Introduction to Tax Collected at Source
Tax Collected at Source(TCS) is the concept wherein the seller collects a percentage of tax from the buyer on the sales amount.
The tax collected by the seller is then to be deposited with the government. The collector of tax i.e. sellers is required to furnish quarterly returns online with CPC-TDS in Form No. 27EQ on prescribed dates.
Applicability and rates of TDS are discussed in Section 206 of the Income Tax Act, 1961.
Initially, the TCS(Tax Collected at Souce) income tax provisions were applicable only to certain goods with specified limits such as-
- Alcoholic Liquor for human consumption
- Tendu leaves
- Timber
- Parking lots, Toll Plaza
- Minerals
- Bullions
- Motor Vehicles
However, the Finance Act 2020 has extended the TCS provisions to three new categories of businesses/activities with effect from 1.10.2020:
- Foreign currency dealers,
- Foreign tour operators, and
- Sellers of goods whose turnover exceeds INR 10 crore.
Now let’s discuss the TCS (Tax Collected at Source) amendments in the section 206C of the Income Tax Act, 1961:
Rate of TCS for Foreign currency dealers
According to sub-section (1G) of Section 206C of the I.T. Act, every Authorized Dealer who receives an amount from a buyer to remit the same out of India under the Liberalized Remittance Scheme of RBI, shall collect TCS @ 5% from the buyer if aggregate sum remitted by the Buyer during the financial year exceeds INR 7,00,000/-.
The Dealer shall collect TCS at the time of debiting the account of the buyer or on receipt of the amount from the buyer whichever is earlier, and deposit it in the government account on behalf of the buyer.
“Authorised Dealer” means a person authorized by the Reserve Bank of India under subsection (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign exchange or foreign security.
In case wherein the amount remitted out of India is for pursuing education after taking loan from any financial institution referred to in section 80E, then a rate of 0.5% will be appliable for TCS.
Rate of TCS for Foreign tour operators
As per sub-section (1G) of Section 206C of the I.T. Act, every Seller of ‘overseas tour program package’ shall collect TCS @5% of such amount from the buyer, being the purchaser of such package.
The seller shall collect TCS at the time of receipt of the amount from the Buyer or debit of the account of the Buyer whichever is earlier, and deposit it in the government account on behalf of the Buyer.
“Overseas Tour Programme Package” means any tour package which offers a visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.
Sellers of goods whose turnover exceeds INR 10 crore.
According to sub-section (1H) of section 206 of the I.T. Act, every specified person shall deduct a TCS @ 0.10% and deposit the same with the government.
Specified person:
Who receives any amount as consideration for the sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, and whose total sales or turnover from the business carried on by him exceed INR 10 crore during the immediately preceding financial year.
Non-applicability of sub-section (1H):
This provision doesn’t apply to the sale of goods covered in sub-section (1) or sub-section (1F) or sub-section (1G),
This provision will not apply to the export or import of goods.
This provision will not apply if the aggregate value of the sale consideration for any goods to a Buyer does not exceed INR 50 lakh in a year.
In case the buyer has not provided PAN/Aadhar Number to the seller, then the TCS rate shall be @ 5% or 1% as prescribed.
Non-applicability of sub-section (1G) and (1H):
This provision is not applicable where the buyer is the Central Government or a State government, or foreign embassy or mission, etc., or a Local Authority or an entity notified by CBDT.
These provisions are also not applicable if the buyer is liable to deduct tax at source under any other provision of Income-tax Act on the goods purchased by him from the Seller and has deducted such amount.
Relevant FAQs regarding Tax collected at source
TCS to be collected on the amount before or after including GST?
Ans: The Income Tax Department on TCS provides that the “amount debited to the account of buyer or payment shall be received by seller inclusive of VAT/Excise/GST. TCS to be collected on inclusive of GST”.
The above view was also affirmed by Madhya Pradesh HC in the case of Vinod Rathore (278 ITR 122). Therefore, considering the above judgment, in respect to section 206C(1H), TCS may be leviable on the GST component as well.
Does TCS u/s. 206C(1H) excludes its applicability when goods are procured for the purpose of further manufacturing/ processing subject to declaration by the buyer, as stated in section 206C(1)?
Ans: Section 206C(1) provides such exemption however No similar exemption is given in section 206C(1H), TCS may have to be levied and collected for any sale of goods covered by section 206C(1H), even if the goods are procured for subsequent manufacturing/ processing.
Whether TCS u/s. 206C(1H) be collected on amounts over and above INR. 50 Lakhs or on entire consideration?
Ans: Section 206C(1H) provides for the collection of TCS on the portion of sale consideration exceeding INR 50 Lakhs. For instance, if a seller has sold goods worth INR 80 Lakhs, then TCS shall be appliable only on INR 30 Lakhs.
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