The Supreme Court declined to consider a Public Interest Litigation (PIL) that sought to label the Tax Deducted at Source (TDS) system as “manifestly arbitrary, irrational, and a violation of various fundamental rights.” A bench comprised of Chief Justice Sanjiv Khanna and Justice Sanjay Kumar reviewed the case and advised the petitioner, advocate Ashwini Upadhyay, to approach the High Court instead.
The bench criticized the petition for being poorly drafted and stated, “We will not entertain this. You may move to the High Court. Some judgments have upheld it. Dismissed.”
The petition argued that the TDS system imposes disproportionate administrative burdens on taxpayers, particularly affecting economically disadvantaged individuals and small earners who struggle with its complexities. The petitioner requested that the system be declared a violation of fundamental rights enshrined in Articles 14 (right to equality), 19 (right to practice a profession), and 21 (right to life and personal liberty) of the Constitution, thus rendering it void and inoperative.
Moreover, the petition called for the NITI Aayog to evaluate the assertions made and propose necessary modifications to the TDS framework. It also urged the Law Commission to review the legal standing of the TDS system and prepare a report within three months.
The petition emphasized that the TDS system violates Article 14 by imposing excessive burdens on those who are economically weaker. It also referenced Article 23, suggesting that transferring tax collection responsibilities to private citizens equates to forced labor.
According to the petition, the complex regulatory framework surrounding TDS often necessitates specialized legal and financial knowledge, which many taxpayers lack. Consequently, this results in an unjust transfer of governmental responsibilities onto individuals without adequate support, resources, or legal protections.
Although the TDS system facilitates consistent revenue generation for the government, it imposes significant administrative and financial responsibilities on taxpayers. These responsibilities include identifying applicable TDS rates, deducting taxes prior to payments, depositing those taxes with the government within specified deadlines, issuing TDS certificates to payees, filing tax returns, and ensuring compliance with frequent legal changes, all while defending against potential assessments and penalties for unintentional non-compliance.
Under the Income Tax Act, the TDS framework necessitates the deduction of tax at the moment of payment by the payer, with the amounts collected being deposited with the income tax department. The deducted sums come from various payments like salaries, contractual fees, rents, commissions, and other taxable amounts, subsequently being adjusted against the tax liabilities of the recipients.
