More professionals to come under TDS

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New Delhi, September 26:: To keep pace with the country’s booming services sector, the finance ministry is considering a proposal to expand the scope of tax deduction at source (TDS) to include a host of professionals under it.

To this effect, the Central Board of Direct Taxes (CBDT) is planning to broaden the definition of “professionals” in the Income Tax Act, 1961 and deduct tax on their earnings at the rate of 10%. If the proposal, which is at a nascent stage, goes through, a number of professional service providers such as brand ambassadors, management consultants and financial planners, to name a few, would attract a 10% TDS.

Professional services are taxed in accordance with Section 194J of the I-T Act. According to the section, if the fee for professional or technical service contract undertaken by any of the listed professionals is more than Rs 20,000, the contract awardee has to deduct tax at the rate of 10%.

The department would compile a list of such professionals after considering the income heads that attract service tax. The move will mean that more professionals will come under the TDS net, and at a higher rate.

“With the growth in the services sector, more and more professions are emerging. The department is trying to keep up with this and bring more heads under TDS,” Amitabh Singh, partner, Ernst & Young, said.

In a similar move, the CBDT last month classified sportspersons, umpires, referees, coaches, trainers, team physicians and physiotherapists, event managers, commentators, anchors, and sports columnists as “professionals” and brought them under the 10% TDS rate.

Tax was earlier deducted on their earnings at 1% to 2%.

This is the latest in a series of efforts by the department to increase its collections from TDS. It has also restructured the TDS administration to strengthen collections.

The TDS rate was also hiked from 5% to 10% in Budget 2007-08.