The government is considering a proposal to streamline rates applicablefor tax deducted at source (TDS).

This follows a recommendation from the income tax (I-T) department that TDSrates should be structured in three slabs of between one and five per cent forany stream of income.

TDS is final tax payable by an assessee receiving any income as salary,contract fee or dues. It is deducted by the taxpayer while paying the dues tothe assessee.

At present, there are multiple tax rates for TDS starting from one per cent toover 30 per cent.

Also, some rates are specified in individual sections that deal with the taxtreatment of a particular income and others are included in separate schedules,making TDS payments difficult to monitor.

Time and manpower are also wasted as a result of the multiplicity of rates, theI-T department has argued, so streamlining would make monitoring easier andless time-consuming.

TDS, however, has emerged as an important source of revenue, contributingalmost 33 per cent to tax collections. To compensate for the revenue loss fromstreamlining rates, the I-T department has suggested bringing more incomestreams under the TDS ambit.

For instance, the department is considering bringing reinsurance commissionreceived from insurance firms under the TDS umbrella, as also rental incomepaid for vessels of shipping companies that are chartered.

The latter, however, is subject to a Bombay High Court ruling that TDS was notapplicable for ships, transport vehicles and freight or charter hire payments.