Clause 78 of the Finance Bill, 2026 proposes clarificatory amendments to section 402 of the Income-tax Act, 2025, which contains interpretational provisions applicable to Chapter XIX-B, dealing with Tax Deduction at Source (TDS). The amendment addresses two specific issues:
- Absence of a definition of “authorised person” in the Income-tax Act, 2025 for certain non-resident remittance cases; and
- Lack of explicit inclusion of supply of manpower within the definition of “work” for TDS purposes.
Both changes are intended to remove ambiguity and align the 2025 Act with the established framework under the Income-tax Act, 1961 and FEMA, 1999. The amendments take effect from 1 April 2026 (tax year 2026-27 onwards).
Context: Importance of Section 402
Section 402 defines key expressions used throughout Chapter XIX-B, including:
- “Person responsible for paying”, which determines who bears the obligation to deduct tax; and
- “Work”, which determines whether a payment falls within the TDS net.
Any lack of clarity in these definitions can result in:
- Compliance uncertainty, and
- Disputes regarding TDS responsibility or applicability.
Amendment 1: Definition of “Authorised Person” for Non-Resident Payments
Existing Legal Position
Under section 402(27)(c):
- In case of payment to a non-resident for transfer of a foreign exchange asset (not being a short-term capital asset),
- The “authorised person” remitting the amount or crediting it to the Non-Resident (External) Account is treated as the person responsible for paying.
However:
- The Income-tax Act, 2025 did not define the term “authorised person”,
- Creating uncertainty despite the term being well understood under foreign exchange law.
What Does Clause 78 Change?
Clause 78 amends section 402(27)(c) to clarify that:
The expression “authorised person” shall have the same meaning as assigned to it in section 2(c) of the Foreign Exchange Management Act, 1999 (FEMA).
Meaning and Implications
- Provides a clear statutory anchor by importing the FEMA definition
- Confirms that authorised dealers, banks, money changers, and other FEMA-recognised entities fall within the scope
- Removes doubt regarding TDS responsibility in cross-border remittances involving foreign exchange assets
This amendment is purely definitional and clarificatory; it does not expand the scope of TDS.
Amendment 2: Inclusion of Supply of Manpower Within “Work”
Existing Legal Position
Section 402(47) defines the expression “work” for TDS purposes. TDS applies to payments for “work” under section 393(1) [Table: Sl. Nos. 6(i) and 6(ii)].
However:
- The definition did not expressly include “supply of manpower”,
- Giving rise to interpretational disputes in labour supply and staffing arrangements.
What Does Clause 78 Change?
Clause 78 amends section 402(47) to explicitly include “supply of manpower” within the meaning of “work” for the purposes of TDS.
Meaning and Implications
- Clarifies that payments under manpower supply and staffing contracts are covered by TDS provisions
- Aligns the 2025 Act with the settled position under the Income-tax Act, 1961
- Reduces scope for litigation based on technical interpretation of “work”
The amendment clarifies coverage, rather than introducing a new charging provision.
What the Amendment Does Not Do
- ❌ It does not introduce new TDS rates or thresholds
- ❌ It does not create new categories of income
- ❌ It does not expand Chapter XIX-B beyond its existing structure
The amendment strengthens interpretational certainty, not tax incidence.
Effective Date
✔ Effective from 1 April 2026. Applicable to tax year 2026-27 and subsequent tax years.
Conclusion
Clause 78 of the Finance Bill, 2026 introduces important interpretational clarifications to section 402 of the Income-tax Act, 2025. By defining “authorised person” with reference to FEMA, 1999 and explicitly including supply of manpower within “work” for TDS purposes, the amendment ensures clarity, consistency, and smoother compliance under the new tax framework.
The change is best seen as legislative refinement, ensuring that TDS provisions operate as intended without altering their substantive reach.
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