Tax Collection at Source (TCS) is the tax seller pays that gets collected from the buyer during the time of the sale of goods. The TCS till now applied only to transactions that have the involvement of prescribed goods and services. The Tax Deduction at Source (TDS), on the other hand, applied to several other transactions. However, with the introduction of The Finance Act 2020, there are three new provisions now. These provisions will be applicable from 01 October 2020.

New TCS rates for different transactions

• 5% TCS would apply on amounts that exceed 7% for foreign remittances in a financial year. This is according to the Reserve Bank of India’s Liberalised Remittance Scheme (LRS).
• If we talk of remittances towards loans for education, a restricted TCS of 0.5% will be applicable.
• 5% TCS would be applicable when you purchase an overseas tour package, no matter what the value is.
• If there is a sale of goods exceeding INR 50 lakhs in a year, a TCS of 0.1% will be applicable.

In cases where there are no PAN or Aadhar cards, TCS rates will get inflated. Let us have a look at the finer aspects of the new act in detail.

Groups of foreign remittances under 5% LRS-TCS
According to the LRS, you can engage in various capital account transactions that have a maximum limit of $2,50,000 per financial year. The transactions could be for investments in foreign countries, property purchase, NRI loans, private or employment visits, donation, medical treatment, business trips, gifts, maintenance of close relatives, etc.

The provision also covers your shopping when you order something online through international e-commerce websites and pay through your credit card. The new provisions of TCS will be applicable to all the foreign remittances that LRS of RBI allows. There is no threshold limit for collecting TCS from foreign tour operators.

The maximum limit of INR 7 lakh for foreign remittances is a threshold in cases where authorized dealer banker collects taxes. It is independent of LRS through which the residents of the country can make foreign remittances up to $2,50,000 per financial year. When the limit gets exceeded, bankers become eligible to collect 5% TCS. It then gets deposited with the government.

The new TCS also means that the incidence will be on the remitter. The overall value of the transfer can increase by as much as 5% though it will be creditable when you file the ITR. There will be other remittance costs like currency spreads and bank charges. If the remitter withholds taxes under the Indian tax laws, TCS will not be applicable.

When we talk of foreign remittance as gifts to NRI, it remains taxable, and TDS would get applied. The only exception here is that the gifts for relative NRIs should have an amount less than INR 50,000. In cases where TDS remains inapplicable, TCS would come into the picture on gifts for NRIs that have a limit of INR 7 lakhs.

The allowed capital account transaction limit for an individual is $2,50,000 per financial year. It would include cases where foreign investments, including holding or acquiring shares on listed and unlisted overseas firms, get done. The LRS also covers remittance for investments in shares of foreign companies. A 5% will be applicable in cases where the remittance is above INR 7 lakhs.

If you want the details of TCS during each financial year, you can refer to the new Annual Information Statement (Form 26AS). The remitter needs to collect the TCS certificate from an authorized dealer banker. The paid TCS should be claimed in the ITR or refunds in cases involving lower or zero tax liability.

FAQs

1.Is the TCS applicable to service providers?
No, the new TCS does not apply to service providers. It will only remain applicable to sellers who engage in the sale of certain kinds of goods.

2.Which goods are excluded?
According to the Sale of Goods Act, 1930, and for the purpose of Section 206C (1H), goods shall include all commodities. It would include all kinds of movable property, excluding actionable claims and money. However, here is a list of all the excluded goods.

• Scrap
• Minerals (coal, iron ore, lignite)
• Tendu leaves
• Timber (apart from forest lease)
• Timber obtained from forest lease
• Vehicles (above INR 10 lakhs)
• Liquor (human consumption)
• Forest (apart from tendu or timber leaves)

3. Will goods exported out of India be subjected to TCS?
No, such goods will not be applicable for TCS.

4. What happens when the buyer has no PAN?
If a buyer does not have the PAN card, the TCS will be collected at 1% of the overall amount of the transaction.

5. Is TCS inclusive of GST or applicable only to the value of goods that exclude GST?
TCS will get collected on the amount that excludes GST. It clearly makes use of the words sales consideration.

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Author's Bio: 

Tax Collection at Source (TCS) is the tax seller pays that gets collected from the buyer during the time of the sale of goods. The TCS till now applied only to transactions that have the involvement of prescribed goods and services.