The draft report of the committee contains 27 suggestions for amendments under the I-T Act and eight for reform through administrative instructions.
A high level panel on simplification of income tax laws on Monday recommended raising the threshold limits for deduction of tax at source (TDS) as also slashing the rate of withholding tax.
The Justice (Retd) R V Easwar Committee in a 78-page draft report said nearly 65 per cent of the personal Income-Tax collection in India was through tax deducted at source (TDS) and TDS provisions need to be made more tax friendly and not as 'tedious' as they have remained over the years.
It recommended "enhancement and rationalisation of the threshold limits and reduction of the rates of TDS. TDS rates for individuals and HUFs to be reduced to 5 per cent as against the present 10 per cent".
Presently, TDS is applicable on "such tiny annual limits" of Rs 2,500 in case of payment of interest on securities and on interest on NSS accounts, Rs 5,000 for payment of interest on private deposits and commission or brokerage and Rs 10,000 for payment of bank interest.
"Considering the importance of the long overdue revision of these puny limits, the Committee has recommended suitable hikes in such threshold limits," it said.
For interest on securities it proposed raising the threshold for TDS to Rs 15,000 from Rs 2,500 annually and halving the tax rate to 5 per cent.
Similarly, for other interest earnings the limit is recommended to be raised to Rs 15,000 from current Rs 10,000 for bank deposits and Rs 5,000 for others.
The panel recommended raising TDS limit for payments to contractors from current limits of 30,000 for single transaction and 75,000 annually to Rs 1 lakh annual limit.
TDS limit on rent income threshold for TDS is proposed to be raised from Rs 1.8 lakh annually to Rs 2.4 lakh. The threshold for fees for professional or technical services is recommended to be raised to Rs 50,000 from Rs 30,000 but TDS rate is proposed to be retained at 10 per cent.
The draft report of the 10-member committee contains 27 suggestions for amendments under the I-T Act and eight for reform through administrative instructions.
The panel has also recommended deferment of Income Computation and Disclosure Standards (ICDS) to provide more time to taxpayers grappling with regulatory changes such as Companies Act 2013, Ind-AS and the proposed GST.
Addressing the vexed issue of Sec 14A disallowance, it has proposed that dividend received after suffering dividend-distribution tax as also share income from firm suffering tax in the firm's hands will not be treated as exempt income and no expenditure will be disallowed as relatable to them.
It also suggests that expenditure disallowed under Section 14A shall not exceed the amount claimed as exempt.
The panel recommended that amendments be made to provide that in cases where shares are shown as capital assets and held for one year or less, the Assessing Officer will not re-characterise the surplus on sale as business income, if the value of surplus is below Rs 5 lakh.
It suggested an increase in turnover limit for tax audit applicability from Rs 1-2 crore for business and Rs 1 crore for professionals.
The committee also suggested that fresh claims by taxpayer be allowed during assessments and that re-opening or revision of assessments under sections 147 and 263 respectively should not be made merely on the basis of audit objections.
KPMG (India) Partner Vikas Vasal Partner said the recommendations seek to address many of the ground level issues being faced by the tax payers.
"Some of the procedural reforms on tax deduction at source and e-governance initiatives in the report, if implemented, will help improve the business sentiment in the country," he said.
Nangia & Co Managing Partner Rakesh Nangia said: "If the recommendations of the committee are put to actions, it can go a long way in giving the much awaited paradigm shift in the image of tax system in India".
The Committee was constituted on October 27 last year to study and identify the provisions/phrases in the Income Tax Act which have given rise to litigation on account of interpretative differences.
It was also meant to study and identify the provisions which impact the ease of doing business and identify the provisions of the Act for simplification in light of the existing jurisprudence.
The Committee was given a term of one year and the first batch of recommendations were to be submitted by January 31, 2016. The first draft report focuses on simpler issues that need immediate attention.
The feedback on comments have been invited till January 23, following which the committee will finalise the first part of the report by January 31.
