The current tax-deducted-at-source (TDS) landscape is characterized by a plethora of rules, various thresholds, and rates. This complexity not only leads to frequent disputes but also places a considerable burden on enterprises, hindering essential operating capital.
A comprehensive review of withholding tax provisions is currently underway, emphasizing the need to streamline the existing system, which has grown more intricate over time. The proposed changes may be unveiled in the interim budget scheduled for release on February 1st, subject to the timely completion of the review.
With around 33 sections in the Income Tax Act dealing with TDS rates, adjustments in rates, such as those affecting fees on technical services (FTS) and fees for professional services (FPS), have led to classification issues and litigation.
Industry stakeholders have consistently raised concerns about the complexities, advocating for a shift towards lower TDS rates (1-5%) across fewer categories. This, coupled with digitization and advanced data analytics, aims to streamline tracking without unduly burdening compliance and working capital, especially for micro, small, and medium enterprises (MSMEs).
The suggested changes strive to strike a balance between revenue collection and creating an environment that encourages business growth, aligning with India’s larger economic goals.
