Budget 2026: Small Taxpayers to Get Faster Lower or Nil TDS Certificates Through Automated System

In a major step towards simplifying tax compliance and reducing direct interaction with tax authorities, Union Finance Minister Nirmala Sitharaman, in her Budget 2026 speech, announced a new scheme aimed at easing the burden on small taxpayers seeking lower or nil tax deduction at source (TDS) certificates.

Under the proposed framework, a rule-based automated process will be introduced to enable eligible small taxpayers to obtain lower or nil TDS deduction certificates without the need to file a manual application before the assessing officer. The move is intended to make the system more transparent, efficient, and taxpayer-friendly.

End of Manual Applications and Discretionary Approvals

Currently, taxpayers seeking relief from higher TDS rates are required to submit detailed applications to assessing officers, a process that often involves significant paperwork, time delays, and personal interface with tax authorities. The proposed automated mechanism will eliminate this requirement by relying on predefined rules and data-driven assessments.

According to the Finance Minister, the system will automatically evaluate eligibility based on parameters such as past income, tax compliance history, and return filings, ensuring quicker and objective decisions.

Boost to Ease of Doing Business

The initiative is expected to significantly improve the ease of doing business, particularly for freelancers, small businesses, professionals, and other taxpayers with predictable income streams but lower actual tax liabilities. By reducing procedural hurdles, the government aims to ensure that excess tax is not locked up with the exchequer and that taxpayers have better cash flow during the financial year.

Greater Transparency and Reduced Litigation

By shifting to an automated, rule-based process, the government also seeks to minimise discretionary decision-making and reduce disputes arising from delays or rejections in granting lower or nil deduction certificates. The reform aligns with the broader policy objective of using technology to enhance trust between taxpayers and the tax administration.

Part of Larger Tax Administration Reforms

This proposal forms part of the government’s ongoing efforts to modernise tax administration through digitisation and simplification. Over recent years, the Income Tax Department has increasingly adopted faceless and automated systems to reduce compliance costs and improve service delivery.

The Finance Minister stated that further details regarding eligibility criteria, operational rules, and implementation timelines will be notified separately after necessary system upgrades and stakeholder consultations.

Once implemented, the scheme is expected to bring meaningful relief to small taxpayers and reinforce the government’s commitment to a simpler, faster, and non-intrusive tax regime.