SC declines PIL seeking to scrap TDS system under I-T law

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A Bench led by Chief Justice of India Sanjiv Khanna said TDS was levied “everywhere”.

The Bench — which also included Justice Sanjay Kumar — however, permitted petitioner Ashwini Kumar Upadhyay, an advocate, to approach the Delhi High Court with his PIL. Upadhyay — who had challenged the TDS system of income tax collection on the ground that it’s "arbitrary and irrational" and violated various fundamental rights — said he would move the Delhi High Court.

Upadhyay contended that the TDS (Tax Deducted at Source) system under the Income Tax Act -- which mandated deduction of tax at the time of payment by the payer and its deposit with the IT Department and the deducted amount was adjusted against the payee's tax liability -- violated various fundamental rights.

He urged the top court to direct the Centre to "declare the TDS system manifestly arbitrary, irrational and against Articles 14 (right to equality), 19 (right to practice profession) and 21 (right to life and personal liberty) of the Constitution, hence void and inoperative".

Seeking directions to the NITI Aayog to consider contentions raised in the plea and suggest necessary changes in the TDS system, he said the Law Commission should examine the legality of the TDS system and prepare a report within three months.

The TDS system imposes significant administrative and financial burdens on taxpayers tasked with compliance which include managing complex rules, issuing TDS certificates, filing returns and defending against penalties for inadvertent errors, argued the plea.

“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," it said.

The TDS system was stated to adversely affect individuals below the taxable income threshold, as tax was deducted at source irrespective of their liability. Assessees often incur substantial expenses, ranging from salaries of compliance staff to professional fee for tax consultants, without receiving compensation, the petitioner submitted.

The TDS system violated Article 14 (right to equality) by disproportionately burdening economically weaker sections and small earners who lack the capacity to navigate its technical requirements, the petitioner alleged.

The imposition of tax collection duties on private citizens amounted to forced labour and a violation of Article 23, Upadhyay alleged.