Supreme Court rejects PIL challenging Tax Deducted at Source

The Supreme Court on Friday dismissed a public interest litigation (PIL) petition calling for the declaration of the Tax Deducted at Source (TDS) system as arbitrary, irrational and unconstitutional [Ashwini Kumar Upadhyay v. Union of India and ors]..The Bench of Chief Justice of India (CJI) Sanjiv Khanna and Justice Sanjay Kumar refused to entertain the matter but suggested that the petitioner could move the High Court for relief. "Sorry, we will not entertain. It is very badly drafted. You can move the High Court. Some judgments have upheld it. Sorry. We will not entertain. Dismissed," CJI Khanna said. .The petition was filed by advocate and Bharatiya Janata Party (BJP) leader, Ashwini Kumar Upadhyay, who raised concerns about the administrative and financial obligations that TDS assesses are burdened with. The TDS system was introduced as a measure to guard against tax evasion. It comes into play when a person (deductor) is obligated to pay another (payee) money, such as salaries, rents, commissions, etc. that exceeds a prescribed threshold and becomes taxable. In such a scenario, the deductor is expected to deduct the tax amount due (TDS) before making the payment (to the payee) and remit the tax amount to the government. The government will later refund the TDS amount after assessees file their income tax returns..In his plea, Upadhyay argued that the regulatory and procedural framework surrounding TDS is excessively technical, often requiring specialised legal and financial expertise, which most assesses lack. The result is an unjust shifting of sovereign responsibilities from the government to private citizens without adequate compensation, resources or legal safeguards, the plea said. He added that illiterate or economically weaker assesses who lack the capacity to navigate such a technical framework suffer undue hardship and harassment, which undermines the Constitutional guarantee of equality.Therefore, the TDS system amounts to an indirect tax burden for assesses, which lacks express legislative sanction, making it unconstitutional and against the public interest, he said. He also contended that it amounts to forced labour for TDS assesses, which is unconstitutional."The government does not lack the resources to directly collect taxes through its tax department. Still, it transfers the responsibility to TDS assesses without remuneration," the plea said. He further pointed out that many taxpayers, particularly in rural and economically weaker sections, forgo their rightful refunds, resulting in unwarranted enrichment of the government.He said that there are viable alternatives to monitor tax compliance such as strengthening the annual information return (AIR) system and requiring detailed reports of taxable payments exceeding specified thresholds which allow the tax department to identify tax defaulters.He noted that the TDS system also ensures a steady revenue inflow for the government, but went on to observe that a monthly advance tax system, instead of a quarterly schedule, would also ensure regular revenue flow while reducing the compliance burden on TDS assesses.Automated systems could also be enhanced, as can direct tax recovery mechanisms, by leveraging technology and data analytics, to improve compliance with tax regulations, the plea said. The petition was filed through advocate Ashwani Kumar Dubey. .[Read Live Coverage]