The Central Board of Direct Taxes is understood to be considering a proposal to expand the coverage of taxes deductible at source.
According to official sources, the plan is to bring in newer areas where assesses will be asked to deduct taxes before they make payments for any service availed of in the manufacturing sector. Even charitable trusts may come under the ambit of TDS.
The proposal, if implemented, will bring major corporate houses that are engaged in outsourcing their manufacturing activities within the TDS net.
The list of entities that will be affected will include local subsidiaries of multinational corporations operating in India. Many corporations outsource part of their operations before finished goods are rolled out to small and medium enterprises and local manufacturers in the unorganised sector.
These companies will now be asked to deduct tax before making payments to these SMEs. Corporations like Coca-Cola, Pepsi, Hindustan Lever and Adidas may be covered.
Sources in the income-tax department said some of these companies were challenging the proposal, saying their farming out of work did not constitute outsourcing.
According to the companies, they are making bulk purchases. The department, however, feels this is plain contract work for which fees or commissions are being paid.
Similarly, charitable organisations, trusts and funds engaged in profitable ventures could also be brought under the new TDS norms. Charitable organisations were exempt from paying taxes under Section 10(23) of the Income Tax Act, a section that became null and void in April 2003.
The basis for including charitable organisations will be the mode of expenditure of the surplus funds at their disposal. Under Section 10(23) of the Act, any trust or fund is exempted from paying tax if it is engaged in providing relief to the poor or in the advancement of the general public utility.
Fees and commissions paid to agents, contractors and franchisees are also likely to come under the purview of TDS. This segment will include the fees or commissions paid to agents for selling lottery tickets, which had become a booming business, said the source.
The tax department has stepped up the number of its TDS surveys to bring new assessees in the net and check evasion. In Mumbai alone, the department has collected 50 per cent of the target, Rs 11,600 crore (Rs 116 billion), for the year under TDS. Of the total revenue collected as direct taxes, around 40 per cent comes in the form of TDS.
Unkind cut
Why is TDS important?
Who are the new targets?
What do corporates say?