The Supreme Court on Friday rejected a public interest litigation (PIL) seeking to declare the Tax Deducted at Source (TDS) system as arbitrary, irrational, and unconstitutional.

The bench comprising Chief Justice of India (CJI) Sanjiv Khanna and Justice Sanjay Kumar declined to entertain the petition but advised the petitioner to approach 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.

Advocate and Bharatiya Janata Party (BJP) leader Ashwini Kumar Upadhyay filed the petition, highlighting the administrative and financial burdens imposed on TDS assesses.  

The TDS system, introduced as a measure to prevent tax evasion, requires a person (deductor) paying money, such as salaries, rents, or commissions exceeding a prescribed taxable threshold, to deduct the applicable tax amount (TDS) before making the payment to the recipient (payee) and remit it to the government. Refunds of TDS amounts are processed later when assesses file their income tax returns.

Upadhyay argued that the regulatory and procedural complexities of the TDS system often demand specialized legal and financial expertise, which many assesses lack. This framework, he contended, unfairly shifts the government's sovereign responsibilities onto private citizens without providing adequate compensation, resources, or legal safeguards.

The plea further asserted that illiterate or economically weaker individuals face undue hardship and harassment while navigating this technical framework, thereby violating the constitutional right to equality. Upadhyay claimed that the TDS system essentially functions as an indirect tax burden without explicit legislative approval, rendering it unconstitutional and contrary to public interest.  

He also argued that the system imposes forced labor on TDS assesses, which is unconstitutional.

Upadhyay highlighted that many taxpayers, particularly those from rural or economically weaker backgrounds, often forgo their rightful refunds, leading to the government's unwarranted enrichment.  

He proposed viable alternatives to monitor tax compliance, such as enhancing the annual information return (AIR) system and mandating detailed reports of taxable payments exceeding specified thresholds. These measures, he argued, would enable the tax department to identify defaulters effectively without burdening taxpayers with TDS obligations.  

While acknowledging that the TDS system ensures a steady revenue inflow for the government, he suggested that transitioning to a monthly advance tax system, rather than a quarterly schedule, could maintain regular revenue flow while alleviating the compliance burden on TDS assesses.  

The plea also emphasized the potential of leveraging technology and data analytics to enhance automated systems and improve direct tax recovery mechanisms, ensuring better compliance with tax regulations.  

The petition was filed through advocate Ashwani Kumar Dubey.