Mukesh Patel.in
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international tax expert / columnist / author / speaker

Prepare for the TDS Nightmare!

No Respite From The TDS Bite Even For Non-Taxpayers!

TDS Blows That Will Hit You Hard!

  • No provision for furnishing any declaration (as in current Form 15G/15H) for non deduction of TDS from interest in cases of non-taxable income will hit hard senior citizens, widows, agriculturists and several other small interest earners.
  • No provision for obtaining any certificate for TDS at a lower rate will create hardships for the business community.
  • Harsh and bizarre consequences to arise on account of the new provision prescribing 10% TDS in respect of payments of ‘any other income’.
  • Even personal and commercial transactions, such as receipt of any consideration for sale of goods or services or transfer of any movable or immovable property, to attract TDS, which in several cases could work out much higher than the actual profit earned from the transaction.

Manubhai Shah, a senior citizen, is earning interest on his bank deposits of Rs.2,40,000. However, since he is not liable to pay any income-tax on his total income after eligible deductions, he currently enjoys the relief of exemption from TDS by submitting the prescribed Form 15H to the respective banks making interest payments.

But this luxury of TDS exemption may not live long. The new Direct Tax Code to be effective from 1st April, 2011 does not provide for any similar relief and hence Manubhai’s interest receipts of Rs.2,40,000 will have to bear the harsh 10% TDS brunt of Rs.24,000.

TDS Shock for Small Interest Earners!

Currently crores of small interest earners, including senior citizens, widows, and even agriculturists, enjoy respite from the TDS bite by submitting declarations for no TDS on the ground that their total income does not exceed the prescribed exemption limit. All such persons will now be compelled to initially fill up revenue coffers with such unnecessary TDS and then go through the cumbersome process of filing their tax returns to claim 100% tax refunds.

With the puny threshold limits for TDS on interest prescribed at Rs.10,000 in case of bank deposits and Rs.5,000 in all other cases, just imagine the colossal waste of time, energy and resources of tax deductors, deductees and even the tax department in handling all related procedures of deducting and paying TDS, issuing TDS certificates, filing tax returns for making refund claims and granting them back alongwith interest.

The draftsman of the Code may in defense state that a section providing for granting a certificate for no deduction of tax has been incorporated. But keeping in view the condition prescribed that such a certificate is required to be obtained by the deductee through making an elaborate application to his Assessing Officer, who has been empowered to grant the same if he is satisfied that the total income of the deductee justifies no deduction of tax, in the practical context, it amounts to bearing even more hardships than filing a simple tax return. Moreover, going by the present experience, if several crores of such applications infact do come to be made, the departmental machinery may not just be in a position to even handle the huge workload involved!

Hardships for the Business Community

Current provisions of Section 197 of the Income-tax Act provide for the grant by the Assessing Officer of a certificate for no TDS or deduction at a lower rate, where the circumstances so justify. Under the draft Code, although there is a provision for grant of a no TDS certificate, quite surprisingly there is no provision whatsoever for issue of a certificate for TDS at a lower rate. This is bound to create hardships for the business community, which at times faces the threat of steep TDS keeping in view their actual tax liability, which is much lower.

Residuary Head – Biggest Headache!

Apart from specified payments such as salary, interest, commission, professional fees etc. in respect of which tax deduction at various rates has been prescribed, the proposed Third Schedule to the Code prescribes liability for making TDS at 10% in respect of a new residuary head classified as ‘any other income.’

Whether or not the draftsman has realized serious legal implications of the above provision, but this would mean that liability has been cast on every purchaser to deduct TDS at 10% while making any payment as consideration (logically classifying as ‘any other income’) to the seller, for purchase of any goods or services or movable or immovable property of any value (no threshold limit being prescribed).

Thus, be prepared to face deduction of TDS at 10% on any payment in the nature of business income or consideration under the head capital gains due to be received by you from any person, other than an individual or HUF not liable to tax audit, since this is the only class exempt from making TDS.

Almost a 10% Super GST – Harsh & Bizarre!

Just imagine the harsh and bizarre consequences of this provision. A trader selling goods may not even be earning a 10% profit margin, but would still have to bear the brunt of 10% TDS burden. And if the goods are being sold in a chain from a manufacturer to wholesaler to retailer, just watch out, sale at each stage can still attract the 10% TDS.  Even if you are selling your second hand car or an apartment either to a proprietor liable to tax audit, a firm or a company, you will face a straight cut of 10% by way of TDS.

Professionals who enjoy the current luxury of the threshold limit of Rs.20,000 for TDS in respect of professional receipts, may be dismayed to learn that the Code now provides for TDS from Re.1.  The list of nightmares on account of this 10% super GST like TDS levy would go unending, unless the Code drops this obnoxious provision!

YOUR COMMENTS INVITED ON…

1. Should the Code not continue the present relief of granting exemption from TDS on interest, on the basis of a taxpayer’s declaration that his income is not taxable?

2. Is the new provision under the Code prescribing 10% TDS, even on ordinary personal and commercial transactions of sale of goods or services or transfer of movable or immovable property, logical and justified?

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