Rationalising TDS provisions govt's top priority

EASE OF COMPLIANCES and simplifying tax provisions have been top of mind for the current government, while remaining focused on expanding the tax base and creating a more equitable tax framework.

- Mi NAVEEN AGGARWAL

One would agree that in the context of tax deduction at source (TDS), this is clearly a difficult balance to strike. Resultantly, a simplified TDS regime has been a long-standing item in the industry's wishlist.

The Indian income-tax statute perhaps has one of the most elaborate TDS frameworks. The TDS coverage has increased to cover a broad gamut of transactions with varying rates, thresholds for applicability and type of transactions. For instance, since 2020, the government introduced new TDS / TCS provisions for 8 different nature of transactions. The digital revolution has powered emergence of new business models, prompting the government to come up with new rules, often difficult to implement.

The fundamental question is whether we need such an elaborate regime of complex provisions? The government views TDS not just as a source to collect taxes upfront but as a tracking mechanism on transactions which are at risk of being under-reported or misreported. While simplification is the avowed objective of any robust tax regime, it requires a fine balancing act to reduce taxpayers' burden as well as meet the objectives of the government. Nonetheless, in my view below could be some of the starting points.