Income Tax 2025

Appearance

Power of Central Government to relax provisions of this Chapter. ​

400(1) ​

The Central Government may, by notification provide that deduction or collection of tax shall not be made or is to be made at such lower rate, from such payment or receipt and in respect of such person or class of persons.

400(2) ​

The Board may issue guidelines with the previous approval of the Central Government, to remove any difficulty arising in giving effect to the provisions of this Chapter and these guidelines shall be laid before each House of Parliament.

400(3) ​

The Board may notify, a class of person, or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, to make an application in such form and manner as prescribed to the Assessing Officer, to determine the appropriate proportion of sum chargeable in the manner as prescribed, and accordingly tax shall be deducted under section 393(2) (Table: Sl. No. 17) on that proportion of the sum which is so chargeable.

400(4) ​

The Board may by notification, make rules specifying the cases in which, and the circumstances under which, an application may be made for grant of a certificate under section 395(1) to (3), and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.

Explanation

Section Summary: ​

Section 400 grants the Central Government and the Income Tax Board the authority to relax or modify certain provisions related to tax deductions or collections. This includes setting lower tax rates, issuing guidelines to address difficulties in implementing the law, and specifying procedures for determining tax liabilities for non-residents or foreign companies. The section also allows the Board to create rules for issuing certificates under Section 395(1) to (3).

Key Changes: ​

  1. Flexibility in Tax Deduction/Collection Rates: The Central Government can now notify lower tax deduction or collection rates for specific payments, receipts, or categories of taxpayers.
  2. Guidelines for Implementation: The Board can issue guidelines to resolve practical difficulties in applying the provisions of this chapter, subject to parliamentary approval.
  3. Special Provisions for Non-Residents: The Board can notify specific cases where non-residents or foreign companies can apply to determine the proportion of income chargeable to tax, simplifying tax deductions under Section 393(2).
  4. Rules for Certificates: The Board can specify rules for granting certificates under Section 395(1) to (3), including conditions and procedures.

Practical Implications: ​

  • Taxpayers: Certain taxpayers, especially non-residents or foreign companies, may benefit from reduced tax rates or simplified procedures for determining taxable income.
  • Businesses: Companies making payments to non-residents or foreign entities may need to follow new application processes to determine the appropriate tax deduction.
  • Compliance: Taxpayers and businesses must stay updated on notifications and guidelines issued under this section to ensure compliance.

Critical Concepts: ​

  • Lower Tax Rate Notifications: The Central Government can issue notifications to reduce tax deduction or collection rates for specific cases or categories.
  • Guidelines for Implementation: These are issued by the Board to address practical challenges in applying the law and must be approved by Parliament.
  • Proportionate Tax Deduction: For non-residents or foreign companies, tax is deducted only on the portion of income chargeable to tax, as determined by the Assessing Officer.
  • Certificates under Section 395: These certificates may be required in specific cases, and the Board can prescribe rules for their issuance.

Compliance Steps: ​

  1. Monitor Notifications: Regularly check for notifications from the Central Government or Board regarding lower tax rates or procedural changes.
  2. Application for Non-Residents: If making payments to non-residents or foreign companies, follow the prescribed application process to determine the taxable proportion.
  3. Adhere to Guidelines: Follow any guidelines issued by the Board to resolve implementation challenges.
  4. Certificate Applications: If applicable, apply for certificates under Section 395(1) to (3) as per the rules specified by the Board.

Examples: ​

  • Scenario 1: A software company in India pays royalties to a foreign company. The Central Government issues a notification reducing the tax deduction rate on such payments from 20% to 10%. The company must apply the new rate from the date specified in the notification.
  • Scenario 2: A non-resident individual receives consulting fees from an Indian firm. The firm applies to the Assessing Officer to determine the taxable portion of the fees. The Officer rules that only 60% of the fees are chargeable to tax, and the firm deducts tax accordingly under Section 393(2).
  • Scenario 3: The Board issues guidelines clarifying how to calculate taxable income for foreign companies with permanent establishments in India. Businesses must follow these guidelines to ensure compliance.