechanism. Instead, it improves the clarity of the law by refining statutory references used for automated adjustments. To understand the impact of this change, it is helpful to briefly examine the purpose and scope of the processing provision to which the amendment applies.

Statutory Heading and Scope of Section 399

Section 399 – Processing of TDS and TCS Statements

Section 399 governs centralised electronic processing of TDS and TCS statements and authorises correction of arithmetical errors, computation of interest and fee liabilities and issuance of statutory intimations.

Proposed Amendment applicable with effect from April 1, 2026

In section 399 of the Income-tax Act, for the figures “427” at both the places where they occur, the words, figures and brackets “427(1) and (2)” shall be substituted."

The proposed amendment improves clarity by replacing the general reference to Section 427 with specific references to subsections 427(1) and 427(2). This makes it clear which particular provisions will apply during automated processing. Courts have also stressed that automated tax processing must strictly follow statutory limits. In CIT v. Gujarat Electricity Board (2003) 260 ITR 84 (SC) and Court on Its Own Motion v. CIT (2013) 352 ITR 273 (Delhi HC), the courts highlighted the importance of transparency and accuracy in automated tax processing systems.

Illustration 3:

If a deductor, Shreyansh Bajaj, files a TDS return with short deduction or a delay, the automated system will calculate interest or fees only under sub-sections 427(1) and 427(2). No other provisions will be applied.

This illustration shows how clear drafting helps avoid confusion. It also ensures fair and predictable treatment for deductors like Shreyansh Bajaj under the automated tax system.

Summary Table of key amendments
Clause No.	Section No.	Focus	Practical Benefit
Clause 74	Section 395	Easier access to lower or nil TDS certificates	Faster relief and better cash flow
Clause 75	Section 397	Removal of overlapping TDS provisions	Simpler and clearer compliance
Clause 76	Section 399	Greater clarity in automated TDS processing	Predictable and transparent adjustments

Learning the Law Slowly — The True Recipe for Professional Excellence

As the provisions of the Income-tax Act, 2025 are scheduled to come into force from 1 April 2026, the transition presents not merely a statutory change but also a professional opportunity. From a practitioner’s perspective, it is always advisable to adopt a proactive approach in thoroughly understanding the various provisions of the new law. Such preparation undoubtedly demands additional time, patience and intellectual effort. However, enduring professional strength has never been built through hurried learning.

Our ancient Indian food wisdom beautifully teaches that a dish prepared slowly and with care develops a depth of flavour that cannot be matched by food prepared in haste. Similarly, knowledge acquired through gradual study, thoughtful reflection and practical illustrations creates lasting professional confidence. In contrast, information gathered quickly without depth often fades just as easily. The timeless saying “easy come, easy go” serves as a gentle reminder that meaningful understanding requires sustained effort. The new Income-tax Act, 2025, along with the amendments discussed in this article, therefore invites professionals to invest time, concentration and analytical thinking, as there is no shortcut to lasting knowledge or professional excellence.

[Date: 19/02/2026]

(The views expressed in this article are strictly personal.)