NEW DELHI: The government may announce major reforms in the existing tax deducted at source (TDS) and tax collected at source (TCS) framework, as these are overly complex and burdensome for taxpayers, sources told TNIE.
Currently, the TDS regime encompasses 40 provisions, with rates that range from a 0.1% to a staggering 40%, leading to confusion and compliance challenges for businesses. “Current TDS/TCS structure is complex. The government wants to simplify it and bring relief to the taxpayers,” the source said.
As per experts, the current structure, with its varying rates and overlapping provisions, not only complicates compliance but also results in cash flow blockages for industries. The additional burden of interest on refunds further adds to the financial strain on businesses, as they navigate the intricate set of rules and regulations.
Experts suggest consolidating multitude of rates into just two or three would enhance clarity and ease of compliance. For example, the differentiation between fees for technical services (2%) and fees for professional services (10%) remains ambiguous, further complicating compliance.
Speaking of the compliance burden due to the current TDS/TCS structure, Vivek Jalan, Partner with Tax Connect Advisory said, “Maintaining of Forms 16A/ Form 27D and subsequent reconciliation of these with Form 26AS for claiming TDS/TCS credit increases the compliance time and efforts. Hence, it is expected that the age old practice of requirement for payers to issue TDS/TCS certificates will be dispensed with and Form 26AS (generated through secure safeguards) be prescribed as the only means of taking TDS/TCS Credit.”
“The requirement of issuing TDS/TCS certificates may apply only to persons not holding a PAN (especially non-residents for them to be able to claim credit in their country of residence), Jalan added.
As per experts, only one tax provision—either TDS under section 194Q or TCS under section 206C(1H)—should apply to a single transaction. They argue that if a buyer is responsible for TDS, the seller should not be penalized with TCS due to the buyer's non-compliance. Instead, the tax department should hold the buyer accountable.
“Requirement of the seller to comply with TCS provisions in case of default of buyer to apply TDS results in the applicability of undue interest and penalty as the seller only gets to know the default of the buyer after a period of time of 6-12 months,” added Jalan.
There are currently 33 sections dealing with various payments to residents, each with different TDS rates. The organisation noted that this inconsistency creates confusion among taxpayers and leads to disputes regarding payment classifications.
Consolidating rates to enhance clarity: Experts
Experts suggest consolidating multitude of rates into just two or three would enhance clarity and ease of compliance. For example, the differentiation between fees for technical services (2%) and fees for professional services (10%) remains ambiguous, further complicating compliance
