In a concerted effort to enhance tax compliance and address discrepancies in Tax Deducted at Source (TDS) filings, the Central Board of Direct Taxes (CBDT) has initiated a comprehensive review of approximately 40,000 taxpayers. This initiative focuses on identifying habitual defaulters and rectifying inconsistencies in TDS submissions for the financial years 2022-23 and 2023-24.
Comprehensive Strategy to Identify Defaulters
The CBDT has developed a 16-step strategy aimed at pinpointing irregularities in TDS compliance. Leveraging data analytics, the board’s specialized unit has compiled a detailed list of taxpayers flagged for potential discrepancies. A senior official emphasized the proactive nature of this approach, stating, “Using insights from our analytics team, we’ll first notify these taxpayers, giving them a chance to rectify any oversight in tax deposits.”
Focus Areas of the Review
The review process concentrates on several key areas to ensure a thorough examination of TDS practices:
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Habitual Violators: Taxpayers with a history of non-compliance or repeated TDS defaults are under close scrutiny.
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Discrepancies Between Deductions and Payments: Cases exhibiting significant gaps between tax deductions claimed and advance tax payments made are being examined for potential underreporting or evasion.
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Frequent Revisions to Deductee Details: Instances where taxpayers have repeatedly amended deductee information, leading to notable decreases in reported defaults, are being investigated for possible manipulation.
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Inclusion of Dormant Entities: Businesses incorporating unprofitable or inactive entities in their audits are being assessed for potential misuse or misrepresentation.
Additionally, tax officials are monitoring cases where TDS returns have been frequently revised, resulting in a significant reduction in reported defaults. Field units have been instructed to pay particular attention to complaints raised by deductees and to utilize data analytics to identify trends and irregularities in TDS submissions.
Legal Framework and Compliance Enforcement
The CBDT has directed assessing officers to flag cases involving substantial disallowances under Section 40(a)(ia) of the Income Tax Act. This section denies deductions if TDS is either not withheld or not remitted to the government, serving as a deterrent against non-compliance. By enforcing this provision, the board aims to ensure that taxpayers adhere to proper TDS procedures, thereby enhancing the overall integrity of the tax system.
Non-Invasive Approach and Taxpayer Engagement
Emphasizing a balanced strategy, the CBDT aims to encourage voluntary compliance while addressing deliberate evasion. The official noted, “There’s a balanced strategy here — easing TDS rules for compliant taxpayers while cracking down on deliberate evaders to ensure a just and balanced tax framework.” This approach reflects the board’s commitment to fostering a cooperative relationship with taxpayers, providing opportunities for rectification before initiating punitive measures.
Simplification of TDS and TCS Provisions
In alignment with the Union Budget 2025-26, the government has outlined plans to simplify TDS and Tax Collected at Source (TCS) rules. This includes streamlining rates and raising thresholds for deductions to reduce the compliance burden on taxpayers. For instance, the threshold for TDS on interest earned by senior citizens has been increased from ₹50,000 to ₹1 lakh, and for others, it has been raised from ₹40,000 to ₹50,000. Additionally, the TDS threshold on rent payments has been elevated from ₹2.4 lakh to ₹6 lakh per annum. These measures aim to simplify the tax process and reduce the number of transactions subject to TDS, benefiting small taxpayers.
Introduction of the Income Tax Bill, 2025
Complementing these efforts, Finance Minister Nirmala Sitharaman has introduced the Income Tax Bill, 2025, which seeks to replace the Income Tax Act of 1961. This new legislation aims to modernize and simplify the tax regime, reducing complexities and making it more accessible to taxpayers. Key features include the consolidation of salary-related deductions, such as standard deduction, gratuity, and leave encashment, into a single section, thereby streamlining the tax filing process.
Conclusion
The CBDT’s initiative to scrutinize TDS defaulters, coupled with the government’s efforts to simplify tax provisions, underscores a dual approach of promoting compliance and easing the tax burden on honest taxpayers. By leveraging data analytics and adopting a non-invasive strategy, the tax authorities aim to create a fair and transparent tax environment, ensuring that due taxes are collected while facilitating ease of compliance for the taxpayer community.
