Why experts want multiple TDS rates scrapped in Budget 2026

The income-tax rules mandate tax deduction at source (TDS) in certain cases. TDS is not intended for revenue collection; it serves as an audit trail

As per the Income-tax Act, 1961, the TDS is currently deducted at six different rates: 0.1%, 1%, 2%, 5%, 10% and 20%.

Given the purpose for which TDS is collected, experts at the Institute of Chartered Accountants of India (ICAI) have suggested that there could be only two rates of TDS: 1% and 5%.

In their pre-budget memorandum, the ICAI experts said: "At present, there are six rates of TDS under the 1961 Act, namely, 0.1%,1%,2%,5%, 10% and 20% which are continuing in the Income-tax Act, 2025."

"In line with the intent of TDS provisions serving as an audit trail rather than a revenue garnering measure, the number of TDS rates may be reduced to two. It is suggested that there be only two rates of TDS, i.e., 1% and 5%, and other rates be aligned with this rate," they added.

The ICAI has also suggested that the threshold limits can be the same for TDS provisions in respect of which there are likely to be disputes relating to categorization. "This minimizes the possibility of disputes arising from the incorrect application of rates."

Year-wise E-Ledger system for crediting TDS/TCS

The ICAI has also suggested introducing a year-wide e-ledger for crediting TDS/TCS.

"In the new Income-tax regime, year-wise E-ledger mechanism, similar to one implemented in Goods and Services Tax (GST), be introduced for income-tax payments, which shall also reduce interface between the assessee and the department," ICAI said.

"The year-wise income-tax e-Ledger would capture all advance tax payments made, the TDS/TCS credits which can be adjusted against the tax due for the current previous year. The balance credit, after adjusting the tax due, may be refunded to the assessee or allowed to be carried forward to the next year for adjustment against tax due in that year," it added.