Time to Make TDS Less Tedious

Context: Tax deducted at source (TDS) (governed by Section 199, Rule 37BA, of Income-Tax (I-T) Act), is marred with complications.

Issues with TDS credit framework:

• Unaccrued income: In many cases, TDS deducted in past years is claimed in the current year, since income corresponding to such TDS is taxable in the current year.
• Complex and costly: Tax professionals spend millions of hours reconciling and filling up TDS schedules in I-T returns due to time lag in tax and matching income.
  • The information technology (IT) systems of the I-T Department have not been able to correctly allow credit of such TDS, despite taxpayers correctly filling up the TDS.
• Inefficient online rectification: In many cases, disallowance of TDS credit after rectification increases, which are ultimately transferred to the assessing officer.

Way Forward:

• Allow claim of TDS on a consolidated basis: 26AS should be treated as a bank passbook where there would be an opening balance, additions, withdrawals (claim of TDS credit) and a closing balance.
  • The closing balance of TDS credit carried over to subsequent periods can be set off against future tax liability.
• Remove the concept of one-to-one matching of TDS with the corresponding income: will ease work for taxpayers and the tax administration, in addition to reducing the load on IT systems.
• Use technology to monitor: Through the Risk Management Unit (RMU) of the tax department by using sophisticated data mining and artificial intelligence (AI)

Conclusion: Reforms in tax administration in relation to TDS will further the cause of ease of doing business.