Taxpayers Trapped: Expert Flags Major TDS/TCS Anomalies Undermining New Income Tax Act

The landmark Income-tax Act, 2025, promised a new era of clarity by replacing the six-decade-old 1961 law. However, according to O.P. Yadav, former Principal Commissioner of Income Tax, outdated procedural rules—especially those governing Tax Deducted/Collected at Source (TDS/TCS)—are threatening to reverse these gains, causing “genuine hardship” and financial stress for honest taxpayers.

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Yadav argues that while the substantive law is clearer, the Income-tax Rules contain contradictions and burdensome steps that result in taxpayers effectively paying the same tax twice.

Here are the three major issues and the solutions proposed by the expert:

1. The TDS Credit Contradiction: Taxpayers Paying Twice

The most critical issue is the denial of TDS credit to the deductee when the deductor fails to deposit the tax.

• The Conflict: The law (Sections 391 & 401) clearly states that once tax is deducted, the government cannot recover it again from the taxpayer. Yet, the governing Rule 37BA allows credit only if the deductor actually deposits the tax.
• The Outcome: If the deductor defaults or misreports, the taxpayer is denied credit, faces demands, or has refunds withheld. This “leaves genuine taxpayers trapped,” forcing them to pay tax twice or endure long delays, while the government is mandated by law to recover the funds from the deductor.
• The Fix: Yadav proposes introducing a rule to allow credit based on evidence like payslips or Form 16/16A, ensuring immediate relief and restoring fairness when a deductor defaults.

2. Overlapping Levies on NRI Property Sales

Yadav highlighted an anomaly where a single transaction—the sale of property by a Non-Resident Indian (NRI)—attracts both TDS and TCS, leading to excessive collection.

• The Problem: The buyer deducts TDS at 12.5% on the sale consideration. Separately, when the NRI remits the proceeds abroad, banks may levy TCS at 20% on the amount exceeding ₹10 lakh.
• The Result: The total collection can be up to 3.5 times the actual tax liability. This excessive blocking of funds forces NRIs to claim large refunds later. The application of TCS is also inconsistent, depending entirely on the mode of payment (NRO account vs. foreign currency).
• The Fix: The government should use its powers to notify that no TCS applies where TDS has already been deducted, or explicitly exempt these transactions through a legislative amendment.

3. Outdated and Cumbersome Procedures

Finally, the expert called for modernizing several procedural steps to align with the digital era:

Issue	Problem	Proposed Solution
Deposit Delays	The seven-day window for TDS/TCS remittance delays credit and encourages defaults.	Mandate same-day or next-day online deposits.
Filing Complexity	The requirement for quarterly TDS/TCS statements increases errors and penalties.	Introduce a universal Challan-cum-statement system.
Manual Certification	Requiring CA certificates (Sec. 398) to relieve deductors is unnecessary when the department has digital access to ITRs.	Shift to system-based verification of ITRs, reserving CA certification for exceptional cases.

Yadav cautioned that unless these crucial procedural rules are modernized, the fundamental benefits of the New Income-tax Act risk being “overshadowed by compliance bottlenecks.”