In its pre-Budget memorandum submitted to the Finance Ministry, ASSOCHAM has proposed the rationalisation of TDS rates by suggesting a uniform rate of either 1% or 2% for all payments made to resident assessees. This proposal aims to reduce disputes caused by differing interpretations and enhance tax compliance.
The memorandum also called for the decriminalisation of certain TDS defaults, emphasizing the severity of current provisions. It highlighted that Section 276 B imposes a penalty of imprisonment for up to 7 years for individuals who do not adhere to specific TDS regulations.
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The incorporation of adjustments to permit taxpayers to include supplementary claims during assessment processes is advisable. Additionally, taxpayers ought to be afforded the ability to retract claims stated in their returns amid the assessment stage, thereby securing exemption from penalties.
Enhancing tax adherence plays a crucial role in enhancing the general business atmosphere. The pre-Budget memorandum by ASSOCHAM puts forth various precise proposals for the administration to streamline TDS rates and establish a more adaptable mechanism for submitting tax returns.
“Criminal charges should be reserved for instances where taxpayers have unjustly benefited at the Government’s expense, rather than for cases where payments or benefits are provided without the application of TDS. We anticipate that tax reforms focused on minimizing litigation and enhancing compliance will be included in the Union Budget for 2025-26. Corporate India is offering constructive suggestions in this context. Additionally, India Inc is seeking measures that would stimulate both investment and consumption,” said ASSOCHAM President Sanjay Nayar.
According to the Income Tax Act, there are 37 different types of payments made to residents that are subject to varying TDS rates ranging from 0.1% to 30%. This variation often leads to disputes concerning how these payments should be categorized and interpreted, resulting in cash flows being blocked for various industries.
The Federation of Indian Chambers of Commerce and Industry (FICCI) and the Confederation of Indian Industry (CII) urged the finance ministry to streamline tax deducted at source (TDS) rates to alleviate the tax compliance burden on taxpayers and reduce the likelihood of legal disputes. During the submission of pre-Budget proposals to Revenue Secretary Sanjay Malhotra, both organizations emphasized the importance of establishing a clear plan for simplifying TDS rates.
In its recommendation list, FICCI added that the government should streamline the TDS payment structure by implementing three main rate categories: TDS on salary at the slab rate, TDS on lotteries/online games at the maximum marginal rate, and two standard rates for TDS across different categories.
The CII proposed a system with two to three payment categories and a small list of exempted items from TDS. It highlighted the ease of tax collection for the government through Form26AS/AIS, which captures all TDS information of deductees.
The CII suggested applying normal slab rates for TDS on income of the salaried class, while setting TDS rates for lotteries and horse race winnings at 30 per cent. The organization recommended maintaining current TDS rates for sections with rates below 5 per cent, and applying a 2-4 per cent tax rate for all other payments. Additionally, the CII recommended exempting payments to senior citizens and registered charities from TDS obligations.
