How tax will be collected at source from individuals on certain transactions from Oct 1?

How tax will be collected at source from individuals on these transactions from Oct 1?

Taxes are collected by the Government of India to generate revenue for the country. There are various types of taxes levied and collected by the authority of law. As taxes are an essential part of the country, one needs to fulfil the tax obligations always on time. The tax collected at source (TCS) is one such type of tax that is incurred at the origin or source of income. 

What is Tax Collected at Source (TCS)?

Basically, tax collected at source is the tax that is a tax collected by the sellers while selling specific goods to the buyers. The rate at which tax is collected at source will vary depending on the types of goods (such as scrap, timber and mineral wood, etc.) that are being sold. The tax collected at source (TCS) is applicable for selected transactions related to specific goods and services.

New Provisions of Tax Collected at Source (TCS)

Now, with the introduction of new provisions of tax collected at source (TCS), TCS is not just limited to selected transactions involving specific goods and services, it is now applicable to numerous other transactions. Finance Act, 2020 has expanded the tax collected at source (TCS) net by widening the scope of Section 206C of the Income-tax Act, 1961. Effective from 1st October 2020, the tax will be collected at source from below transactions also.

• On foreign remittances under the Liberalised Remittance Scheme (LRS)

A tax collected at source (TCS) of 5% would be applicable on foreign remittances under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India if the transaction amount exceeds INR 7 lakhs in the financial year. A restricted tax collected at source (TCS) would be applied at the rate of 0.5% in case of remittances towards loans for education purposes.

TCS rates applicable will be inflated for cases where PAN/Aadhaar details are not provided. The applicable rate of TCS for such cases is 10% irrespective of the source of the education loan.

The Liberalised Remittance Scheme (LRS) of the Reserve Bank of India allows the resident individuals to freely make foreign remittances up to $2, 50,000 per financial year. The Liberalised Remittance Scheme (LRS) of the Reserve Bank of India permits various transactions such as investments abroad, purchase of property, providing loans to Non-Resident Indians (NRIs), gifts, donations, business trips and maintenance of close relatives, etc. Any LRS transaction that exceeds INR 7 lakhs during the year, authorised dealer or the banker needs to collect the tax at source. Any remittance transaction where Tax Deducted at Source (TDS) is applicable, Tax Collected at Source (TCS) would not be applicable. 

• On purchase of overseas tour package

The tax collected at source (TCS) of 5% would be applicable on the purchase of overseas tour packages. There is no limit on the transaction amount. The TCS rate is applicable irrespective of the amount of purchase. TCS is levied at an inflated rate of 10% for cases where PAN/Aadhaar details are not provided.

That means, be it a purchase of an overseas travel package of INR 1 lakh or INR 5 lakh, the tax will be collected at source on your purchase transaction as per specified rate. The amount that you need to pay for the overseas travel package will include the overseas travel package amount + TCS, as applicable + GST and any other charges, if any.

• On the sale of goods

A TCS of 0.1% would be applicable on the sale of goods for over INR 50 lakhs in a financial year under section 206C (1H) by a seller with a turnover of more than INR 10 crores during the financial year immediately preceding the financial year in which sale is carried out. TCS would be levied at an inflated rate of 1% for cases where PAN/Aadhaar details are not provided.

These new provisions of tax collected at source (TCS) under section 206C of the Income Tax Act, 1961, is not applicable if the buyer is –

• The Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate, trade representation of a foreign state; or
• A local authority as defined in the Explanation to clause (20) of section 10; or
• A person importing goods into India 

The tax collected at source by the authorised dealer for the foreign remittance transaction and by the seller of the goods will reflect in your Annual Information Statement (Form 26AS). The amount so collected from you for the transactions will be available for the tax credit. You can claim the same at the time of filing your income tax return. You can obtain the TCS certificate from the authorised dealer banker for the foreign remittance transaction under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India for which TCS has been levied.

It is important to note that the tax collected at source (TCS) is the income tax collected in advance. As a remitter or buyer, you would get the credit against your actual income tax liability. In case the tax collected at source is more than your tax liability for the financial year, then you would be entitled to receive the refund of the excess amount collected at source along with interest.