Tax deducted at source
o The insistence on manual filing of TDS certificates before AO for verification of refunds claim should be done away with.
o The tax deductor’s duties and obligations in terms of making information compliance and also depositing the deducted amount is onerous and they are not compensated for that. Therefore, some compensation for them should be considered. This can be in terms of a small commission to be deducted as business expenses by them to fulfil their obligations.
o The CPC-TDS should allow correction in the name of the deductees to avoid multiple submissions of TDS forms. Even a single error requires the deductor to submit the entire return afresh. The process of uploading the entire file for one or two corrections is cumbersome and disproportionate to the gravity of the error. This adversely impacts taxpayer services. Subject to the required checks and validations, there is a need to widen the scope of online error rectification service.
o A passbook scheme for TDS may be adopted with some safeguards. Once TDS is deducted from a payment, TDS should get credited tothe taxpayer’s account. This should be like an account with running balance, to be utilized by the taxpayer at his option to set off his tax liabilities.
To assist small and marginal tax deductors in preparing and filing their TDS returns, either existing tax return preparers or a separate system of TDS return preparers should be initiated with more training and a better remuneration structure than at present.
o Refunds should be issued within a strict time frame. There should be a separate budgetary head for refund of direct tax and indirect taxes in the annual budget out of which refunds should be issued so that there is transparency. Adequate allocation should be made by the government under this head.
o Refunds sanctioned should be paid along with the applicable interest automatically as is done in the case of income tax and not on demand by the taxpayers. As in the case of direct taxes and customs duty drawback, the refund and interest payment should be directly credited to the bank account of the taxpayer.
o The rate of interest on refunds should be the same as the interest charged by the tax department. This would ensure equity between the two interests and would not disadvantage the taxpayer unduly.
o Refunds arising after a favourable appeal should be paid in time or the tax payer should be allowed to set-off the advance tax liability or self-assessment tax liability of subsequent years against the refunds due.
o The test to determine whether there is unjust enrichment in indirect taxes should be limited to cases of refunds where there is direct passing on of amounts claimed as refunds. In any other situation, this concept should not be applied.
o Refund claim subjected to pre-audit verification should be issued within a specified time. The post-audit verification of refund claim should be risk-based.
o An easier and simplified scheme should be introduced for service exporters. The entire refund filing and processing mechanism should be online.
Source- First Report of the Tax Administration Reform Commission (TARC)