60 TDS rules with 10 TDS rates make life difficult for taxpayers: Can Budget 2025 cut TDS rates to 3? Let's understand some key changes the Government should consider streamlining the TDS provisions in Budget 2025
Naveen Wadhwa
Vice-President, Taxmann
Dipen Mittal
CA, Taxmann.com
What do the Scientific Periodic Table and TDS and TCS rules under the Income Tax Act have in common? Both are remarkably complex frameworks, each containing essential building blocks. Understanding both requires specialised knowledge and careful application. The Periodic Table enumerates 118 chemical elements, while current TDS and TCS rules have over 60 sections and at least 10 different tax rates. This is despite certain rationalisation of TDS and TCS rates made in Budget 2024.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
Budget with ET
Rising Bharat may need to take center stage for India’s game-changing plans
Will Indian Railways accelerate to global standards with govt’s budgetary allocation?
Budget 2025 to catapult India's domestic manufacturing to a global scale
Tax Deducted at Source (TDS) provisions were introduced under the Income Tax Act to ensure a consistent revenue stream for the Government while capturing taxpayers' transactional footprints. However, constant amendments in TDS laws and the expanding scope of these rules over the years have led to significant compliance challenges, increased litigation, and confusion among taxpayers.
Also read | Income tax on Bitcoins: Will Budget 2025 hike tax on Bitcoin ETF to flat 30% from 12.5% currently?
The Union Budget 2025 presents a crucial opportunity to streamline and simplify TDS and TCS rules, enhancing clarity, reducing disputes, and fostering a more business-friendly environment. Below are some key changes the Government should consider streamlining the TDS provisions in Budget 2025.
Standardise TDS rates to minimise confusion
Multiple TDS rates across various transactions often confuse tax deductors. Introducing a streamlined structure with standardised rates can significantly reduce this complexity and enhance compliance.
Artificial Intelligence(AI)
Java Programming with ChatGPT: Learn using Generative AI
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
Basics of Generative AI: Unveiling Tomorrows Innovations
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
Generative AI for Dynamic Java Web Applications with ChatGPT
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
Mastering C++ Fundamentals with Generative AI: A Hands-On
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
Master in Python Language Quickly Using the ChatGPT Open AI
By - Metla Sudha Sekhar, IT Specialist and Developer
Marketing
Performance Marketing for eCommerce Brands
By - Zafer Mukeri, Founder- Inara Marketers
Office Productivity
Zero to Hero in Microsoft Excel: Complete Excel guide 2024
By - Metla Sudha Sekhar, IT Specialist and Developer
Finance
A2Z Of Money
By - elearnmarkets, Financial Education by StockEdge
Marketing
Modern Marketing Masterclass by Seth Godin
By - Seth Godin, Former dot com Business Executive and Best Selling Author
Astrology
Vastu Shastra Course
By - Sachenkumar Rai, Vastu Shashtri
Strategy
Succession Planning Masterclass
By - Nigel Penny, Global Strategy Advisor: NSP Strategy Facilitation Ltd.
Data Science
SQL for Data Science along with Data Analytics and Data Visualization
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
AI and Analytics based Business Strategy
By - Tanusree De, Managing Director- Accenture Technology Lead, Trustworthy AI Center of Excellence: ATCI
Web Development
A Comprehensive ASP.NET Core MVC 6 Project Guide for 2024
By - Metla Sudha Sekhar, IT Specialist and Developer
Marketing
Digital Marketing Masterclass by Pam Moore
By - Pam Moore, Digital Transformation and Social Media Expert
Artificial Intelligence(AI)
AI-Powered Python Mastery with Tabnine: Boost Your Coding Skills
By - Metla Sudha Sekhar, IT Specialist and Developer
Office Productivity
Mastering Microsoft Office: Word, Excel, PowerPoint, and 365
By - Metla Sudha Sekhar, IT Specialist and Developer
Marketing
Digital marketing - Wordpress Website Development
By - Shraddha Somani, Digital Marketing Trainer, Consultant, Strategiest and Subject Matter expert
Office Productivity
Mastering Google Sheets: Unleash the Power of Excel and Advance Analysis
By - Metla Sudha Sekhar, IT Specialist and Developer
Web Development
Mastering Full Stack Development: From Frontend to Backend Excellence
By - Metla Sudha Sekhar, IT Specialist and Developer
Finance
Financial Literacy i.e Lets Crack the Billionaire Code
By - CA Rahul Gupta, CA with 10+ years of experience and Accounting Educator
Data Science
SQL Server Bootcamp 2024: Transform from Beginner to Pro
By - Metla Sudha Sekhar, IT Specialist and Developer
To address this challenge, the Government should consider implementing a three-tier TDS rate structure:
Minimum TDS Rate of 1%: The TDS rate of 1% should apply to transactions aimed primarily at capturing transactional footprints of taxpayers, such as cash withdrawals from banks, property sales and high-value financial transactions.Maximum TDS Rate of 30%: The maximum TDS rate of 30% is suitable for income that is taxable on a gross basis, such as winnings from lotteries or online gaming, salary income, etc.Moderate TDS Rate of 10%: The TDS rate of 10% should apply to all other cases, such as passive income, TDS on interest from fixed deposit or income taxable on a net basis.Also read | Will Budget 2025 bring 50K NPS related deduction u/s 80CCD(1B) to the new tax regime?
Create a consolidated schedule of TDS Rates
Currently, TDS rules are scattered across various sections of the Income-tax Act. This results in confusion and makes it challenging for taxpayers to scout the correct section and applicable TDS rate for specific transactions.To address this issue, the Government should replace the multiple TDS rules with a single comprehensive law. Within this law, the Government should be empowered to introduce a consolidated schedule specifying TDS rates and thresholds for various transactions, providing a single reference point for deductors and taxpayers.
Additionally, through notifications, the Government should be empowered to prescribe new transactions along with corresponding TDS rates and thresholds. This flexibility would eliminate the need to amend the Income-tax Act each time a new transaction is brought under the TDS ambit.
Address Common Disputes in TDS rules
Litigation around TDS rules often arises due to ambiguities regarding GST components, out-of-pocket expenses, and year-end provisions. Currently, these issues are addressed primarily through circulars and case laws, leading to inconsistent interpretations and prolonged litigation. To resolve these ambiguities, the Government should explicitly address these concerns within the law itself.GST Component: GST is not considered part of the payee's income. TDS rules should explicitly exclude the GST component from the tax deduction requirement.Out-of-Pocket Expenses: TDS should not apply to out-of-pocket expenses if the payee provides a separate bill with supporting documents.Year-End Provisions: Since these provisions are based on approximations and lack identifiable payees or precise amounts, TDS should not apply to such provisions.
Eliminate TAN requirement for small businesses
Obtaining a Tax Deduction and Collection Account Number (TAN) is mandatory for furnishing TDS statements, even for individuals in certain laws, non-residents and small businesses with only a few TDS transactions. This requirement imposes an administrative burden on small taxpayers and non-residents, particularly those with limited or one-time TDS obligations.The Government should allow individuals, non-residents, and small businesses to file TDS statements using their PAN. It will simplify the process for those with minimal TDS transactions. TAN should be mandatory only for organisations operating in multiple states or with substantial and regular TDS obligations.
Faceless process for lower deduction certificates
The process for obtaining lower deduction certificates from the Income Tax Department under Section 195(2) and Section 197 is cumbersome and may require physical interaction with assessing officers. This often results in harassment, delays, and opportunities for corruption.Thus, to ensure transparency and efficiency, it is recommended that a faceless and fully online process be introduced for issuing lower deduction certificates.
The Income Tax Department should consider creating a dedicated process where taxpayers can apply, upload necessary documents, and track the status of applications. An AI-driven system can be developed to evaluate applications based on predefined criteria, such as past returns, existing certifications, and transaction nature. This will bring efficiency and eventually reduce the burden on CPC in first processing the TDS statement and subsequently paying the refund with interest.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
