What if he doesn't? Then whose responsibility is it enforce collection? Needless to say, it is the Government's, or more particularly the Income Tax Department.
To Summarize:
An Assessee or a Taxpayer's Responsiblity: To Pay up his taxes
The Income Tax Department's Responsibility: To enforce collection, if the assessee not pay.
So far, so good.
People who are employed or providing services on hire basis, would appreciate the following rant better than those who are eons away from any tax liability.
Let's take a small example. There are two people. "Chaddi" and "Buddi" (Please note: Names are irrelevant). Chaddi is a consultant who provides services to Buddi. In consideration for Chaddi's services, Buddi is required to pay, say, Rs.1 Lakh. The Income Tax Law as it is, requires that Buddi should pay Rs.90,000 only to Chaddi for the latter's services, and pay the balance of Rs.10,000 to the Central Government. This scheme is popularly called as the "Tax Deduction at Source". The Rs.10,000 withheld from the payment to Chaddi is the "Tax Deducted" and remitted to the Government.
Why this scheme? Government has realized that this is the most effective way of ensuring tax collection, because many "Buddis" don't pay up their taxes properly, and it is difficult track them and find them. Even more difficult is to make them pay.
If Buddi doesn't pay, who should be punished? The obvious answer would be Buddi. But the law also prescribes - tear Chaddis! Rip them apart! Chaddi would be effectively end up paying taxes on Buddi's income. Does it mean, Buddi will escape? Nope! Buddi will also pay taxes. One offence, two punishments? You bet!
This basically means that Chaddi has failed in his duties to "collect" / "deduct" taxes on behalf of the Government. To put it more properly, Chaddi has failed to do its(???) duty. That of doing what the Government should do. Outrageous. But True.
And these things have turned worser with higher rates of tax deduction prescribed and higher penalties on the deductor's for their failure to deduct. Is there any reward for the deductors if they do their "duty" properly? None. Who would give rewards for doing your duty?
Does somebody benefit apart from the Government in this entire deduction and remittance process? Yes. The Bankers. The intermediary, who are being paid good amounts per challan that is being processed by them (which in my estimate, should be atleast worth Rs.1000 to Rs.2000 Crore business for the Bankers at 0.5% of the total direct tax collections).
The bankers have some motivation to work for the Government. What motivation does the deductor have? Apart from the fear of punishment for not performing his "duty"? None.
What could be a possible motivation?
In my view, give a rebate of 1% of Tax Deducted and Remitted to the Government to the deductor, which he can adjust against his tax liability. Institute an award for highest tax deductor and award the deductor under lots of fanfare and publicity (they deserve it). Replace the multiple rate TDS regime with a uniform rate model. I know this would raise a lot of eyebrows, since every income does not have the same margin. But then, the purpose of TDS should be more to track the income, rather than collect the taxes on income.
If the Government cannot collect the taxes despite all those super efficient machineries it has, highly trained Revenue Officers, and so much amount of money and power at their disposal, it should stop collecting taxes, or having anything called as a Income Tax Department. Shifting your responsibility itself is shameful. On top of that punishing the other person for certain non-compliance is grossly indecent.
The argument that the taxpayers are not otherwise amenable for payment of taxes does not sell. Or that people would book bogus expenses for reducing tax liability. People endorsing these anachronistic views should remember that those at the IT Department aren't exactly paragon of integrity. And that reducing taxes, or evading them, isn't the object in a person's mind. If Hassan Ali, knowing owes over Rs.50,000 Crores in taxes, and hundreds of crores of rupees of ill gotten wealth stashed abroad, the tax department, along with the Government, shouldn't boss over all the regular tax paying assessees.
With every procedural compliance provision turning out to be a source for continuous harassment, the above recommendations would make lot more sense. Else, the old adage should be revisited. For there has been, not just a shift of responsibility. Shift towards a better compliance. But one towards death.
Death and taxes are inevitable. Taxes are death, more so if you are a deductor.
Note: The provocation for the post is the torrents of notices recent issued by the Income Tax Department for non compliance with TDS provisions, and the scam a day experience all of us are having every day.
Comments
Till then I had just thought it was a good internal control to have with the kind of super-efficient officers at the disposal of the government. Assuming that the tax Payer's attitude and the way govt machineries operate cannot be changed in the short run, the only way of ensuring taxes are collected is TDS (shift of responsibilities in this case).
I differ on the viewpoint u raised that if IT Dept cannot perform its work, then wy IT Department. Its like a Lamborghini ready to scorch the road but without a good driver. And for a good driver, the wait continues.
Any IT Department officer will tell you that half their time is spent on sending one report or the other to the Commissioner or to the CBDT. There are no support staff even for the trained IRS officials. They are forced to type their entire letters, review the papers etc.
The system is such that you can't work. Since you can't work, half the work is being shifted to the Assessee.
My question on "Why IT Department?" was more towards a specific issue of their inability to collect the money back from tax havens abroad. I still maintain, on their part, they often spend time on trivial issues that the larger picture is ignored.
On the TDS issue, it is the system, that I was commenting on. On this, the wait is for a Circular tyre (Not a circular), rather than a driver.
Cheers
Needless to say 40-50% of tax collections are from TDS. I still personally feel, to throw way all this complex provisions, relief / VI deductions venkayam, podalanga….complex way of doing. At source pay tax and stay relax. MSP from its macro economic principles may not agree with me.
The idea is to keep the tax collections process simple. From this perspective, and also to ensure all transactions resulting in income to the assesee suffered tax the TDS is the right path.
Had there been no TDS, possibly the resulting deficit due to tax evasion etc… have to be filled up by the govt. We may in future even have to find a Drop Box at all hotels and shops, where next to Donation Box (of udavum karangal), Income Tax Box will also be kept!!!!
I look at the following advantages –
(a) Cost of collection is less.
(b) Less possibility of overstating expenditures
(c) Wide Coverage of Assessee’s
(d) Increased filing of IT Return (atleast to claim refund)
Regards,
Sundar
My point throughout the post is not primarily against concept of TDS, but the needless complications in the form of multiple rates of taxes and the intensive mindless procedure, non compliance of which is inviting the wrath of the Income Tax Department.
My anger was more directed at insisting on some benefit to the deductor, who takes that effort ensure revenue streams to the Government.
Cheers
Nicely worded and explained. Tax incentives among the various Government mechanisms / policies for creating infrastructure. Unfortunately in our country, most tax incentives are results of intense lobbying by the corporate world, which has not exactly resulted in price fall / inflation fall.
On a relevant note, this blogpost was more directed at "Why TDS?" and not "Why Tax?" or "Why Tax Incentives?"
Cheers