Apprehending escalation in compliance cost, FICCI today questioned the rationale behind the proposal to introduce tax deduction at source (TDS) in service tax collection.

"...it would entail, amongst other problems, higher cost of compliance, lead to the problem of TDS credit/refunds and intricacies of input tax credit claims," the chamber said in a communication to the Directorate General of Service Tax.

It questioned the rationale of the TDS proposal at "this juncture" when the introduction of GST is imminent and service tax is to be subsumed within the proposed indirect tax regime.

"Therefore, any major change in the administration and collection of service tax will be for a relatively short period," the chamber said.

The Government has tabled a Constitutional amendment bill with an aim to roll out Goods and Services Tax (GST). However, the Centre and States have yet to reach a consensus on several issues.

FICCI said the proposal to introduce TDS in service tax collection in the existing indirect tax structure will envisage obtaining TDS registration, issuing TDS certificate, maintaining TDS register and filing of TDS return by the paying entity.

"(all this would) entail additional cost of compliance for both the industry and the government, apart from complicating the tax structure further, which may not be desirable," it said.

The proposal is also irrelevant in view of the newly introduced Point of Taxation Rules (PoT Rules), that came into effect from July 1, Ficci said.

"The industry has, of late, been reeling under the rising interest cost for its working capital. These Rules have now aggravated the problem...The proposal to introduce TDS would further aggravate the already delicate situation," it said.

FICCI said the Centre and State governments and the High Powered Committee of State Finance Ministers on GST should make sustained efforts to find a way forward for the expeditious launch of the GST.

FICCI urged the Government to drop the idea of introducing TDS mechanism for the collection of service tax.

In case, however, the same has necessarily to be introduced, it would be imperative to scrap PoT Rules, it added.