TCS, TDS to formalize economy

Addressing industry representatives at a conference in Hyderabad, Sitharaman promised to look into requests for relief for micro enterprises in the area of debt. In response to a suggestion that micro enterprises are not able to deal with norms relating to non-performing assets and provisions of SARFAESY Act, which allow lenders to recover dues without having to go to a court, the minister said that the government “will take up” the suggestions.

One suggestion was to give micro enterprises a different treatment compared to other classes of borrowers. The government has been expanding the scope of TCS and TDS as part of stepping up oversight of economic activities with the idea of widening the tax base. In Finance Bill, 2023, the government proposed that payment of interest on listed debentures, which was exempted from TDS earlier, be subject to TDS.

Sitharaman said TDS and TCS are not new taxes and that these are adjusted against a party’s tax liability. “I appeal to all of you to explain the motive as to why we have TCS/TDS objectives. They are not new tax,” the minister said. She said the government wants to formalize the economy—TDS and TCS provisions are used to track payments and to get an idea of economic activity. Sitharaman said in the absence of these provisions, the authorities will not have an idea of flow of funds through transactions.

With TDS and TCS provisions, “at least we will know who is the giver and who is the taker.”The minister also appealed to industry representatives to spread the idea of the intention behind these provisions. “Both giver and taker, wherever necessary, are going to pay the tax and at that time, you are going to reconcile this. I would request people who have an area of influence like yourself, to speak for methods and measures taken by the government to formalise the economy. If you start appealing against TDS/TCS, this country will never get formalized,” the minister said.

Finance secretary T. V. Somanathan told industry leaders that in the union budget for FY24, a significant announcement has been made for helping small businesses to get dues quickly.

“An amendment is being made to the Income Tax Act, by which, if payment is not made within due time to an MSME, then that amount cannot be deducted by the paying organization until payment is already made. This is a strong incentive for bigger companies to pay because if they do not pay, this expense will be disallowed until such time it is paid,” Somanathan said.