The Finance Bill, 2026 proposes an important compliance reform under the Income-tax Act, 2025 to simplify the process of filing declarations for non-deduction of tax at source (TDS) on certain investment incomes. Through a combined reading of Clause 72 and Clause 75, the Bill introduces a centralised mechanism allowing eligible investors to file TDS non-deduction declarations with a depository, instead of submitting multiple declarations to different payers.
This amendment is aimed at reducing compliance burden, improving efficiency for deductors, and modernising TDS administration in line with the dematerialised securities ecosystem.
Existing Legal Framework: Section 393(6)
Under the existing provisions of section 393(6) of the Income-tax Act, 2025:
- An assessee can submit a written declaration for non-deduction of TDS
- Such declaration is required to be filed separately with each person responsible for paying income
- The benefit applies to specified incomes listed in Column C of the Table under section 393(6), including:
- Dividend income
- Interest on securities
- Interest income other than interest on securities
- Income from units of mutual funds
In practice, investors holding multiple securities or mutual fund units across issuers face repetitive and fragmented compliance, leading to administrative inefficiencies.
What Changes Are Proposed by Clause 72
Insertion of New Section 393(6A)
Clause 72 of the Finance Bill, 2026 proposes to insert a new sub-section (6A) in section 393, which statutorily enables filing of TDS non-deduction declarations through a depository. Under proposed section 393(6A):
- An assessee may submit the declaration to a depository
- The depository shall electronically transmit the declaration to the person responsible for paying income
- This option is available only for specific categories of income, namely those covered under:
- Section 393(1), Table Sl. No. 4(i) (Dividend)
- Section 393(1), Table Sl. No. 5(i) (Interest on securities)
- Section 393(1), Table Sl. No. 7 (Interest other than interest on securities)
Eligibility Conditions for Depository-Based Filing
The facility under section 393(6A) is subject to strict eligibility conditions, ensuring controlled and secure implementation:
- Securities must be held in dematerialised form
- Securities must be held with a “depository” as defined in section 2(e) of the Depositories Act, 1996
- The securities must be listed on a recognised stock exchange in India
Only investors meeting these conditions can opt to file declarations through a depository.
Compliance Rationalisation thru Clause 75
Clause 75 complements Clause 72 by streamlining downstream compliance obligations, particularly for deductors.
Quarterly Reporting Instead of Monthly Reporting
- Earlier, persons responsible for paying income were required to furnish declarations received under section 393 to the Income-tax Department on a monthly basis
- Clause 75 proposes to shift this reporting requirement to a quarterly basis
This change significantly reduces compliance load for banks, companies, mutual funds, and other deductors.
Effective Date of the Amendment
- The amendments inserting section 393(6A) and related changes shall take effect from 1 April 2027
- They will apply from Tax Year 2027-28 onwards
This deferred implementation provides sufficient time for:
- Depositories to build system capability
- Deductors to align internal processes
- Investors to adapt to the new mechanism
Practical Implications for Taxpayers and Deductors
For Investors
- Single, centralised declaration instead of multiple forms
- Reduced risk of omission or duplication
- Seamless compliance aligned with demat holdings
For Deductors
- Simplified verification of declarations
- Reduced volume of individual declarations
- Lower compliance and reporting costs
For the Tax Administration
- Improved data consistency
- Enhanced traceability of declarations
- Lower litigation arising from technical defaults
Policy Objective Behind the Amendment
The proposed reform reflects the Government’s continued push towards:
- Digitisation of tax compliance
- Ease of doing business for small and retail investors
- Reduction of procedural penalties and litigation
- Leveraging existing financial infrastructure such as depositories
Conclusion
By introducing section 393(6A) through Clause 72, and rationalising reporting timelines via Clause 75, the Finance Bill, 2026 marks a significant structural improvement in the TDS declaration framework. The reform strikes a balance between taxpayer convenience and regulatory control, and is expected to substantially ease compliance for investors holding listed securities in demat form.
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