Representation for rationalising domestic withholding tax rates

Smt. Nirmala Sitharaman

Hon’ble Union Minister of Finance and Corporate Affairs

Ministry of Finance

Government of India

North Block

New Delhi 110 001

Hon’ble Finance Minister,

Further to our Pre-Budget Memorandum submitted on 4 November 2022, we submit herewith representation seeking rationalisation of domestic withholding tax rates for your kind consideration.

The current domestic TDS regime is spread over 31 sections with varying rates and threshold limits. The wide variety of TDSr ates with different thresholds creates complexity and confusion for the taxpayers, increases compliance burden and gives rise to characterisation disputes. It also results in blockage of working capital for businesses and additional cost for the government by way of interest on refunds. The increasing trend of refunds as per recent published data shows that the government has to process a significant amount of refunds which can be reduced if the domestic TDS rates are rationalised. All the TDS information gets captured in Form 26AS/AIS of the deductees. Thus, it is easier for the Government to collect the balance taxes (after TDS/TCS) from the resident taxpayers.

Hence, it is recommended the Government may consider laying down a roadmap for reducing the disparity in TDS rates and provide for a simple domestic TDS framework. Only two or three categories of payments may be maintained, with a small “negative list” of payments which will not be liable to TDS. The TDS on purchase / sale of goods may be applied only on non-GST registered cases. The TDS thresholds may also be rationalised by increasing to an aggregate threshold of Rs. 1 lakh per year wherever the existing threshold is less than Rs. 1 lakh.

The Chamber would like to emphasise that the above measure is a revenue neutral exercise which would considerably ease the compliance burden for taxpayers, avoid blockage of working capital for businesses, reduce interest cost for the Government and minimise litigation relating to TDS classification.

A detailed note on the above representation is attached herewith for your kind consideration. We shall be pleased to provide any further information or discuss the issue in physical or virtual meeting with Finance Ministry officials.

Thanking you