Union Budget 2025-26: ASSOCHAM pushes for lower TDS rates

In its pre-Budget memorandum submitted to the Finance Ministry, ASSOCHAM has advocated for the rationalization of TDS rates, proposing a uniform rate of either 1% or 2% for all payments made to resident assessees. This initiative aims to mitigate litigation arising from interpretational discrepancies and to facilitate smoother tax compliance.

The presentation also recommended the decriminalization of certain TDS defaults, highlighting the stringent nature of existing provisions. It pointed out that Section 276 B imposes a penalty of imprisonment for up to 7 years for individuals who fail to comply with specific TDS regulations.

“Criminal charges should be reserved for instances where taxpayers have unjustly benefited at the Government’s expense, rather than for cases where payments or benefits are provided without the application of TDS. We anticipate that tax reforms focused on minimizing litigation and enhancing compliance will be included in the Union Budget for 2025-26. Corporate India is offering constructive suggestions in this context. Additionally, India Inc is seeking measures that would stimulate both investment and consumption,” said ASSOCHAM President Sanjay Nayar.

It is also suggested that modifications be made to allow taxpayers to submit additional claims during assessment proceedings. Furthermore, taxpayers should have the option to withdraw claims made in their returns during the assessment phase, with such withdrawals granting immunity from penalties. Facilitating tax compliance is a vital aspect of improving the overall business environment. The ASSOCHAM pre-Budget memorandum outlines several specific recommendations for the government to rationalize TDS rates and implement a more flexible system for filing tax returns.

The industry is advocating for enhanced flexibility and simplified compliance by pursuing full tax neutrality at both the entity and owner levels for all types of entity conversions. This approach would significantly empower businesses to select the entity forms that best align with their needs, as stated by Deepak Sood, Secretary General of ASSOCHAM.

Furthermore, tax neutrality should extend to amalgamations and demergers, which is currently permitted solely for companies, excluding slump exchanges. Additionally, it is essential to provide tax neutrality for Indian resident shareholders involved with foreign amalgamating and demerged entities.

Presently, there are deficiencies in the regulations concerning capital gains exemptions and the carry forward of losses related to amalgamations, demergers, and other business reorganizations, such as slump exchanges or sales.

The memorandum proposed that these regulations be simplified and broadened to allow businesses and investors to optimize their operations and holdings without incurring tax liabilities or navigating the protracted NCLT process. It was also recommended that buyback proceeds be classified as dividends only to the extent that the company executing the buyback has accumulated profits.

Any remaining consideration should be included in the capital gains calculation, akin to capital reductions and liquidations. Under existing regulations, all proceeds received by a shareholder from a buyback are taxed as dividends, irrespective of the company’s accumulated profits.