Income tax department pitches for three slabs.

The government is considering a proposal to streamline rates applicable for tax deducted at source (TDS).

This follows a recommendation from the income tax (I-T) department that TDS rates should be structured in three slabs of between one and five per cent for any stream of income.

TDS is final tax payable by an assessee receiving any income as salary, contract fee or dues. It is deducted by the taxpayer while paying the dues to the assessee.

At present, there are multiple tax rates for TDS starting from one per cent to over 30 per cent.

Also, some rates are specified in individual sections that deal with the tax treatment of a particular income and others are included in separate schedules, making TDS payments difficult to monitor.

Time and manpower are also wasted as a result of the multiplicity of rates, the I-T department has argued, so streamlining would make monitoring easier and less time-consuming.

TDS, however, has emerged as an important source of revenue, contributing almost 33 per cent to tax collections. To compensate for the revenue loss from streamlining rates, the I-T department has suggested bringing more income streams under the TDS ambit.

For instance, the department is considering bringing reinsurance commission received from insurance firms under the TDS umbrella, as also rental income paid for vessels of shipping companies that are chartered.

The latter, however, is subject to a Bombay High Court ruling that TDS was not applicable for ships, transport vehicles and freight or charter hire payments.