Budget 2026: Companies seek elimination of TDS and TCS on GST-covered transactions
Industry bodies and businesses want Budget 2026 to do away with tax deduction at source (TDS) and tax collection at source (TCS) on transactions subject to goods and services tax (GST), saying the parallel levy system has become redundant, costly and prone to compliance errors.
Several industry bodies and professional firms made these demand in their pre-Budget submissions, tax experts said.
The push is rooted in how India’s tax architecture has evolved since the GST rollout. GST is now a pan-India, invoice-level, real-time reporting system that captures virtually every business-to-business transaction.
Companies upload sales and purchase data, input tax credits and counter-party details into a centralised portal, giving tax authorities a live audit trail of economic activity.
TDS and TCS, in contrast, were designed as a tracking and enforcement tool in a fragmented tax system, where the income tax department had limited visibility into business transactions.
Taxes are deducted or collected at the time of payment, so that transactions are reported and some tax is collected upfront, which is later adjusted against the final income tax liability.
“With the implementation of a pan-India GST framework, a unified tax reporting system already exists. This can be effectively used to reduce TDS/TCS compliance,” Deloitte India said in its pre-Budget FY27 report.
“It is recommended that TDS/TCS be eliminated on all transactions where GST is applicable. The Income-tax Department can obtain information and track these transactions as needed by using GST returns, without creating any additional compliance.”
Tax experts say running both systems in parallel has created duplication without delivering any real enforcement benefit.
Under current rules, TDS and TCS rates range from 0.1 percent to 35 percent, depending on the nature of the transaction, the residency of the counter-party and the tax status of the recipient.
Companies are required to identify the applicable section, deduct or collect the correct amount, deposit it within timelines, file quarterly returns and issue certificates to vendors.
This complexity has raised compliance costs and increased the risk of mistakes, especially for companies that deal with hundreds or thousands of vendors.
