With the growth in advance tax collections moderating this financial year, the revenue department is looking at widening the ambit of tax deducted at source (TDS) to cover more services like credit rating agencies, market research firms and beauty treatment clinics in order to increase income-tax revenues.
We are examining whether TDS can be collected on all services which are under the service tax net, said a revenue department official. A department committee, set up to look at ways to expand the TDS net, is scheduled to meet in Hyderabad to discuss the proposal.
While some services like contracts, construction and rentals are under the TDS net, a large number of services like beauty treatment, connectivity between mobile operators, event management, credit rating agencies, market research firms and authorised automobile service stations are not.
After deliberations, the panel is likely to suggest legislative changes to cover all 108 service categories which are under the service tax net.
Companies and firms deduct TDS mandatorily while making payments towards salaries, advertisements and contracts, among others. TDS rate varies from 1 per cent to 30 per cent.
Net direct tax collections grew 32.5 per cent in the first six months of fiscal 2008-09, slower than the 40 per cent growth clocked in the same period last year, mainly due to moderation in advance tax paid by corporations and individuals.
The Income Tax Department is now pinning hopes on TDS collections to meet the annual target of Rs 3,95,000 crore for 2008-09. Corporate TDS collection grew 52 per cent to Rs 30,810 crore in April-September this year as compared with Rs 20,210 crore in the same period last year.
Personal TDS collection was up by 28 per cent to Rs 33,276 crore during the period as against Rs 26,002 crore in the year-ago period.