Supreme Court Dismisses Review Pleas Against TDS on Salaries of Nuns and Priests

New Delhi, May 2, 2025 – The Supreme Court of India on Thursday dismissed review petitions challenging its previous order that upheld the applicability of Tax Deducted at Source (TDS) on salaries paid to Christian nuns and priests working as teachers in government-aided institutions. A bench comprising Chief Justice Sanjiv Khanna, Justice JB Pardiwala, and Justice Manoj Misra delivered the ruling, citing no valid grounds for review. The petitions were filed by Catholic religious institutions affected by the decision.

The bench stated: “After reviewing the petitions and the enclosed documents, we find no valid reason to review the order dated 07.11.2024.” Accordingly, the Court dismissed the review petitions. The bench also noted that one of the review petitions it dismissed was marked as withdrawn. It also denied a request for oral hearings in open court.

In its earlier deliberations in November 2024, the Supreme Court—then led by Chief Justice DY Chandrachud—upheld the principle of uniform tax application. The bench asserted that all salaried individuals are subject to taxation, regardless of religious identity or post-salary disposition. CJI Chandrachud had remarked that employment income must be taxed at the source, even if the recipient donates it subsequently.

Senior Advocate Arvind Datar, representing some appellants, argued that nuns and priests effectively have no taxable income since they do not retain salaries for personal use and claimed a civil death under Canon Law.

“As per the definition of the Income Tax Act, an individual is a person who is capable of receiving money. Priests and nuns working in Church-run educational institutions are not. They are people who have virtually undergone civil death and are not capable of earning a taxable income," Datar said. He further added that not every receipt is taxable, and for a receipt to be taxable, it should be in the form of an income, but presently, the nuns/priests were not retaining the salaries for their own use. He also referred to a CBDT circular that purportedly exempts clergy from TDS.

The Court, however, dismissed these arguments, reinforcing that the religious character of an individual does not alter statutory tax obligations.

This latest decision by the Supreme Court reaffirms its earlier endorsement of the Madras High Court’s ruling that income accrued to nuns and priests in their individual capacity is subject to TDS, regardless of their subsequent surrender of earnings to religious institutions. The High Court had overturned a single-judge bench ruling that exempted such salaries from TDS on the basis of the clergy's vow of poverty and the canonical concept of ‘civil death’. The court emphasized that income earned individually cannot be exempt from tax merely because it is later surrendered to religious institutions. Citing the Kerala High Court’s precedent in Fr. Sabu P Thomas v. Union of India, the Division Bench ruled that the subsequent surrender of salaries does not constitute a legal diversion of income by overriding title at the source.

Source: LiveLaw.in