Government prepares ground for TDS on services, to primarily impact B2B service providers, including IT majors like TCS, Infosys, Wipro, BPOs & consultancy services

The finance ministry is exploring the option of introducing tax deduction at source, or TDS, in the services sector to stem tax evasion, though some experts say the move could raise transaction costs and lock up working capital. The proposed tax regime will be similar to the one in place for income tax, where employers deduct tax before paying out salaries. It will mainly affect business-to-business service providers such as IT majors TCS, Infosys and Wipro, BPOs and consultancy services, as it will lock up their working capital. North Block hopes the system will give a one-time kicker to revenue by collecting taxes that may have to be refunded later, allowing the government to create a float of thousands of crores of rupees that could come handy in the current fiscal.