Stricter compliance, CBDT circulars binding on taxpayers responsible for TDS/TCS
Feb 2, 2026
The finance bill proposes to give statutory backing to guidelines issued by the Central Board of Direct Taxes (CBDT), making them binding not just on income-tax authorities but also on taxpayers responsible for deducting or collecting tax.
So far, CBDT circulars and instructions were treated as binding only on the tax department and not on the taxpayers. Courts including the Supreme Court have consistently held that such circulars bind departmental authorities, that taxpayers are free to challenge the circulars and that courts are not bound by the CBDT’s interpretation of law as contained in the circulars.
Rahul Charkha, Partner, Economic Laws Practice, explains, “Relying on this framework, many deductors treated CBDT guidelines (relating to sections 194R and 194S), which elaborated scope, valuation and coverage of TDS on benefits or perquisites and virtual digital assets, as non-binding on them, when these guidelines appeared to extend beyond the statue. Thus, they either did not fully follow them, or restricted themselves to the bare text of the Income-tax Act.”
The proposed amendment seeks to change this. By expressly providing that CBDT guidelines will be binding on both tax authorities and persons liable to deduct or collect tax, the finance bill introduces a stricter statutory regime. CBDT guidelines will mandatorily govern the conduct of deductors and collectors—even in areas involving interpretational grey zones or specific transactional fact patterns.
Experts say the change significantly strengthens the legal status of CBDT guidelines. “This amendment is expected to reduce interpretational disputes and enhance certainty in matters relating to tax collection and recovery, particularly where administrative difficulties arise,” stated Charkha.
However, the flip side is that taxpayers responsible for deducting or collecting tax at source, will now have limited flexibility to deviate from CBDT guidelines. The penalties for misdemeanour are hefty – non deduction or lower deduction results in levy of penalties.
[The Times of India]
