SUGGESTION FOR OPTION TO ASSESSEE FOR HIGHER AND LOWER TDS/TCS for optimization of tax collection and refunds

[CA DEV KUMAR KOTHARI]

Tax deduction at source (TDS):

At present there are provisions for deduction of tax at source at prescribed rates for different type of payments. The person paying and even when crediting such specified sum payable has to deduct tax at source and deposit the same and also has to file prescribed returns of TDS.

A person receiving such income has limited option to apply to his AO and obtain a certificate of lower TDS rate. However, the process is not simple and involves costs and there can be cases of harassment also. Therefore, in cases where amount involved is not high one opt not to apply for lower TDS.

Similarly there are some provisions for tax collection at source (TCS).

Standard rates causes un- optimised TDS/ TCS causing further payments or refunds:

It is experienced that due to TDS/ TCS many assesses have to pay further tax by way of instalments of advance tax, and self-assessment tax, whereas many has to claim refund which government has to allow and also has to pay some interest. Rate of interest payable by assesse is higher and rate of interest payable by government is low. The difference is also very high. For larger period some time interest is not payable by government, though money remains with government. All these are not justified because by applying lower rate or  nil rate on refund in some situations,  government enjoys funds which does not belong to government. Government should not act like a banker to make profits by such policies. Difference between rates should be nominal, if at all it is desirable to ensure compliance of tax payment.

Option for higher or lower TDS/ TCS:

There seems no option or other mechanism whereby one can ask the tax deductor (TDS) or tax collector (TCS) to deduction or collect tax at higher rate. For higher tax deduction one may chose not to provide PAN and get higher deduction. However that will pose problem in getting credit of TDS.

Option for Higher TDS

Many persons / assesses, particularly those have higher rate of tax applicable has to pay advance tax or self-assessment in addition to TDS/ TCS. This increases work, and compliance costs to such people.

Particularly in case of senior citizens and others who have stronger capital base and have  achieved break-even in operations , have  no costs or little costs in earning such income  due to loans having been  repaid , no costs or  low costs on account of rent, and interest  and administrative expenses,  and also who have incomes in which low cost is involved like,  income by way of interest , rent ,royalty  and professional fees at higher levels of fees rate etc.

In such cases receiver of income can be granted an option to declare and request to the tax deductor to deduct tax at higher that prescribed rates. The optional higher rates can be kept flexible and income receiver can change rate of TDS from time to time.

This will improve tax collection.

Option for lower TDS:

In case of young people, new business and profession where break-even is not achieved or after break-even there is low revenue, higher costs on account of rent, interest and fixed costs are involved,  we find that income is low and in many cases loss is also suffered. In such cases even TDS/TCS at prescribed rates is very high and it becomes refundable.

It is true and ground reality that people want to avoid Tax Officers to get lower TDS/TCS certificates. Only large and organized assesses opt for this option. Reasons are obvious, chances of harassment by tax authorities, greater chances of scrutiny etc.

Therefore, option can be given to income receiver to declare to the tax deductor / tax collector to deduct or collect tax at lower rate. In this case also flexibility can be provided to opt appropriate rate so that reasonable amount of tax is deducted or collected in accordance with tax liability.

No adverse effect on revenue:

If above suggestion is implements, it is felt that revenue will be benefitted by timely and optimised tax collection.

There will be no adverse impact because in case TDS/ TCS fall short, assesse is required to pay advance tax in instalments and in case still there is shortfall assesse has to pay self-assessment tax. Assesse also has to pay interest for short payments.

Optimised TDS/ TCS for benefit of tax payer and revenue both:

If the above suggestions are implements, these options will optimise amount of TDS and TCS, will make costs of compliance lower. Interest burden on government in case of refund shall also be reduced.

Author hopes that the honourable Finance Minister and CBDT will consider these suggestions and implement as soon as possible.