A PIL filed in the Supreme Court Today (Dec 26) sought to scrap the TDS system calling it “arbitrary and irrational” and violative of various fundamental rights, including equality. The PIL challenged the tax deducted at source or TDS framework under the Income Tax Act, which mandates the deduction of tax at the time of payment by the payer and its deposit with the income tax department. The deducted amount is adjusted against the payee’s tax liability.
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NEW DELHI: A Public Interest Litigation (PIL) was filed in the Supreme Court on Thursday seeking the removal of the Tax Deducted at Source (TDS) system. The petition termed the system as “arbitrary and irrational” and argued that it violates several fundamental rights, including the right to equality.
The TDS framework, under the Income Tax Act, requires payers to deduct tax at the time of payment and deposit it with the Income Tax Department. The amount deducted is then adjusted against the recipient’s tax liability. This mechanism has been challenged in the PIL as burdensome and unfair.
The plea was filed by lawyer Ashwini Upadhyay through advocate Ashwani Dubey, naming the Centre, Ministry of Law and Justice, Law Commission, and NITI Aayog as respondents. It requested the court to declare the TDS system as
“manifestly arbitrary, irrational, and against Articles 14 (right to equality), 19 (right to practice any profession), and 21 (right to life and personal liberty) of the Constitution, hence void and inoperative.”
- Legal Declaration: The PIL sought a declaration from the court to nullify the TDS system on constitutional grounds.
- Reform Recommendations: It urged the NITI Aayog to consider the concerns raised and suggest reforms to the TDS system.
- Law Commission Report: The petition requested the Law Commission to evaluate the legality of TDS and submit a report within three months.
The PIL argued that the TDS system creates significant administrative and financial challenges for taxpayers. It pointed out that taxpayers must manage complex procedures, issue TDS certificates, file returns, and face penalties for accidental errors.
“Assessees often incur substantial expenses, ranging from salaries of compliance staff to professional fees for tax consultants, without receiving compensation,”
-the plea highlighted.
The petition emphasized that the TDS system violates Article 14 by placing an undue burden on economically weaker sections and small earners who lack the resources to navigate its complexities. It further argued that the system adversely affects individuals below the taxable income threshold, as tax is deducted at the source regardless of their actual tax liability.
Referring to Article 23, the PIL stated that the TDS mechanism effectively forces private individuals to undertake tax collection duties, amounting to “forced labour.”
“The regulatory and procedural framework surrounding TDS is excessively technical, often requiring specialised legal and financial expertise, which most assessees lack. The result is an unjust shifting of sovereign responsibilities from the government to private citizens without adequate compensation, resources, or legal safeguards,”
-the plea stated.
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