Industry bodies urge Finance Ministry to ease TDS rate structure

Proposal seeks to lessen compliance burden on taxpayers and avoid litigation

With the Budget to be presented in February next year, the Federation of Indian Chambers of Commerce and Industry (Ficci) and Confederation of Indian Industry (CII) on Thursday asked the finance ministry to simplify rates of tax deducted at source (TDS) to ease compliance burden on taxpayers and avoid litigation.

 

While submitting pre-Budget recommendations to Revenue Secretary Sanjay Malhotra, both industry bodies said the finance ministry should lay down a road map for rationalising TDS rates.

 

Under the Income Tax Act (‘the Act’), there are 37 types of payment to residents where the TDS rates vary from 0.1 per cent to 30 per cent. This creates disputes related to categorisation and interpretation, and cash flows to industry getting blocked, said the chambers, adding, it caused the government to pay interest on refunds.

 

 

“The government has made a good start to the simplification process by reducing the TDS rates on several payments from 5 per cent to 2 per cent through Finance (No.2) Act 2024. Going forward, it is suggested that there be only three rate structures for TDS payments – TDS on salary at the slab rate, TDS on lotteries/online games etc at maximum marginal rate and two standard rates for TDS for different categories,” Ficci said in its submission.

 

The CII made a similar proposal advocating two to three categories of payment and a small negative list that will not be liable to TDS. It said since all TDS information was captured in Form26AS/AIS of the deductees, it was easier for the government to collect the tax balance from taxpayers.

 

The CII said while TDS for the salaried class could be in accordance with normal slab rates, for lotteries and horse race winnings, it could be 30 per cent. All existing TDS sections that provide for a TDS rate lower than 5 per cent should continue with the existing rates while all other payments should be taxed at 2-4 per cent. It said the exemption list should include payments to senior citizens and registered charities.

 

Ficci advocated introducing an independent dispute-resolution forum comprising experts.

 

“Time-bound resolution by an independent forum will build confidence among taxpayers who may come forth to settle matters instead of pursuing litigation in fear of penalty and prosecution. It will reduce prolonged litigation and also demands/refunds locked up due to such litigation,” it added.

 

PHDCCI, during its interaction with the revenue secretary, advocated abolishing security transaction tax.

 

In its recommendations on matters other than taxes, the CII urged the government to increase capex by 25 per cent in FY26 over FY25 (Budget Estimates) with a focus on infrastructure related to rural areas, agriculture, and the social sector while bringing down the fiscal deficit to 4.5 per cent of gross domestic product from the projected 4.9 per cent in FY25.    Recommendations 

 Ficci and CII said FinMin should lay down a road map for rationalisation of TDS rate structure

 CII made a proposal for only 2 or 3 categories of payments, and a small negative list of payments which will not be liable to TDS

 FICCI advocated the introduction of a new independent Dispute Resolution forum for effective and time bound dispute resolution

 CII urged the Centre to increase the capex by 25% in FY26 over FY25 (BE)