Tax collection at source, or TCS, is an additional amount collected as tax by a seller of specified goods from the buyer at the time of sale over and above the sale amount and is remitted to the government account. It is mentioned in section 206C of the Income Tax Act, 1961.
Starting Oct 1, 2023, the Government of India introduced TCS rate of 20 percent on foreign remittances of more than ₹7 lakh in a financial year. The higher rate will not apply to education expenses incurred abroad or for medical reasons. The earlier rate of tax was 5 percent.
The tax law mandates that certain persons being the sellers must collect a percentage of tax at the time of receipt of money from the buyers.
Apart from sale of goods, every person who enters into an agreement of lease, licence or contract for parking lot, toll plaza or mining or quarrying will collect an amount at the rate of 2 percent from such parties as TCS.
What should the tax collector and payer do?
The person collecting tax to obtain tax collection account number (TAN) and quote it in all challans, certificates and returns and all other documents pertaining to the transactions.
On the other hand, the buyer will furnish his permanent account number to the seller, failing which tax will be collected at the higher rate (twice or 5 percent whichever is higher).
The TCS collector has to provide a TCS certificate in form 27D to the purchaser of the goods.
How is TCS linked to LRS policy?
The higher TCS rate of 20 percent is applicable on foreign remittances through the liberalised remittances scheme of RBI and on the sale of overseas tour packages.
What is LRS?
The liberalised remittances scheme (LRS) enables Indians to freely remit up to $250,000 in one year without any permission from the Reserve Bank of India (RBI). Any remittance above this requires an explicit nod from the regulator.
Is this the final tax?
This is not the final tax. If the TCS payee is a taxpayer, one can claim credit for the TCS at the time of filing income tax return.
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Updated: 25 Oct 2023, 09:37 AM IST