Assocham Seeks Rate Rationalisation For TDS In Budget For 2025-26

Seeking rationalisation of tax deduction at source (TDS) rates, Assocham in its pre-budget memorandum to the Finance Ministry has pressed for a single/ uniform rate of 1 per cent or 2 per cent for all payments made to resident assesses to avoid litigation on interpretational issues and ensure ease of tax compliance. 

The suggestions in the presentation relating to direct taxes also sought decriminalisation of certain TDS defaults, as the provisions relating to the same are quite severe. It said Section 276 B provides for imprisonment up to seven years if a person fails to ensure compliance with some of the TDS provisions.

“Criminal proceedings should apply only when the taxpayer has enriched himself at the expense of the Government, and not to cases where certain payments/benefits are made or provided without applying TDS. We expect tax reforms aimed at reducing litigation, easy and better compliance to be part of the Union Budget for 2025-26. Corporate India is giving some constructive recommendations in this regard. India Inc is also looking for measures which would boost both investment and consumption," said Sanjay Nayar President, Assocham.

Modifications should be considered to enable taxpayers to make additional claims in the course of assessment proceedings. Similarly, taxpayers should be able to withdraw claims made in the return at the time of assessment, and such a withdrawal should result in an immunity from penalty. 

Ease of tax compliance is one of the critical constituents of ease of doing business. The Assocham pre-budget memorandum makes several specific suggestions to the government to rationalise TDS rates and bring in a flexible system of filing tax returns.

“Seeking flexibility and ease of compliance, the industry is seeking full tax neutrality which should be provided at both the entity and owner levels for all forms of entity conversions. This will go a long way in providing flexibility to businesses to choose entity forms that are most suited to them," said Deepak Sood Secretary General, Assocham.

Tax neutrality should also be provided for amalgamations and demergers.  Currently, this is allowed only for companies and tax neutral mergers and demergers and not for slump exchange.  Besides, tax neutrality should be provided to Indian resident shareholders of foreign amalgamating and demerged entities. 

At present, there are gaps in the provisions relating to capital gains exemptions or carry forward of losses for amalgamations, demergers and other forms of business reorganisations like slump exchange/ sale. “These can be simplified and expanded, to enable businesses and investors to optimise their operations and holdings without facing tax costs and without going through the lengthy process of NCLT,” the memorandum suggested. 

It said buyback proceeds should be treated as dividends only to the extent the company undertaking the buyback possesses accumulated profits. The balance consideration should enter the capital gains computation like capital reductions and liquidations.  Under the current provisions, the entire proceeds received by a shareholder upon buyback are taxed as dividends regardless of whether the company possesses accumulated profits or not.