A Public Interest Litigation (PIL) has been filed in the Supreme Court seeking the quashing of the Tax Deducted at Source (TDS) system. The petition, filed by advocate Ashwini Kumar Upadhyay, argues that the TDS mechanism is arbitrary, irrational, and violates fundamental rights.
The TDS system requires tax deductions at the point of income generation—such as salaries, interest, dividends, and rental income.
The PIL, however, claims that the government is unfairly shifting its responsibility of tax collection onto private citizens.
According to the petition, the government has the resources to handle tax collection through its own department, and it should not burden individuals with this task.
What is TDS?
TDS is a method of tax collection in which taxes are deducted directly from income at the time of payment. For example, when a salary is paid, the employer deducts a portion of the income as tax before passing it on to the employee.
Similarly, banks deduct TDS on interest income, and businesses do the same for payments like rent or dividends.
This system ensures the government collects taxes regularly, reducing the chances of tax evasion and creating a steady revenue stream.
However, it also places the responsibility of tax deduction and remittance on individuals and businesses.
Why is the PIL challenging TDS?
The PIL raises several key issues with the TDS system:
Shifting government responsibility
The petition argues that tax computation and collection should be handled solely by the government. It claims that the TDS system unfairly transfers this responsibility to private citizens.
Penal consequences for mistakes
Another concern is the severe penalties for errors in TDS deductions. If a mistake occurs, individuals can face hefty fines or even imprisonment.
The PIL questions why tax department officers face no such penalties for mistakes made on their part.
Disproportionate burden on the poor
The PIL also highlights how the TDS system disproportionately affects economically weaker sections of society. The complexities involved in understanding and complying with the TDS system often lead to additional administrative expenses.
For those without the necessary resources or know-how, this becomes a challenge.
Compliance costs
The PIL describes the TDS system as creating an unnecessary compliance burden. The complex regulatory framework adds to the financial strain on individuals, particularly the less privileged, who find it difficult to meet the administrative demands of the system.
What happens next?
The Supreme Court is yet to decide whether it will hear the PIL. If the court takes up the case, it could lead to a change in how taxes are collected in India.
