Section 206C of the Income Tax Act 1961 enumerates the provision of Tax Collected at Source (TCS). The TCS provision binds the sellers of specific goods to charge the buyer with a certain extra cost at the time of sale and remit the same to the Central Government. The TCS is aimed at the collection of tax right at the origin of the specific income.
TCS is nothing but another type of income tax that the buyer is liable to pay if the payments surpass the prescribed limit. However, as a businessman, trader, dealer, proprietor, or consumer, the tax collected at source is an important concept, the thorough understanding of which is essential to become a responsible tax-payer.
What Do The TCS Mandate Cover?
TCS applies to several specified goods for trading. However, the buyer is exempted from paying TCS on those particular goods in the event:
- If the buyer purchases the goods for processing/ manufacturing/ production
- Or, if the buyer purchases the specified goods for personal consumption
The goods covered under the tax collected at source provision include, but are not limited to:
- Liquor produced for human consumption
- Tendu leaves
- Timber wood; may or may not be forest leased
- Scrap
- Motor vehicle purchase of more than Rs. 10 lakhs
- Minerals (coal, iron ore, lignite)
- Mining, toll plaza, parking lots, and quarrying
Moreover, the rates applicable to the tax collected at source vary per the categories of goods. In general, the applicable rates range from 1 to 5 per cent of the price of the goods. For instance, on scrap, TCS is applicable at 1 per cent, whereas 2 per cent is the applicable rate of TCS on mining and quarrying contracts/leases.
TCS and Foreign Exchange – New Amendments
As per the new guidelines effective from October 1, 2020, individuals will have to pay TCS for foreign remittances that are made through Liberalised Remittance Scheme (LRS). An individual can remit up to USD 250,000 or equivalent in other currencies in a financial year. Individuals can, however, claim credit for the TCS at the time of filing their income tax.
According to the Union Budget 2020, a TCS of 5 per cent was applicable on all LRS remittances of Rs. 7 lakh or more in the financial year. TCS would also applicable if the foreign exchange facility exceeding Rs. 7 lakh is availed through cash withdrawal or for loading forex cards. If the remittance amount doesn’t exceed Rs. 7 lac in fiscal year, there’s no need to pay the TCS.
For foreign remittances related to education and funded by loans, the TCS will be 0.5% for amount exceeding Rs. 7 lakh.
Are You Classified as a Seller/Buyer For TCS?
Per Section 206C, only a specific class of individuals/organizations classify as sellers and buyers for TCS. The Govt. of India specified sellers include the central and state governments, local and statutory authorities, a cooperative society, partnership firms, and companies registered under the Company Act. It also extends to individuals and HUFs liable to Income Tax accounts audit, pertaining to a certain financial year.
Similarly, the Income Tax Act 1961 specifies public companies, central and state governments, Embassy of High Commission, international trade representatives or Consulate, and social clubs as buyers liable to pay the tax collected at source. So, no other buyer is liable to pay TCS to the goods sellers.
Special Case Scenario- TCS Under GST
If you operate, own, or manage an e-commerce platform, you are liable to collect TCS at the rate of 1 per cent under the IGST Act. The TCS under GST provision came into being from 1st October 2018. Besides, it is only applicable if the operator collects the tax on behalf of vendors/suppliers from the consumers.
These TCS provisions will be effective from 1st October 2020. So, it is wise to become a sensible tax-payer by keeping an account of TCS, depositing it timely, avoiding any penalty.
Agencies