Tax Collected at Source (TCS) is a provision of the Income Tax Act, 1961 that requires certain persons to collect a specified percentage of tax from their buyers on certain specified transactions. The tax collected is then deposited with the government.
The purpose of TCS is to ensure that tax is collected on income that would otherwise go unreported. TCS is also used to collect tax on transactions that are difficult to track, such as the sale of goods and services by unregistered businesses.
Who is liable to collect TCS?
TCS is required to be collected by persons who are specified in Section 206C of the Income Tax Act. These persons include:
➤ Banks
➤ Financial institutions
➤ Insurance companies
➤ Non-banking financial companies
➤ Exporters
➤ Persons who sell goods or services that are taxable under the Central Sales Tax Act, 1956
➤ Persons who enter into certain specified contracts, such as contracts for the lease or hire of property or for the supply of goods or services
What are the rates of TCS?
The rates of TCS vary depending on the type of transaction. The rates are specified in Section 206C of the Income Tax Act and in the relevant rules.
For example, the rate of TCS on the sale of goods is 1%. The rate of TCS on the export of goods is 0.5%. The rate of TCS on the lease of property is 2%.
How is TCS collected?
TCS is collected by the seller from the buyer at the time of the transaction. The seller is required to issue a TCS challan to the buyer, which shows the amount of TCS collected. The TCS challan must be signed by both the seller and the buyer.
The seller is required to deposit the TCS with the government within 30 days of the end of the month in which the TCS was collected.
New TCS Rates Effective from July’23
The new TCS implication is that the tax collected at source (TCS) rate for foreign remittances under the Liberalized Remittance Scheme (LRS) will be increased from 5% to 20%. This will apply to foreign trips, investing overseas, sending money abroad, and other remittances except for education and medical purposes The new rule will come into effect from July 1, 2023.
The increase in TCS is expected to raise an additional ₹20,000 crore for the government. The government has said that the additional revenue will be used to fund social welfare schemes and infrastructure projects.
The increase in TCS has been met with mixed reactions. Some people have welcomed the move, saying that it will help to curb tax evasion. Others have criticized the move, saying that it will make it more expensive for people to send money abroad.
Only time will tell what the impact of the new TCS implication will be. However, it is clear that the government is serious about collecting taxes and that it is willing to take steps to make it more difficult for people to avoid paying their fair share.
Here are some of the implications of the new TCS:
➤ It will make it more expensive for people to send money abroad.
➤ It will make it more difficult for people to avoid paying tax on their foreign remittances.
➤ It will increase the government’s revenue from foreign remittances.
➤ It may discourage people from sending money abroad.
➤ It may lead to an increase in the use of informal channels for sending money abroad.
It is important to note that the new TCS will not apply to remittances for education and medical purposes. This is because the government recognizes that these are essential expenses that people need to make.
What are the consequences of not collecting TCS?
If a person who is required to collect TCS does not collect it, they may be liable to pay a penalty. The penalty is equal to the amount of TCS that should have been collected, plus interest.
What are the exemptions from TCS?
There are a number of exemptions from TCS. These exemptions are specified in Section 206C of the Income Tax Act and in the relevant rules.
For example, TCS is not required to be collected on the sale of goods to a government department or agency. TCS is also not required to be collected on the sale of goods to a person who is not resident in India.
What are the benefits of TCS?
TCS has a number of benefits. These benefits include:
➤ It helps to ensure that tax is collected on income that would otherwise go unreported.
➤ It makes it more difficult for people to avoid paying tax.
➤ It helps to simplify the tax system.
➤ It reduces the workload of the tax authorities.
Conclusion
TCS is an important part of the Indian tax system. It helps to ensure that tax is collected on income that would otherwise go unreported. TCS also makes it more difficult for people to avoid paying tax. TCS is a beneficial provision that helps to simplify the tax system and reduce the workload of the tax authorities.