Taxmen may source defence min supplies for adding to collections

NEW DELHI: The government is toying with a proposal to bring procurement contracts of the defence ministry under tax collected at source (TCS) net this Budget. If the proposal goes through, companies supplying to defence ministry will have to face tax deduction while receiving payments for such supplies.

However, sources said the deduction would be made applicable only above a threshold. Also, the rate of tax is likely to be kept low. Sources said only large-sized contracts may be brought into the TCS net initially. At present, contractual professional, technical and other categories are under the tax deducted at source (TDS) net. TCS is applicable on paper, timber and tobacco, among others.

“In order to increase the compliance and revenue collections, the government may look at enhancing the existing provisions or introduce new ones to cover new/additional transactions,” KPMG partner Vikas Vasal said.Earlier, the income-tax department had found that TDS collections from government departments have been low.

Of the total collection of Rs 70,000 crore in 2006-07, just Rs 1,500 crore came from government departments. This is even as some departments like railways and defence are the largest providers of contracts.

It had even proposed to conduct audits of such departments to ascertain the reason behind lower collection of TDS/TCS.Since TDS and TCS are considered an efficient way of collecting tax and establishing an audit trail, the government is keen on strengthening its administration. Under the system, the government gets its revenues outright while the taxpayer who does not have any income tax liability and can claim a refund in respect of the deduction made from his payment.

The I-T department has created a TDS directorate with a view to tighten TDS administration with 12 commissionerates across the country having dedicated officers focusing on expanding the TDS network and ensuring greater compliance.
All government departments, both at central and state levels, have been asked to take tax deduction account numbers (TAN) and e-file their returns every quarter.