Changes in threshold not to have a significant revenue impact, say officials
Dilasha Seth & Indivjal Dhasmana | New Delhi | January 29, 2016 Last Updated at 00:59 IST | Business Standard
The government is considering rationalising tax deducted at source, according to recommendations made by the R V Easwar Committee.
Officials said the changes in tax deducted at source (TDS) rates and thresholds would not have a significant revenue impact. Revision of the tiny annual limits, which were long overdue, would, however, benefit small depositors and pensioners, they added. “For the Budget, we will be looking at recommendations that do not have large revenue implications. For the rest, we will have to do the math on the tax revenue foregone,” said a government official.
The panel has suggested reducing the short-term capital gains tax on annual earning of less than Rs 5 lakh from trading of shares and not treating it as business income. This will have a significant revenue implication when the government is trying to lower the fiscal deficit to 3.5 per cent of the gross domestic product (GDP) in 2016-17 from the projected 3.9 per cent in 2015-16.
Budget may offer TDS relief to taxpayers The committee has recommended reduction of the TDS rate for individuals and Hindu Undivided Families (HUFs) to five per cent from 10 per cent. For interest on securities, it has proposed raising the threshold for TDS to Rs 15,000 from Rs 2,500 annually and halving the tax rate to five per cent. For other interest earnings, the limit recommended is Rs 15,000, up from Rs 10,000 for bank deposits and Rs 5,000 for others.
“The thresholds are unfair to pensioners and widows, who have all their savings in fixed deposits. The average rate of tax has fallen, but these thresholds have not gone up. Why should they suffer tax at 10 per cent when the average rate of tax is somewhere at five per cent,” Easwar told Business Standard.
The 10-member panel has recommended a hike in the TDS threshold for payments in respect of NSS (National Service Scheme) deposits to Rs 15,000 from Rs 2,500, and reducing rates from 20 per cent to five per cent. The panel has also suggested raising the TDS limit for payments to contractors from the current Rs 30,000 for a single transaction and Rs 75,000 annually to Rs 1 lakh annually. The TDS limit on rent income is proposed to be raised from Rs 1.8 lakh annually to Rs 2.4 lakh.
The committee has submitted only a draft report to Finance Minister Arun Jaitley and is likely to present the final one in a few days. Sources said the final report would not be drastically different from the draft. Jaitley said on Monday at an Income Tax Appellate Tribunal event the government was looking at the recommendations to come up with a neater tax regime to reduce litigation. The committee has said nearly 65 per cent of personal income tax collection in India was through TDS and the government should consider making its provisions less tedious.
The panel was set up by Jaitley in October to identify provisions and phrases in the Income Tax Act that led to litigation over interpretation. It was asked to suggest alternatives to ensure predictability in tax laws without substantially impacting the tax base or revenue collections.
Easwar panel on tax simplification
- Treat stock trading gains of up to Rs 5 lakh as capital gains and not business income
- Reduce TDS rates for individuals to 5% from current 10%
- I-T dept should not delay tax refund due beyond six months. A higher interest rate should be applicable in case of delay in refunds beyond six months
- Exempt NRIs not having a Permanent Account Number, but seeking to provide their Tax Identification Number for applicability of TDS at a higher rate
- Defer contentious Income Computation and Disclosure Standards provisions
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