Panel suggests higher TDS threshold, reduction in tax rate

A committee headed by retired Delhi High Court Judge R V Easwar has suggested raising the threshold limits of income for the purpose of tax deduction at source and has also proposed a reduction in the rate of withholding taxes (the rate at which TDS is applied).

In its first report released on Sunday, the committee has suggested a reduction in tax rates for a wide range of incomes, including from investment, for the purpose of deduction of tax at source (TDS).

The panel has rooted for rationalisation of TDS rates for interest and commission incomes and suggested that these should be halved to 5 per cent. This should benefit senior citizens who mostly depend on interest income from fixed deposits and other securities. It will also benefit consultants, brokers, house owners, small depositors, freelancers who pay TDS on their income.

The committee also suggested that a hike in the taxable income bracket so as to make compliance easier.

At present, interest on securities is collected on a minimum of Rs2,500 while the tax on interest on fixed deposits is collected from Rs10,000 onwards, and NSS deposits are taxed Rs2,500 onwards.

The panel has suggested that this threshold limit be increased to Rs15,000. For interest on securities, the threshold is proposed to be increased from Rs2,500 to Rs15,000.

For rental income, there has been an increase in the threshold limit to Rs2.4 lakh per year from Rs1.8 lakh per year. There is no change in the TDS rate of 10 per cent. If the property and the tenant is not an individual but a firm or a company, then TDS is deducted against rental payment.

"Today, the average tax rate of 10% gets attracted only on taxable income beyond Rs 7 lakh. As a result, majority of the taxpayers, more particularly those having mainly interest incomes, are required to claim sizeable income-tax refunds. The I-T department is also required to collect taxes in a very large number of such cases, merely to refund a substantial chunk of such collection together with interest thereon," say the report.

The reduction in TDS for interest and commission income, for instance, the committee says, will go a long way in avoiding unproductive IT work and waste of time and money.

The committee pointed out that nearly 65 per cent of the personal I-T collection in India is raised through TDS and as such TDS provisions need to be made more tax-friendly.

"It is a matter of record that a number of annual threshold limits in respect of TDS have just not come to be revised over the years. With the liability of TDS being attracted on such tiny annual limits of Rs2,500 in respect of payment of interest on securities and on interest on NSS accounts, Rs5,000 for payment of interest on private deposits, commission or brokerage and Rs10,000 for payment of bank interest, one can just imagine the enormous work that goes into compliance of these provisions. Considering the importance of the long-overdue revision of these puny limits, the committee has recommended suitable hikes in such threshold limits."

The committee comprises V K Bhasin, former law secretary; Vinod Jain, chartered accountant; Rajiv Memani, consultant; Ravi Gupta, senior advocate; Mukesh Patel, tax advocate; Ajay Bahl, consultant; Pradip P Shah, investment adviser; Arvind Modi and Vinay Kumar Singh from  Indian Revenue Service.