The Federation of Indian Chambers of Commerce and Industry (FICCI) has opposed a Finance Ministry proposal to introduce tax deduction at source (TDS) mechanism for service tax collections.

Any such move would entail higher compliance cost, besides problems of TDS credit/refunds, the chamber said in a communication to the Directorate-General of Service Tax (DGST).

FICCI has questioned the rationale of the TDS proposal at this juncture when the introduction of Goods and Services Tax (GST) is imminent and service tax is to be subsumed within GST. At this stage, introduction of TDS mechanism for service tax collections is not warranted, the chamber has said.

The proposal to introduce TDS in service tax collection will result in obtaining of TDS registration, issuing TDS certificate, maintaining TDS register and filing of TDS return by the paying entity. It would entail additional cost of compliance for both industry and the Government, apart from complicating the tax structure further, which may not be desirable, the FICCI has said.

The chamber also highlighted that point of taxation rules have become effective from July 1 this year. These rules have put industry in a difficult situation and any move to introduce TDS would further aggravate the already delicate situation.

If the TDS mechanism has to be necessarily introduced, it would be imperative to scrap point of taxation rules, the chamber has said. FICCI is of the view that TDS mechanism would be useful only in situations where the service provider is in an unorganised sector. It could also be used in sectors where tax evasion is reportedly high, instead of having a TDS system across the board, according to FICCI.

> krsrivats@thehindu.co.in.

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