In its pre-budget memorandum submitted to the Finance Ministry, ASSOCHAM made a case for rationalization of TDS rates, proposing a uniform rate of 1% or 2% for all payments made to assessed residents. This initiative aims to mitigate disputes arising from differences in interpretation and facilitate smoother tax compliance.

The presentation also recommended decriminalization of certain defects in TDS, highlighting the strictness of the existing provisions. He pointed out that Section 276 B imposes a prison term of up to 7 years for those who fail to comply with specific TDS regulations.

“Criminal charges should be reserved for cases where taxpayers have unfairly benefited at the expense of the government, rather than cases where payments or benefits are provided without the application of TDS. We predict that tax Reforms focused on reducing litigation and improving compliance will be included in the Union Budget for 2025-26. Business India offers constructive suggestions in this context. Further, India Inc is looking for measures that would boost both investment and consumption,” ASSOCHAM President Sanjay Nayar said.

Read also: Smart Strategies for Tenants to Reduce Rent Payment Costs

It is also suggested that changes be made to allow taxpayers to make additional requests during assessment procedures. Furthermore, taxpayers should have the possibility to withdraw requests made in their returns during the assessment phase, with such withdrawals granting immunity from penalties. Facilitating tax discipline is an essential aspect of improving the overall business environment. The ASSOCHAM pre-budget memorandum makes several specific recommendations to the government to rationalize TDS rates and implement a more flexible system for filing income tax returns.

THE industry advocates for increased flexibility and simplified compliance by seeking full tax neutrality at the entity and owner level for all types of entity conversions. This approach would allow businesses to select entity forms that best suit their needs, as Deepak Sood, Secretary General, ASSOCHAM, said.

Furthermore, fiscal neutrality should extend to mergers and divisions, which is currently only authorized for companies, excluding exchanges in the event of a crisis. Furthermore, it is essential to ensure tax neutrality for Indian resident shareholders involved in merging or demerger foreign entities.

There are currently gaps in the regulations regarding capital gains exemptions and loss carryforwards related to mergers, demergers and other corporate reorganizations, such as swaps or crisis sales.

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

Any remaining consideration must be included in the calculation of capital gains, like capital reductions and liquidations. Under current regulations, all proceeds received by a shareholder in a buyout are taxed as dividends, regardless of profits accrued by the company.