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Finance Bill 2026 - Clause 72: Compassion in Compensation, Clarity in Compliance and Technology in Taxation
CA Raj Jaggi
When Tax Law Learns to Reflect Human Realities
Tax laws are generally regarded as instruments primarily designed to collect government revenue and ensure compliance. However, modern tax legislation increasingly reflects broader administrative and social objectives. It seeks to balance strict financial discipline with a humane, technology-driven compliance environment. The Finance Bill, 2026, proposes several important improvements in the Tax Deduction at Source (TDS) system through amendments to Section 393 of the newly enacted Income-tax Act, 2025. These amendments are particularly significant because they form part of the transition from the existing Income-tax Act, 1961, to the Income-tax Act, 2025.
During the presentation of the Finance Bill, the Hon’ble Finance Minister announced that the Income-tax Act, 2025, will come into force from 1 April 2026. The new law aims to modernise the statutory framework by simplifying legislative drafting, rationalising compliance requirements, and improving interpretive clarity. As part of this transition, Clause 72 introduces several reforms relating to technical rationalisation, institutional parity, humanitarian relief, and the integration of digital compliance. Together, these reforms reflect a conscious legislative effort to promote fairness, administrative efficiency, and alignment with the changing financial and technological environment within the TDS regime.
Having understood the broader legislative philosophy behind the transition to the Income-tax Act, 2025, it is now appropriate to carefully examine the individual amendments introduced through Clause 72. Each amendment represents a thoughtful response to practical compliance realities, beginning with the first proposed change to remove long-standing interpretive ambiguities.
I. Technical Rationalisation – Correction of Cross-Referencing under Table Provisions with effect from 1 April 2026
A careful reading of the amendment indicates that the legislature intended to correct an internal referencing inconsistency within the tabular framework of Section 393. Sub-clause (a) of Clause 72 reads as follows:
“In section 393 of the Income-tax Act, in sub-section (1), in the Table, in serial number (3), in Note 3, for the words, figures and brackets ‘serial number 3(iii)’, the words, figures and brackets ‘serial number 3(i)’ shall be substituted.”
Since Section 393 relies on structured tables that identify deductors, recipients, and exemption conditions, accurate cross-referencing is crucial for compliance. Even minor drafting inconsistencies can lead to different interpretations by auditors, resulting in unintended tax deductions or denial of legitimate exemptions. This can lead to unnecessary litigation and administrative issues. The proposed amendment improves statutory accuracy and ensures that exemption eligibility is interpreted strictly in line with legislative intent, thereby enhancing the reliability of compliance decisions.
While the amendment may appear technical on paper, its real value lies in its ability to simplify day-to-day compliance. The practical relevance of this change is best understood through the following simple real-life illustration:
Illustration 1:
Harish is a chartered accountant working with a financial services firm. While applying the TDS provisions for a client, he noticed that different sections of the law referenced exemptions inconsistently. Due to this lack of clarity, Harish was unsure whether a particular exemption was available. To avoid future scrutiny or litigation, he chose a conservative approach and deducted tax, even though the exemption might have applied. This resulted in excess tax deductions and later refund claims for the client, creating unnecessary cash-flow constraints and additional compliance efforts.
The proposed amendment addresses such drafting inconsistencies by clearly aligning the statutory references. As a result, professionals like Harish can apply the law with confidence, compliance risks are reduced, and taxpayers benefit from greater certainty and trust in the legal framework.
II. Institutional Parity – Inclusion of Co-operative Banking Institutions with effect from 1 April 2026
The legislature has simultaneously sought to extend institutional parity in the banking sector by recognising the growing importance of co-operative banks in India’s financial ecosystem. Sub-clause (b)(i) of Clause 72 provides:
“…in sub-section (4) … after the words ‘banking company’, the words ‘or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank)’ shall be inserted.”
A close reading of this provision shows that the law now clearly recognises that India’s financial system is not limited to commercial banks alone. It also includes a large network of co-operative banks, which play an important role, especially in rural and semi-urban areas. Earlier, the wording of the law unintentionally treated commercial banks and co-operative banks differently under the TDS exemption provisions. This led to confusion in interpretation and uncertainty in compliance for both taxpayers and professionals.
By specifically including co-operative banks and co-operative land mortgage banks, the proposed amendment brings uniformity across all banking channels. It ensures that the exemption provisions apply uniformly across bank types. Tax reforms achieve their true purpose only when they simplify the lives of ordinary taxpayers. The real-life style illustration below explains how this amendment removes an existing imbalance in TDS treatment.
Illustration 2:
Gurmeet Singh is an agriculturist who maintains fixed deposits with a co-operative land mortgage bank. Earlier, he observed that higher TDS was deducted on interest earned on deposits with the co-operative bank than on similar deposits held with commercial banks. This created confusion and financial inconvenience for him.
To resolve the mismatch, Gurmeet Singh had to seek professional assistance with reconciliation and the filing of refund claims. The proposed amendment removes this disparity by extending uniform TDS exemption treatment to co-operative banks and co-operative land mortgage banks. As a result, depositors like Gurmeet Singh will now receive fair and consistent tax treatment. This proposed change is expected to strengthen public trust in co-operative banking institutions and support the Government’s larger goal of promoting financial inclusion and institutional equality.
III. Humanitarian Reform – Removal of TDS on Interest Awarded by Motor Accidents Claims Tribunal “with effect from 1 April 2026
One of the most significant components of Clause 72 is its humanitarian reform concerning accident compensation. Sub-clause (b)(ii) of Clause 72 reads as follows:
“(iv) on the compensation amount awarded by a Motor Accidents Claims Tribunal—
(A) to an individual; or
(B) to a person other than an individual, where the aggregate interest on such compensation does not exceed ₹50,000 during the tax year.”
A cautious reading of the proposed substituted provision reveals that TDS is removed for interest awarded by the Motor Accidents Claims Tribunal when the recipient is an individual, while retaining the monetary threshold for non-individual recipients. Compensation awarded in motor accident cases is inherently compensatory and restorative in character rather than income arising from commercial activity. Deduction of tax at source from such compensation often results in financial hardship for victims and their families, who require immediate financial support for medical treatment, rehabilitation and livelihood sustenance.
Judicial authorities have consistently emphasised the restitutionary character of accident compensation. The Supreme Court in CIT v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC) recognised that compensation and its interest component awarded under statutory compensation schemes represent restitution for loss suffered by claimants. In Rama Bai v. CIT (1990) 181 ITR 400 (SC), the Court examined accrual principles governing the computation of interest on compensation, while acknowledging the practical difficulties faced by recipients in ascertaining such income. High Courts have reinforced this judicial approach, including the Punjab and Haryana High Court in New India Assurance Co. Ltd. v. Sudesh Chawla (2010) 328 ITR 356 (P&H), the Allahabad High Court in CIT v. Oriental Insurance Co. Ltd. (2012) 347 ITR 421 (All.), and the Delhi High Court in National Insurance Co. Ltd. v. CIT (2015) 376 ITR 355 (Del.), all of which emphasised that MACT compensation interest possesses a compensatory character and should not aggravate financial distress through procedural tax deduction mechanisms. Beyond numbers and compliance, tax law also affects human lives at vulnerable moments. The practical relevance of this amendment becomes clear through the following simple illustration.
Illustration 3:
Rajesh is a school teacher who suffered permanent disability due to a serious road accident. After a long legal battle, the court awarded him compensation, including interest, to support his medical needs and his family’s future. Earlier, TDS was deducted from the interest portion of this compensation. This reduced the immediate funds available to Rajesh and his family at a time when they needed financial support the most. They were also required to follow refund procedures, which added to their stress during an already difficult period.
The proposed amendment removes this hardship by ensuring that compensation is received without such deductions. This allows timely access to funds, reduces unnecessary compliance burdens, and helps ensure that compensation serves its true purpose of providing relief rather than creating further administrative burden.
The above interpretation is supported by the Memorandum to the Finance Bill, 2026, which states that the amendment seeks to provide relief to individuals and alleviate hardship caused by accidents and clarifies that it shall take effect from 1 April 2026.
IV. Digital Compliance Reform – Electronic Furnishing of Declarations through Depositories “with effect from 1 April 2027
With the rapid growth of electronic securities and demat-based investments, traditional declaration mechanisms have become increasingly cumbersome. Recognising this evolving financial landscape, the following proposed amendment introduces a technology-driven channel for furnishing self-declarations, thereby enhancing compliance convenience and administrative efficiency:
“(c) sub-section (6) shall be renumbered as sub-section (6)(a) thereof and after sub-section (6)(a) as so renumbered, the following clause shall be inserted with effect from the 1st April, 2027, namely: ––
(b) The declaration referred in clause (a) may also be furnished electronically to a depository, as defined in section 2(e) of the Depositories Act, 1996, where––
(i) the income is from units, interest on securities or dividends, as the case may be, as referred to in section 393(1) [Table: 4(i), 5(i) or 7];
(ii) such units or securities are held with such depository; and
(iii) such securities are listed on a recognised stock exchange,
in accordance with such procedure and manner, as may be prescribed.”
Earlier, declarations for non-deduction or lower deduction of TDS were generally required to be submitted directly to the deductor, often in physical or semi-digital form. This process involved multiple parties, repetitive documentation, and the risk of delays or errors.
This proposed amendment brings a practical digital improvement. It allows eligible declarations to be submitted electronically via a recognised depository rather than directly to the deductor. In simple terms, if an investor is earning income such as interest on securities, dividends, or income from units, and those securities are already held in demat form, the declaration can now be routed through the depository itself.
However, the facility is not open-ended. It applies only where the securities or units are held with a depository and are listed on a recognised stock exchange. This ensures that the benefit is available primarily in organised, traceable, and well-regulated investment environments, thereby reducing the risk of misuse.
By recognising depositories as an authorised electronic channel, the proposed amendment reduces paperwork, avoids duplication, and improves accuracy in TDS compliance. It also helps deductors, who can rely on system-driven confirmations rather than manually verifying declarations received from multiple investors.
Overall, this proposed change reflects the Government’s move towards digital-first tax compliance by aligning TDS procedures with India’s well-established dematerialised securities ecosystem. While the proposed amendment may appear procedural, its real strength lies in reducing redundant documentation and improving investor convenience. The practical impact of this reform can be better understood through the following simple illustration.
Illustration 4:
Amit is a salaried employee who has invested in listed bonds and mutual fund units, all held in demat form through a depository. He is eligible to submit a declaration for non-deduction of TDS on the interest and dividend income earned from these investments.
Under the existing framework, Amit must submit separate physical or emailed declarations to each issuing company or financial institution. Delays or mismatches often resulted in unnecessary TDS deductions, followed by refund claims.
Under the proposed amendment, Amit can submit his declaration electronically through the depository where his securities are held. The depository will process the declaration in accordance with the prescribed system, ensuring correct TDS treatment at source. This saves time, avoids repeated follow-ups, and ensures smoother compliance for both Amit and the deductor.
The Memorandum to the Finance Bill, 2026, while explaining this amendment, states as follows:
Section 393(6) of the Act provides that tax is not to be deducted at source in certain cases. As per the provisions of the said section, a written declaration is to be filed by the assessee for no deduction of tax at source to the person responsible for paying any income or sum of the nature as specified in Column C of the Table in section 393(6). The said income includes dividends, interest from securities and income from units of a mutual fund.
2. Investors earning income from multiple units and securities face a cumbersome process, needing to submit separate forms to all entities thus leading to enhanced compliance. In order to reduce compliance burden of such investors, it is proposed to allow filing of the declaration to the depository which in turn shall provide such declaration to the person responsible for paying such income.
3. Further, in order to ease the compliance for the person responsible for paying income or sum of the nature as specified in Column C of the Table in section 393(6), the time limit for furnishing the declaration received by them to the prescribed Income tax authority has been changed from monthly basis to quarterly basis.
4. However, only those investors who have held the securities or units in the depository and where the securities are listed in registered stock exchange in India are proposed to furnish the declaration to the depository. 5. The amendment will take effect from the 1st day of April, 2027.
[Clause 72]
V. Strengthening Reporting Discipline – Quarterly Declaration Submission with effect from 1 April 2027
Clause 72 further strengthens reporting discipline within the TDS framework. Sub-clause (d) of Clause 72 reads as follows:
(d) for sub-section (7), the following sub-section shall be substituted, namely: ––
“The person responsible for paying any income of the nature referred to in sub-section (6) shall deliver or cause to be delivered, such declaration referred therein, received from the person, as specified in column (B) of the Table in sub-section (6) or the depository, to the prescribed income-tax authority, on or before the seventh day of the month immediately following the end of each quarter in which declaration is furnished to him as per sub-section (6).”.
A careful reading of the proposed substituted subsection reveals the legislature's clear intent. The law proposes to introduce a structured quarterly compliance requirement. This shall enable the tax authorities to exercise more effective oversight. It also ensures timely monitoring of cases in which tax is not deducted in accordance with declarations.
Further, the proposed amendment promotes accountability among deductors. It improves transparency in the compliance system. Most importantly, it reduces reconciliation disputes that previously arose from the delayed or irregular submission of declarations.
The practical importance of this change is particularly evident in large institutional settings.
Illustration 5:
Anita is the head of compliance at a large financial institution that manages thousands of investor accounts. In earlier years, declarations for non-deduction of tax were submitted at irregular intervals. Some were filed late, while others were missed entirely. As a result, reconciling the tax deducted, the tax reported, and the declarations received became a recurring challenge. Year-end reviews often revealed gaps, leading to avoidable explanations and compliance stress.
Following the substitution of the proposed Section 393(7), which introduces mandatory quarterly declarations, Anita’s compliance process shall become far more structured. Each quarter shall have a defined reporting timeline. Declarations shall be collected, reviewed, and filed systematically within the prescribed period. This shall enable real-time monitoring, strengthen internal accountability, and significantly reduce reconciliation disputes. The institution shall be better aligned with the legislative intent, as clarified in the Memorandum to the Finance Bill, 2026, which mandates the submission of declarations by the person responsible for paying income within the specified quarterly timeframe.
Having examined the amendments in detail along with practical illustrations, a concise recap of the proposed changes under Clause 72 is presented below for ease of reference.
Summary Table – Proposed Sub-section-wise Amendments in Section 393 under Clause 72
|
Sl. No. |
Provision amended |
Gist of Proposed Amendment |
Effective From |
|
1 |
Section 393(1) |
Expansion of Exemption Scope and Coverage Rationalisation |
1 April 2026 |
|
2 |
Section 393(2) |
Inclusion of Additional Institutional and Payment Categories |
1 April 2026 |
|
3 |
Section 393(3) |
Humanitarian Exemption for Compensation Payments |
1 April 2026 |
|
4 |
Section 393(6b) |
Structured Quarterly Declaration Compliance Framework |
1 April 2027 |
|
5 |
Section 393(7) |
Depository-Based Digital Declaration and Verification Mechanism |
1 April 2027 |
Conclusion – The Journey from Reading Law to Understanding Law
Clause 72 of the Finance Bill, 2026 reflects the evolving maturity of India’s tax framework. It shows that tax legislation is no longer confined to procedural compliance alone. It is gradually embracing compassion, clarity, and technological progress. As the Income-tax Act, 2025, prepares to take effect on 1 April 2026, reforms such as Clause 72 reinforce the belief that India’s taxation system is moving towards a balanced model—one that respects both statutory discipline and human realities.
The author firmly believes that knowledge, especially in taxation, is never an overnight achievement. It is a gradual journey built on consistent reading, careful interpretation, and patient reflection. Just as a river deepens its course through continuous flow, professional understanding grows through regular, deliberate learning. Accordingly, the entire article has been devoted to analysing only Clause 72. The intention has been to ensure that each proposed amendment is not merely read but properly understood through detailed, illustration-rich commentary. Such focused learning often proves far more meaningful than briefly touching multiple amendments without exploring their practical implications.
In professional life, real excellence does not arise from collecting large volumes of information, but from developing clarity and depth of understanding. Tax laws frequently change, but the discipline of learning them carefully remains timeless. Clause 72, therefore, is not merely a legislative amendment; it is also a reminder that strong professional competence is built through patience, persistence, and thoughtful study.
As professionals continue their journey in an ever-evolving tax landscape, the guiding principle may remain simple yet powerful: laws may change over time, but sincere efforts to understand them always lead to confidence, clarity, and professional excellence.
[Date: 17/02/2026]
(The views expressed in this article are strictly personal.)