A high-level panel on simplification of income tax laws on Monday recommended raising the threshold limits for deduction of tax at source (TDS) and slashing the rate of withholding tax.
The Justice (rtd) RV Easwar-headed panel in its draft report said that nearly 65% of the personal income tax collection in India was through TDS and thus to have a change at the base level, the government can consider making TDS provisions more tax friendly and not as ‘tedious’ as they have remained over the years.
The report suggested levying lower short-term capital gains tax on annual earning of less than `5 lakh from trading of shares and not treating it as business income, to attract small investors to capital market and cut litigations. It also recommended timely refund with interest and payment of higher interest in case of delayed refund.
The draft report of the 10-member panel contains 27 suggestions for amendments under the I-T Act and eight for reform through administrative instructions.
The panel called for “enhancement and rationalisation of the threshold limits and reduction of the rates of TDS.” TDS rates for individuals and Hindu Undivided Families (HUFs) to be reduced to 5% against the current 10%”.
At present, TDS is applicable on “tiny annual limits” of `2,500 in case of payment of interest on securities and on interest on National Service Scheme (NSS) accounts, `5,000 for payment of interest on private deposits and commission or brokerage and `10,000 for bank interest payment.
“Considering the importance of the long-overdue revision of these puny limits, the committee has recommended suitable hikes in such threshold limits,” it said.
Another relief suggested by the panel was on the interest incurred on securities. It said the threshold for TDS should be raised to `15,000 from `2,500 annually, which would nearly half the tax rate to 5%.
Similarly, for other interest earnings, an increased limit of `15,000 was recommended for bank deposits (from `10,000) and for others (from `5,000). For contractors, the panel said the TDS limit can be raised to `1 lakh annually from the current 75,000.
TDS limit on rent income is proposed to be raised from `1.8 lakh annually to `2.4 lakh.