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October 3, 2020

FAQ on Three New TCS Provisions from 1 October 2020 with Examples

by CA Shivam Jaiswal in Income Tax

FAQ on Three New TCS Provisions from 1 October 2020 with Examples

Tax collected at source (TCS) is the tax payable by a seller which he collects from the buyer at the time of sale. Section 206C of the Income-tax act governs the goods on which the seller has to collect tax from the purchasers. The Income-tax Act mentions the particulars of goods on sale of which tax needed to be collected from the purchasers.

The person collecting tax has to obtain Tax collection Account Number and quote it in all challans, certificates and returns or all other documents pertaining to the transactions. The buyer shall provide his Permanent Account Number (PAN) to the seller, failing which, higher tax shall be collected at the higher rate (twice or 5 percent whichever is higher).

Following Three new Categories of Transactions have been introduced with effect from 01/10/2020 for TCS

  • Remittance out of India under Liberalised Remittance Scheme (LRS) of RBI.

a. Tax is to be collected by bank/ foreign exchange dealer if he receives sum in excess of Rs 7,00,000 or more in aggregates from buyers being a person remitting such amount out of India, at the rate of 5%

b. In non-PAN/Aadhaar cases the rate shall be 10%

  • TCS on selling of overseas tour package

a. A seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such package, shall be liable to collect TCS at the rate of 5%.

b. In non-PAN/ Aadhaar cases the rate shall be 10%.

c. There is no monetary limit for this transaction, irrespective of any amount TCS must be collected by seller of that package

  • Sale of goods

Seller of the Goods whose turnover during the preceding FY exceeded Rs. 10 Crore and receives Rs. 50 Lakhs or more from a Domestic buyer of the goods has to collect TCS @ 0.1% (in case of non-PAN/Aadhar @ 1%) of the amount received (including GST) (TCS rate has been reduced to 0.075% for the period 1st October 2020 to 31st March 2021).

How are foreign remittances to be taxed from 1st October, 2020?

  • As per the Finance Act of 2020 from 1st October 2020, funds sent abroad under the RBI’s liberalised remittance scheme are subject to TCS subject to certain conditions
  • A TCS of 5% was announced in Union Budget 2020. This rate is for foreign tour packages.
  • For other foreign remittances, it will apply only for an amount exceeding Rs 7 lakh.
  • However, in case of education-related foreign remittances funded by loans, a TCS of 0.5% will be levied for an amount above Rs 7 lakh.
  • While the rate of TCS is 5%, it will be 10% in case PAN or Aadhaar is not provided to an Authorised Dealer of the foreign exchange in question. In case of foreign travel, the TCS is collected by the travel operator.

What is the Liberalized Remittance Scheme (LRS)?

  • Under the Liberalized Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.
  • Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Amendment Rules 2015, dated May 26, 2015, within the limit of USD 2,50,000 only.
  • In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural guardian. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.

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When will the TCS not be leviable?

  • The TCS will not be applicable if you make all arrangements of foreign tour on your own. It will also not apply if the remitter is subject to the TDS, under the Income Tax Act, 1961.
  • If tax has already been paid as TDS, and still TCS is levied, one can claim a refund from the TCS.
  • GST will not be applicable to the TCS amount
  • The remitter can also claim credit for the tax collected by the Bank while filing for their tax returns.
  • These TCS provisions will not be applicable, if a buyer is CG, SG, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, a local authority or any other person as notified by CG

Who will collect the tax?

The Authorised Dealer (AD) of foreign exchange in question, typically the bank remitting the money will collect the tax and pay it to the Government. In case of a foreign tour, the travel operator is required to collect the TCS.

“Authorised dealer” means a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of Foreign Exchange Management Act, 1999 to deal in foreign exchange or foreign security

How is TCS leviable on sale of goods from 1st October, 2020?

  • TCS is applicable only in case of seller whose total sales, gross receipt or turnover from the business carried on by him exceeds Rs. 10 crores during the financial year immediately preceding financial year in which sale is carried out.
  • TCS is required to be collected from the buyer whose aggregate purchases exceed Rs.50 Lakhs in any previous year.
  • TCS is required to be collected only on sale consideration exceeding Rs. 50 Lakhs.

At what rate will TCS be leviable on the sale of goods?

  • TCS shall be collected at the rate of 0.1% of the amount in excess of Rs. 50 Lakhs.
  • However, if the buyer does not have PAN no. then the rate shall be 1 %.
  • TCS rate has been reduced to 0.075% for the period 1st October 2020 to 31st March 2021.

CBDT issues Guidelines on new TDS & TCS norms applicable from 1 October 2020

Which goods are excluded from levy of TCS?

“Goods” has not been defined in the Income tax act and hence reference is made to Section 2(7) of the Sale of Goods Act, 1930 which defines goods to “mean every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale”.

For the purpose of Section 206C(1H), goods shall mean to include all goods as per above definition, however, the below goods shall be excluded

  • Alcoholic Liquor for human consumption
  • Tendu leaves
  • Timber obtained under a forest lease
  • Timber obtained by any mode other than under a forest lease
  • Any other forest produce not being timber or tendu leaves
  • Scrap
  • Minerals, being coal or lignite or iron ore
  • Motor vehicle (if value exceeds INR 10 Lakhs)

Goods exported out of India shall also be excluded.

Whether for calculating the Turnover Limit of Rs 10 Crore, Turnover relating to services would also be included?

Yes, in the Turnover Criteria of Rs 10 Crore both the Turnovers i.e Goods and Services would be taken into account for calculating the applicability of the provisions.

Who is considered as a buyer for the purpose TCS?

Buyer means a person who purchases any goods, but does not include:

  • the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the 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 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;

Can one apply for lower TCS Certificate from the AO?

Section 206C(9) allows the assessee to seek from assessing officer Nil/lower tax collection at source certificate. However, the benefit of this section is not available in case of buyer covered by section 206C(1H) of the Act. The transactions covered by section 206C(1H) will have to compulsory undergo the TCS provision without any other remedy.

Is GST or any other taxes be included in gross amount while computing TCS?

  • For the purpose of TDS, CBDT had clarified that amount paid or payable shall be taken without including GST.
  • However, no similar circular has been issued for the purpose of TCS.
  • Therefore, in absence of any clarification from department, sales consideration should be construed to include GST Amount.
  • Accordingly, TCS should be collected on amount including GST.

Will TCS be applicable on amount received before 1st October, 2020?

No. TCS shall be applicable only on the amount received on or after 1st October, 2020. For instance, a seller who has received Rs. 1 crore before 1st October, 2020 from a particular buyer and receives Rs. 5 lakh after 1st October, 2020 would be required to collect tax on Rs. 5 lakh only and not on Rs. 55 lakh [i.e Rs.1.05 crore – Rs. 50 lakh (threshold)].

When is TCS required to be deposited?

The Tax collected during the month has to be deposited before 7th Day of Next month or the extended date as the case may be.

What is the consequence for non-payment of TCS?

A collector would face the following consequences if he fails to collect TCS or after collecting the same fails to deposit it to the credit of Central Government’s account:

  • Levy of interest: If the person responsible for collecting tax at source does not collect it or after collecting fails to pay it to the Government, he shall be liable to pay simple interest at the rate of 1% per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid and such interest shall be paid before furnishing the quarterly statement for each quarter.
  • Levy of Penalty: If any person fails to collect the whole or any part of the tax, then such person shall be liable to pay by way of penalty under Section 271CA, a sum equal to the amount of tax which such person failed to collect.
  • Prosecution: If a person fails to pay to the credit of the Central Government the tax collected by him, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine

When is the TCS Return required to be filed?

Quarterly TCS returns has to be filled within 15 days of month after the end of each Quarter in Form 27EQ.

Quarter EndingDue date of Submission of TCS Return
30th June15th July
30th September15th October
31st December15th January
31st March15th May

What is the consequence of not filing TCS Return?

As per section 234E, where a person fails to file the TCS return on or before the due date prescribed in this regard, then he shall be liable to pay, by way of fee, a sum of Rs. 200 for every day during which the failure continues. 

As per section 271H, where a person fails to file the TCS return on or before the due dates prescribed in this regard, then assessing officer may direct such person to pay penalty under section 271H. Minimum penalty can be levied of Rs. 10,000 which can go upto Rs. 1,00,000. Penalty under section 271H will be in addition to late filing fees prescribed under section 234E

When is the TCS Certificate required to be issued?

TCS Certificate has to be issued to the buyer relating to tax collected during the Quarter within 30 Days of month after the end of each Quarter in Form 27D

Quarter EndingDue date of Submission of TCS Certificate
30th June30th July
30th September30th October
31st December30th January
31st March30th May

Let us refer to the example given below to understand the TCS provisions pertaining to foreign remittance:

Mr. A has made remittance during FY 2020-21 as follows:

  • Transaction 1 – Rs. 5,00,000
  • Transaction 2 – Rs 8,00,000
  • Transaction 3 – Rs 1,50,000

TCS applicability transaction wise is as under:

  • Transaction 1 of Rs. 5,00,000 – No Tax will be collected since the amount is below Rs 7,00,000
  • Transaction 2 of Rs 8,00,000 – TCS will be applicable on Rs 6,00,000 [(Rs 5,00,000 + Rs 8,00,000 = Rs 13,00,000) – Rs 7,00,000 = Rs 6,00,000]
  • Transaction 3 of Rs 1,50,000 – TCS will be applicable on Rs 1,50,000 entirely since Rs 7,00,000 limit has been exceeded in transaction 2 only.

These provisions will affect, Indian students studying abroad, Indian tourists going abroad and Indian investors investing in stocks, bonds and property abroad will be impacted. It can raise the upfront cost of foreign education and travel, even though the tax can be subsequently claimed back as a refund while filing the income tax return.

Let us refer to the example given below to understand the TCS provisions pertaining to sale of goods:

Turnover for FY 2019-20Sales till 30th September, 2020Sales from 1st October, 2020TCSRemarks
12 crores25 lakhs70 lakhs3375(25 lakhs + 70 lakhs – 50 lakhs) * 0.075%
8 crores25 lakhs70 lakhsNilAs turnover in the FY 2019-20 is not exceeding Rs 10 crore.
15 crores70 lakhs8 lakhs6000.075% on Rs 8 lakh being turnover after 30th September
11 crores (Buyer is Central Govt)25 lakhs70 lakhsNilNo TCS as buyer is Central Govt
20 crores35 lakhs30 Lakh1125(35 lakhs + 30 lakhs – 50 lakhs) * 0.075%

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