Union Budget 2025: Simplifying TDS Rates and Decriminalizing Defaults
Nov 29
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Union Budget 2025: Simplifying TDS Rates and Decriminalizing Defaults
With the Union Budget 2025 on the horizon, ASSOCHAM (Associated Chambers of Commerce and Industry of India) has put forward key recommendations to ease tax compliance for businesses and individuals. Central to these suggestions is the simplification of TDS rates and the decriminalization of certain TDS defaults, aimed at creating a more efficient and business-friendly tax environment.
Why Simplify TDS?
Currently, the Income Tax Act outlines 37 different types of payments subject to TDS, with rates ranging from 0.1% to 30%. This complex structure leads to:
Confusion in classification and interpretation.
Disputes over varying rates.
Cash flow challenges for businesses.
Proposed Simplifications
ASSOCHAM has recommended:
A uniform TDS rate of 1% or 2% for payments to resident taxpayers.
Simplified tax deduction rates for salaries, professional fees, and rent.
Clearer guidelines for digital and e-commerce transactions.
These changes would minimize disputes and streamline compliance for taxpayers across sectors.
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Decriminalizing TDS Defaults
Under the current provisions of Section 276B, non-compliance with TDS regulations can lead to imprisonment of up to 7 years. ASSOCHAM and other organizations argue that such harsh penalties discourage compliance rather than promote it.
Proposed Reforms ASSOCHAM has called for:
Decriminalizing minor TDS defaults, especially for first-time offenders.
Reserving criminal penalties for cases involving deliberate fraud or unjust profit.
Revising penalty frameworks to be more flexible and proportionate to the offense.
Have questions about TDS compliance? Contact our Tax Audit Experts.
Pre-Budget Recommendations from FICCI and CII
In addition to ASSOCHAM, FICCI and CII have also proposed targeted reforms for TDS compliance:Simplifying TDS Rates
TDS Rate Categories by FICCI:
Salaries: Based on income tax slab rates.
Lotteries and online gaming: Maximum marginal rate (30%).
Standard rates for other payments (e.g., interest, rent): 1%-4%.
Simplified TDS Framework by CII:
Maintain existing rates for payments below 5%.
Apply a 2-4% rate for other categories.
Exempt senior citizens and registered charities from TDS obligations.
These suggestions focus on reducing the administrative burden while ensuring efficient tax collection.