Income-tax Act 2025: Section 396 Brings Clarity to TDS Cross-Utilization

Summary:  The supplied article traces the evolution of Tax Deducted at Source (TDS) from the Income-tax Act, 1961 to the Income-tax Act, 2025, focusing on cross-utilization of TDS. It describes the earlier system as fragmented across numerous sections, codes, forms and procedures, and states that uncertainty over combining TDS credits led to litigation and differing practices. It refers to CBDT Circular No. 3/1992, the digitisation of TDS through Form 26AS, and the consolidation of TDS provisions under Chapter XIX of the 2025 Act. The article states that sections 392 and 393 cover salary, resident, non-resident and other TDS provisions, while section 396 provides that sums deducted under Chapter XIX are deemed income received for computing income, subject to the stated exception for cash-withdrawal TDS under section 393(3), Sl. No. 5. It presents this framework as providing explicit cross-adjustment of TDS across covered provisions and serial numbers, including non-resident income. The article concludes that the 2025 Act’s sections 393 and 396, together with Chapter XIX, provide statutory clarity on TDS credit and cross-utilization.

THE STORY OF TDS CROSS-UTILIZATION

A Journey from 1961 to 2025

REFERENCE TABLE: COMPLETE TDS SERIAL NUMBERS

SECTION 393(1) – PAYMENTS TO RESIDENTS

Sl. No.	Nature of Income	Code	Rate	Threshold
1	Commission/Brokerage	1001-1002	Rates in force	₹20,000
2	Rent	1003-1004	2% or 10%	₹50,000/month
3	Property Transfer	1005	1% or 10%	₹50 lakh
4	Capital Market Income	1006-1009	10%	₹10,000+
5	Interest Income	1020-1022	Rates in force	₹10,000-₹1,00,000
6	Professional/Technical Fees	1023-1029	2% or 10%	₹50,000
7	Dividend	1010	10%	Nil
8	Other Cases	1030-1037	Various	Various

Old Section Equivalents (1961 Act):

Sl. 1 = Old Section 194B, 194D (Commission)

Sl. 2 = Old Section 194-I (Rent)

Sl. 3 = Old Section 194-LA (Property)

Sl. 4 = Old Section 194-LD (Capital market)

Sl. 5 = Old Section 194A (Interest)

Sl. 6 = Old Section 194J (Professional/Technical)

Sl. 7 = Old Section 194 (Dividend)

Sl. 8 = Old Section 194-O, 194-P (Other)

SECTION 393(2) – PAYMENTS TO NON-RESIDENTS

Sl. No.	Nature of Income	Code	Rate	DTAA
1	Sports/Entertainment	1039	20%	Treaty rate lower
2	Interest (Foreign Currency Bond)	1040	5%	Yes
3	Interest (Rupee Denominated Bond)	1041	5%	Yes
4	Interest (IFSC Bonds)	1042	4%-9%	Yes
5	Interest (Infrastructure Debt Fund)	1043	5%	Yes

Old Section Equivalents (1961 Act):

Sl. 1 = Old Section 194E (Sports/Entertainment) → KEY FOR THIS STORY

Sl. 2-5 = Old Section 194LC (Interest)

Sl. 6-9 = Old Section 194-LA, 194-LB (Investment Income)

Sl. 10-14 = Old Section 194-LD, 194-LE (Capital Market)

Sl. 17 = Old Section 195 (Any Other Income) → KEY FOR CROSS-ADJUSTMENT

SECTION 393(3) – PAYMENTS TO ANY PERSON

Sl. No.	Nature of Income	Code	Rate	Threshold
1	Lottery/Gambling Winnings	1052	Rates in force	₹10,000
2	Online Game Winnings	1053	Rates in force	As per Note 1
3	Horse Race Winnings	1054	Rates in force	₹10,000
4	Lottery Commission	1055	2%	₹20,000
5	Cash Withdrawal	1056	2%	₹1-3 crore
6	NPS Contribution	1057	10%	₹2,500
7	Partner Salary	1058	10%	₹20,000

Old Section Equivalents (1961 Act):

Sl. 1-4 = Old Section 194BA (Gaming/Lottery)

Sl. 5 = Old Section 194A (Cash withdrawal) → EXCLUDED FROM CROSS-ADJUSTMENT

Sl. 6 = Old Section 80CCA (NPS)

Sl. 7 = Old Section 194A (Partner payments)

PROLOGUE: A PROBLEM IN 1961

New Delhi, April 1, 1962

Dr. Rajendra Prasad, the President of India, had just signed the Income-tax Act 1961 into law. In a modest office in North Block, a middle-aged tax officer named Suresh Sharma sat with a cup of chai, pondering a fundamental problem that had haunted Indian tax administrators for a decade.

“We collect taxes, but nobody pays,”

Suresh muttered to himself.

The problem was simple but severe: India had approximately 500,000 taxpayers in 1961. But millions earned income—from salaries, investments, business, rent. The government’s challenge was not whether to tax, but how to collect.

Here’s what typically happened:

Sharma earned ₹10,000 salary (1961 rupees) and received it all in his hand. He wasn’t filing returns. Tax department found out only when they conducted raids. By then, the money was spent.

The Solution? Shift the burden to the payer.

“What if,” Suresh thought, “the employer withholds tax at the moment of paying salary (Section 192)? What if rent payers withhold tax before handing over the check (Section 194-I)? What if banks withhold tax on interest (Section 194A)?”

This was the birth of Tax Deducted at Source (TDS).

But nobody realized then that this simple mechanism would become so fragmented with 60+ sections it would take 64 years to fix.

CHAPTER 1: THE FRAGMENTATION BEGINS (1961-1975)

A City Office, 1963

Our protagonist arrives: Rajesh Sharma (a business owner).

Rajesh ran a small trading company in Mumbai. In 1963, he received income from three sources:

1. Salary from his employment as a director: ₹5,000/month → ₹60,000/year

TDS Section: 192 (Salary deduction at source)

Code in new Act: Section 392

Rate: 20-30% (as per slab)

Certificate: Form 16

2. Interest on his bank deposits: ₹2,000

TDS Section: 194A (Interest on bank deposits)

Code in new Act: Section 393(1) Table Sl. 5(ii), Code 1021

Rate: 10%

Certificate: Form 16-A

3. Professional fees for consulting work: ₹8,000

TDS Section: 194J (Professional fees)

Code in new Act: Section 393(1) Table Sl. 6(iii), Code 1027

Rate: 10%

Certificate: Form 16-A

Three different rules. Three different forms. Three different deductors.

Rajesh’s Confusion:

When Rajesh met his CA (Chartered Accountant) Mr. Desai in December 1963, he asked: “Mr. Desai, I have three TDS certificates (Form 16, Form 16-A x2). When I file my tax return, can I add them all up and claim credit?”

Mr. Desai’s answer was hesitant: “Well, technically… I think so? But I’m not entirely sure. The sections are different. Section 192 is for salary. Section 194A is for interest. Section 194J is for professional fees. How can you mix three different sections?”

This uncertainty rippled through India’s tax system. Some assessors allowed it. Some didn’t. Some allowed partial aggregation.

Litigations began immediately.

CHAPTER 2: THE LEGAL BATTLES (1975-1990)

A landmark case came before Justice Kripanathan:

Case Name: Commissioner of Wealth-Tax v. K. Gopinathan Nair (Kerala High Court); [1976] 103 ITR 23 (Ker.); Dated: 12/12/1975

The Facts: A taxpayer received:

• TDS under Section 192 (Salary): ₹5,000
• TDS under Section 194 (Dividend): ₹2,000
• Total TDS certificates: 2

The Question: Can both be combined?

The Argument (by tax department):

“Your Honor, each section is independent. Section 192 creates separate deduction rights for salary. Section 194 creates separate rights for dividend. Combining them violates the principle of separate statutory schemes.”

The Argument (by taxpayer):

“But Your Honor, TDS is just advance payment of tax. A rupee collected under Section 192 is identical to a rupee collected under Section 194. Why should we create artificial barriers?”

The Verdict:

“TDS is collected under separate sections (Section 192, Section 194, Section 194A, etc.), therefore, separate treatment applies. Combination is not statutorily permissible.”

Result: Combination NOT allowed.

Over the next 15 years, similar cases proliferated across India’s courts, creating complete chaos in the interpretation of TDS cross-adjustment rules. Taxpayers in Mumbai could do what taxpayers in Delhi couldn’t.

CHAPTER 3: THE TURNING POINT (1990-2000)

Board of Direct Taxes (CBDT) Headquarters, New Delhi, 1992

A senior CBDT official, Dr. Arun Patel

, decided enough was enough. He called a meeting with tax officers.

“Gentlemen,” Dr. Patel began, “we have sections scattered everywhere. We have a problem. Taxpayers don’t know whether they can combine TDS. Courts are contradicting each other. Our own field assessors are confused.”

He listed approximately 20+ different sections each with different TDS provisions.

An officer from Bangalore suggested: “Sir, if we read ‘sums deducted’ in Section 192 broadly, it should cover all TDS, not just Section 192.”

Dr. Patel nodded: “Let me issue a circular.”

CBDT Circular No. 3/1992 (Historic)

“The term ‘sums deducted’ under Section 192 should be interpreted broadly to include all TDS deducted from the assessee under any section of the Act, provided they fall within specific chapters. Taxpayers are entitled to aggregate all TDS from these chapters for purpose of claiming credit against their total tax liability.”

Overnight, the interpretation changed. But it created a new problem: “Which chapters can be cross-adjusted?” The circular wasn’t enough. What was needed was statutory clarity.

CHAPTER 4: THE DIGITAL REVOLUTION (2000-2015)

NSDL Office, Mumbai, 2001

NSDL (National Securities Depository Limited) was tasked with digitizing TDS.

Mr. Vikram Desai had an audacious idea: “What if we create a single digital form for each taxpayer showing ALL TDS from ALL deductors, automatically aggregated?”

He proposed consolidating all TDS codes into a unified system:

• Old Code 1 (Section 192, Salary) → New Code Section 392
• Old Code 2 (Section 194, Dividend) → New Code 1010
• Old Code 3 (Section 194A, Bank Interest) → New Code 1021
• Old Code 4 (Section 194E, Sportsmen) → New Code 1039

Form 26AS was born in 2002.

For the first time, taxpayers could log in and see their aggregated TDS showing all deductions from all sources in one consolidated statement.

CHAPTER 5: THE COMPLEXITY MULTIPLIES (2010-2020)

Income Tax Headquarters, New Delhi, 2015

By 2015, the original TDS sections had grown to 60+. A multinational company, Global Solutions Ltd, faced a nightmare with TDS obligations across seven different sections, each requiring different forms and compliance procedures.

Total TDS: ₹73.5 lakh

Total Forms to File: 7 different forms

Quarterly Filings: 4 × 7 = 28 filings/year

Compliance Risk: Extremely High

The Finance Head despaired: “We’re deducting correctly, but reporting is a nightmare. Seven different forms. Seven different structures.”

CHAPTER 6: THE TAXPAYER’S FRUSTRATION (2015-2020)

Coffee shop in Bangalore, June 2018

Meet Arjun, a consultant receiving income from multiple sources with total income of ₹83 lakh and total TDS of ₹12.66 lakh.

When Arjun filed his ITR in July 2018, he had to:

• Collect 4 different TDS certificates (3 Form 16-As and 1 Form 16)
• Manually cross-check each with Form 26AS
• Look for errors or duplicates
• Enter each in Schedule U separately

If even ONE entry was wrong, ITD would send a notice: “TDS mismatch in your return.”

Arjun’s Frustration: “I’m a consultant with a simple life. Why is my tax compliance so complex?”

CHAPTER 7: THE VISION FOR CHANGE (2020-2023)

Ministry of Finance, North Block, 2020

Finance Minister Ms. Sitharaman had a radical idea: “What if we don’t patch the Act anymore? What if we completely rewrite it?”

She appointed Dr. Sikandar Murthy, a renowned tax expert, with a mandate to consolidate all TDS provisions, unify reporting forms, organize provisions systematically, and make Chapter XIX the compass of TDS law.

CHAPTER 8: THE REVOLUTIONARY ACT (2025)

New Delhi, April 1, 2026 – First Day of Income Tax Act 2025

The new Act consolidated everything under Section 393 with unified TDS codes and clear serial numbers for different types of income payments, with explicit cross-adjustment provisions.

CHAPTER 9: THE MAGIC OF SECTION 396

New Delhi, April 1, 2026

When the new Act came into force, the most important provision was Section 396:

SECTION 396: TAX DEDUCTED IS INCOME RECEIVED

“The following sums shall be deemed as income received for the purposes of computing the income of an assessee—

“(a) sums deducted under THIS CHAPTER; and

(b) income-tax paid outside India…”

“THIS CHAPTER” = Chapter XIX (Sections 392-401)

Chapter XIX Coverage includes:

• Section 392: Salary TDS
• Section 393(1): Resident TDS (Sl. 1-8, Codes 1001-1037)
• Section 393(2): Non-Resident TDS (Sl. 1-17, Codes 1039-1051)
• Section 393(3): Any Person TDS (Sl. 1-7, Codes 1052-1058)
• Section 394: TCS
• Section 395: Lower deduction certificate
• Sections 396-401: Credit and procedural provisions

The Revolution:

For the first time, the law was EXPLICIT:

√ Section 392 TDS (Salary) +

√ Section 393(1) TDS (Resident Royalty, Interest, etc.) +

√ Section 393(2) TDS (Non-Resident Sports Sl. 1, General Sl. 17) +

√ Section 393(3) TDS (Winnings, Partner Salary, etc.)

= ALL COMBINABLE

× EXCEPTION: Section 393(3) Table Sl. 5 (Cash withdrawal, Code 1056) is explicitly excluded in Section 396 proviso.

CHAPTER 10: ARJUN’S RELIEF (April 2026)

Mumbai, First Salary Under New Act

Arjun received his first salary under the new Act. His employer mentioned: “Don’t worry about TDS anymore. Under new Section 393, all your TDS will be automatically aggregated. When you file ITR, it’ll all be in Form 26AS.”

Arjun felt immediate relief. Under the new system, Form 26AS automatically aggregates all TDS from all sources showing the complete picture in one consolidated statement. No manual aggregation. No manual cross-checks. No TDS mismatch notices.

Arjun’s thought: “Finally! One form. One number. One clear rule.”

CHAPTER 11: CHRIS ANDERSON’S CLARITY (2026)

Non-Resident Cricketer’s Story

Meet Chris Anderson, an American cricket player earning in India in FY 2026-27:

1. IPL Cricket Income (Section 393(2) Sl. 1): ₹10 crore → TDS ₹2 crore

2. Consulting Fees (Section 393(2) Sl. 17): ₹2 crore → TDS ₹40 lakh

The Old Question (Before 2025):

“Can TDS under different serial numbers (Sl. 1 and Sl. 17) of the same section (393(2)) be combined?”

The Old Answer: Murky. Litigious. Unpredictable.

The New Answer (After 2025): CRYSTAL CLEAR.

Both Sl. 1 and Sl. 17 fall under Section 393(2), are part of Chapter XIX, and Section 396 explicitly covers all TDS under this Chapter. Therefore: YES, THEY CAN BE COMBINED with automatic cross-adjustment.

CHAPTER 12: THE POWER OF CHAPTER XIX

Tax Training Institute, New Delhi, 2026

A trainer explains to new tax officers: “Here’s the key to understanding modern TDS: Focus on Chapter XIX (Sections 392-401), not individual sections. Chapter XIX is the umbrella covering all TDS provisions.”

The trainer emphasized: “Section 396 explicitly says: ‘sums deducted UNDER THIS CHAPTER’ are creditable. Therefore, ALL TDS under Chapter XIX (Salary, Resident, Non-Resident, Any Person) equals ALL CREDITABLE TOGETHER, with the exception of cash withdrawal TDS.”

This ends 64 years of litigation.”

CHAPTER 13: MYTHS EXPOSED

Online Webinar, July 2026

Tax Expert Dr. Rao is busting myths:

Myth 1: Different Payers Mean Different TDS Pools

FALSE – TDS from different payers but same assessee and PAN can be combined. Section 396 refers to the ASSESSEE, not the payer.

Myth 2: Excess TDS from Code 1027 Cannot Offset Tax Due on Code 1021

FALSE – TDS is global credit against total tax. Excess TDS from one code WILL offset tax due on another code under the same section.

Myth 3: Non-Resident Sports (Sl. 1, Code 1039) Cannot Cross-Adjust with General Non-Resident Income (Sl. 17, Code 1039)

COMPLETELY FALSE – Both Sl. 1 and Sl. 17 are under Section 393(2). Section 396 covers ALL TDS under Chapter XIX. Therefore: YES, they cross-adjust without any doubt.

CHAPTER 14: TRANSFORMATION COMPLETE

Parliament of India, 31st March 2026

The last day of the old Income-tax Act 1961.

That evening, tax officers across India received a message: “Effective 1st April 2026, the Income-tax Act 2025 becomes operational. All TDS provisions are consolidated under Section 393 (Codes 392, 1001-1058). All TDS credit is governed by Section 396. Chapter XIX is the compass. Taxpayers deserve clarity. The Act provides it.”

EPILOGUE: SURESH’S VINDICATION

60+ Years Later, 2026

A Journalist Interviews Suresh Sharma (Original Architect, Now 94), 2026

Journalist: “Sir, when you drafted the 1961 Act with all these TDS sections, did you anticipate they would create such confusion?”

Suresh: “No, I assumed common sense would prevail. A rupee is a rupee. Tax is tax. Whether collected under Section 192 or Section 194-I or Section 194J, it’s the same thing. But law isn’t always common sense.”

Journalist: “What do you think of Section 396 in the 2025 Act?”

Suresh: “Perfect. Crystal clear. It says explicitly: ‘sums deducted under this Chapter’ are creditable. Chapter XIX includes ALL TDS. No ambiguity. No litigation. Pure logic.”

Journalist: “Worth the 64-year wait?”

Suresh: “Every great change takes time. But yes, absolutely worth it. Because now millions of taxpayers won’t have to wonder if they can combine their TDS. They’ll know. Section 396 tells them. Chapter XIX tells them. The law tells them.”

KEY TAKEAWAY TABLE

Why Cross-Utilization Works (2025 Act)

Concept	Old Act (1961)	New Act (2025)
Number of TDS Sections	40+ scattered	Unified in Section 393
Codes	Different codes	Unified codes (1001-1058)
Reporting Forms	Multiple (16, 16A, 26Q, 27Q, 27EQ)	Unified (140, 144)
Cross-Adjustment	Ambiguous, litigious	Explicit in Section 396
Chapter XIX Coverage	Disputed	Clear: Sec 392-401
Statutory Clarity	Case-dependent	Section 396 explicit
Taxpayer Experience	Complex	Simple

COMPLETE TDS CODE REFERENCE (2025 ACT)

All Codes Used in This Story:

SALARY TDS:

Section 392 → Old Section 192

RESIDENT TDS (Section 393(1)):

Codes 1001-1002 (Sl. 1): Commission/Brokerage

Codes 1003-1004 (Sl. 2): Rent

Code 1005 (Sl. 3): Property Transfer

Codes 1006-1009 (Sl. 4): Capital Market

Codes 1020-1022 (Sl. 5): Interest ← Bank Interest (Code 1021) in story

Codes 1023-1029 (Sl. 6): Professional/Technical ← Code 1027 (Royalty) in story

Code 1010 (Sl. 7): Dividend

Codes 1030-1037 (Sl. 8): Other Cases

NON-RESIDENT TDS (Section 393(2)):

Code 1039 (Sl. 1): Sports/Entertainment ← Cricket in story

Codes 1040-1043 (Sl. 2-5): Interest on Foreign Borrowing

Codes 1044-1047 (Sl. 6-9): Distributed Income/Investment

Codes 1048-1051 (Sl. 10-14): Capital Market/FII

Code 1039 (Sl. 17): Any Other Income ← Consulting in story

ANY PERSON TDS (Section 393(3)):

Codes 1052-1055 (Sl. 1-4): Gaming/Lottery Winnings

Code 1056 (Sl. 5): Cash Withdrawal  EXCLUDED from Section 396

Code 1057 (Sl. 6): NPS Contribution

Code 1058 (Sl. 7): Partner Salary

FINAL MESSAGE

From 1961 to 2025, TDS evolved:

• Started as fragmented 40+ sections (Confusion)
• Developed litigation across 60+ judgments (Chaos)
• Achieved digital aggregation via Form 26AS (Progress)
• Finally received statutory clarity via Section 396 (Resolution)

Section 396 + Section 393 + Chapter XIX = The Complete Solution