After reading Justice Rangarajan's writing on TDS, reproduced below, I feel TDS must be scrapped. Employers who are asked to deduct tax at source must move the Supreme Court against TDS. Either it must be scrapped altogether or the Employers be adequately be compensated for Tax Law compliance, or rather for doing IT department's work. From the Pax payer's angle it is an unwanted nightmare. Another draconic rule that I see: If PAN is not quoted in Form 15H / 15G, 20% tax will be deducted. Merely because nobody protests, Tax dept is becoming a big nuisance.
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In para 2.14.3 of the Report No8 of 2007, it is stated that the amount refunded out of tax deducted at source (TDS) was about 15% indicating that tax was deducted even where it was not required. A more poignant situation is when tax is deducted, though the person has no taxable income. This tentacle is long enough to freeze the bank accounts of the deductor even though he is not the taxpayer and no amount is due from him.
Quoted from Moneylife website ; URL: http://goo.gl/BFCl6h
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Mauling the Messengers
The real sting of the present system is the deduction of tax at source. This is a job of the department to collect tax, which is quietly outsourced to the employers and others who need to make some payment. They have to deduct the tax due on the payment, file a return with the department and give a certificate to the payee. And unlike the income tax officer, they can be punished for not doing that work! ( section 271C)
The Planning Commission has estimated the cost of complying with this requirement is about 45% of the amount paid out. The Comptroller and Auditor General (CAG) has pointed out that in nearly 50% of the cases, returns have not been filed by the deductors and there is also default in remitting the tax deducted.
Quoted from Moneylife website ; URL: http://goo.gl/BFCl6h
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