Easwar panel wants higher threshold & lower rates for TDS on bank deposits

Ahead of the Union Budget for 2016-17, a committee asked to make recommendations on simplifying the current income tax (I-T) law has recommended a higher threshold for deduction of tax at source and cuts in rates, plus measures to reduce litigation.

The 10-member panel is chaired by R V Easwar, a former high court judge. Appointed in late October 2015, its first report, 78 pages, was given on Monday. This is a draft report, issued to elicit feedback before finalisation. It focuses on simpler issues that it feels need immediate attention. Comments have been invited till the coming Saturday, after which the committee will finalise the first part of the report by January 31.
 

The Union Budget for 2016-17 is to be tabled on February 29.

The report says nearly 65 per cent of personal I-T collection in India was through tax deducted at source (TDS) and the provisions in this regard needed to be made less ‘tedious’, which they've remained over the years.

It recommends ‘enhancement and rationalisation’ of the threshold limits. TDS rates for individuals and Hindu Undivided Families (HUFs) should be reduced to five per cent from the present 10 per cent.

TDS, it noted, is presently applicable on “such tiny annual limits” of Rs 2,500 in the case of payment of interest on securities and on interest on National Savings Scheme accounts, Rs .5,000 for payment of interest on private deposits and commission or brokerage, and Rs 10,000 for payment of bank interest. “…one can imagine the enormous work that goes into compliance with these provisions…considering the importance of the long overdue revision of these puny limits, the committee has recommended suitable hikes”, it said.

This first draft report contains 27 suggestions for amendments in the I-T Act and eight for reform through administrative instructions.

For interest on securities, it proposes raising the threshold for TDS to Rs 15,000 from the present Rs 2,500 annually and halving the tax rate to five per cent. For other interest earnings, the limit to be raised to Rs 15,000 from the current Rs 10,000 for bank deposits and Rs 5,000 for others.

Also, raising the TDS limit for payment to contractors from the current Rs 30,000 for a single transaction and Rs 75,000 annually to Rs 1 lakh annually. The TDS limit on rent income to be raised from Rs 1.8 lakh annually to Rs 2.4 lakh. The threshold for fees in return for professional or technical services is recommended to be raised to Rs 50,000 from the present Rs 30,000 but the TDS rate to be retained at 10 per cent.

Also, deferring of the Income Computation and Disclosure Standards (ICDS), to provide more time to taxpayers grappling with regulatory changes such as the Companies Act 2013, Indian Accounting Standards and the proposed Goods and Services Tax.

“Some of the substantive recommendations are very pragmatic. Notably, the recommendation to defer ICDS is laudable, as is that on simplifying the classification between capital gains and business income,” said Ketan Dalal, senior tax partner, PwC India.

The committee was given a one-year term, to study and identify the provisions and phrases in the I-T Act which have given rise to litigation on account of interpretative differences, impacting the ease of doing business. It has been asked to suggest alternatives or modifications, to ensure predictability in tax laws, without substantially impacting the tax base or revenue collection.

Among measures to reduce tax litigation, that rule amendments be made that in cases where shares are shown as capital assets and held for a year or less, the assessing officer will not re-characterise the surplus on sale as business income, if the value of surplus is below Rs 5 lakh. It suggests an increase in the annual turnover limit for tax audit applicability from Rs 1 crore to Rs 2 crore for a business and Rs 1 crore for professionals.

It also proposes that dividend received after dividend distribution tax, as also share income from a firm after being taxed in the latter's hands, not be treated as exempt income. Expenditure disallowed under Section 14A shall not exceed the amount claimed as exempt.

“These suggestions will help to reduce litigation on some of the common controversies…It will be interesting to see whether these suggestions are accepted by the government when the Finance Bill is announced,” said Rajesh H Gandhi, partner, Deloitte Haskins & Sells LLP.

KPMG partner Vikas Vasal said the recommendations seek to address many of the ground-level issues faced by taxpayers. “Some of the procedural reforms on TDS and e-governance initiatives in the report, if implemented, will help improve the business sentiment in the country,” he said.

“The suggestion relating to amendment in Section 206AA to provide that non-resident taxpayers be allowed to furnish their TIN in case they do not possess a PAN will be a major relief for them,” said Rakesh Nangia, managing partner, Nangia & Co.

---

WINDS OF CHANGE

• The 10-member panel is chaired by R V Easwar, a former high court judge
   
• The draft report given on Monday focuses on issues that need immediate attention
   
• Comments have been invited till coming Saturday, after which the first part of the report will be finalised
   
• The report says nearly 65% of personal I-T collection was through TDS and the provisions in this regard needed to be made less ‘tedious’
   
• It contains 27 suggestions for amendments in the I-T Act and eight for reform through administrative instructions
   
• TDS rates for individuals and HUFs should be reduced to 5% from the present 10%
  

 

For interest on securities, it proposes raising the threshold for TDS to Rs 15,000 from the present Rs 2,500 annually
 

For other interest earnings, the limit to be raised to Rs 15,000 from Rs 10,000 for bank deposits