Understanding Tax Collected at the Source
Blog Outline
Ever wondered why your bank deducts a certain amount from your rent payment or why you pay extra on that foreign vacation package? It’s all thanks to Tax Collected at Source (TCS), a crucial mechanism in the modern tax system. Yet, navigating its intricacies can be a challenge. Fear not! This guide by GoNiyo sheds light on everything you need to know about TCS, from its definition to its benefits, making you a tax-savvy individual in no time.
What is TCS?
What Is The Liberal Remittance Scheme (LRS)?
The LRS, which stands for Liberalized Remittance Scheme, is a regulation in India that permits residents to transfer funds for reasons. The Reserve Bank of India (RBI) introduced this policy back in 2004. It aims to simplify and streamline the process of remitting funds outside India for resident individuals.
Key Features of the Liberal Remittance Scheme (LRS)
- Increased remittance limit: Resident individuals can now freely remit up to USD 250,000 per financial year (April to March) for any permissible current or capital account transaction or a combination of both. This eliminates the need for individual approvals for most remittance purposes.
- A wider range of permitted transactions: The LRS covers various permissible transactions, including:
- Education expenses for children and dependents
- Medical treatment for self and dependents
- Travel and tourism
- Investment in property overseas
- Gifts and donations to close relatives
- Simplified documentation: The LRS process involves minimal documentation and can usually be completed through authorised dealers like banks.
- Convenience and flexibility: The LRS offers convenience and flexibility for individuals who need to send money abroad for various purposes.
Importance of TCS
TCS is important for a number of reasons:
- It helps the government of India to collect taxes more efficiently. By collecting tax at the source, the government can ensure that taxes are paid on time and in full.
- Tax Collected at Source helps prevent tax evasion by requiring collectors to collect taxes, the government ensures that individuals can’t avoid paying taxes.
- The amount of TCS collected is credited to your income tax account, which can be used to reduce your tax liability when you file your annual Income Tax Return (ITR).
TCS Application on International Transactions
Tax Collected at Source (TCS) applies to international transactions under specific circumstances. Let’s explore the key points related to TCS for international transactions:
- Foreign Remittances: As of the Union Budget 2023, the TCS rate for foreign remittances under the Liberalised Remittance Scheme (LRS) has increased significantly from 5% to 20%. This change applies to various transactions, including international travel and foreign remittances. However, it does not apply to expenses related to education abroad or medical reasons.
- International Credit Card Transactions: Starting from July 1, 2023, the TCS rate on international credit card transactions has also been raised from 5% to 20%. This means that foreign currency transactions made using an international credit card within the limit of USD 250,000 will be subject to the hefty TCS rate of 20%.
- Exemptions: It’s important to note that TCS does not apply to international credit card transactions abroad. So, if you frequently use your credit card internationally, this exemption provides relief.
In summary, TCS impacts international travellers, and understanding its implications is crucial for seamless financial planning during global journeys. Consider consulting a tax professional if you have specific scenarios or need personalised advice.
Who's Liable and Who's Exempted from Paying TCS?
Companies, government agencies and even individuals who exceed transaction thresholds become TCS collectors. However, not everyone and every transaction is subjected to this deduction. Small businesses with a turnover below ₹10 crore and certain types of transactions, like produce sales, are exempted from it.
Tax Collected at a Source Examples
Imagine you decide to buy a new car in India. The car costs you ₹10,00,000. As per the current TCS rules, a 1% tax is applicable on the sale of motor vehicles exceeding ₹10,00,000.
Here’s how TCS works in this scenario:
1. Payment at the dealership:
- You negotiate the price and agree to pay ₹10,00,000 for the car.
- Acting as the tax collector, the car dealership adds 1% TCS on the purchase price, bringing the total payable amount to ₹10,10,000.
- You pay ₹10,10,000 to the dealership, which includes the ₹10,000 TCS.
2. TCS deposited by the dealership:
- The car dealership is responsible for depositing the collected TCS (₹10,000) to the government within a specified timeframe. They must submit a challan and relevant documents along with the payment.
3. You and the tax credit:
- You will receive a TCS certificate from the dealership acknowledging the deducted tax amount.
- When you file your income tax return, you can claim credit for the ₹10,000 TCS already deposited by the dealership. This reduces your overall tax liability.
How is TCS Calculated and Paid?
Confused about the TCS calculation amount? Worry not! It’s often a simple percentage of the transaction value. For example, if you rent a house for ₹30,000 per month, the TCS might be 0.1%, meaning you pay ₹30. The collector deducts this amount directly from your payment and deposits it with the government. Deadlines for depositing the collected TCS vary, but typically fall within a month of the transaction.
Here is the breakdown on TCS calculation:
- Identify the Rate: The first step is to determine the applicable TCS rate, which depends on the nature of the transaction and government regulations. You can find these rates on official websites or consult a tax professional.
- Apply the Rate: Multiply the transaction amount by the TCS rate to get the TCS amount to be deducted.
Example: You purchase a car for ₹10,00,000. The TCS rate for motor vehicles exceeding ₹10 lakh is 1%.
TCS Calculation: TCS = 1% * ₹10,00,000 = ₹10,000.
- Exemptions and Exclusions: Check for any exemptions that might apply based on the transaction type or your taxpayer category.
- Rounding Conventions: Follow any rounding guidelines specified in the regulations to determine the final TCS amount.
How To Claim a TCS Refund?
You can claim a TCS or Tax Collected at Source refund under certain conditions. Here are the steps to do it:
- Gather all the necessary documents, including Form 26AS, if applicable.
- Fill up the Refund Claim Form.
- Attach all the essential documents with the Refund Claim Form.
- Submit the Refund Claim Form to the Income Tax Department.
- The Income Tax Department will process it and credit the amount to your bank account.
Here are the benefits of claiming TCS refund back:
- You can reduce your overall tax liability.
- You can get a refund of the TCS amount that was deducted from you.
- You can avail of credit against your advance taxes.
Does Niyo Global levy TCS?
TCS or Tax Collected at Source is levied only on transactions exceeding ₹7 Lakhs using the Niyo Global card. The Government of India collects TCS through various channels, including banks, financial institutions, and government departments. Niyo Global has no role in levying TCS.
Startups and companies are required to collect TCS on payments that are subject to TCS. Failure to collect TCS can result in penalties from the government.
In fact, to throw some more light – Here are some additional details about TCS:
- TCS applies to a wide range of payments, including international transactions, remittances, purchases of timber, motor vehicles, etc.
- TCS is collected by the collector and deposited to the Income Tax Department.
- Individuals can claim a TCS refund/credit when they file their annual Income Tax Returns (ITR).
- Organisations or sellers who fail to collect TCS may be subject to a penalty.
Conclusion
Understanding TCS or Tax Collected at Source doesn’t have to be an experience. This blog post aims to provide some clarity on this concept. If you have any questions, don’t hesitate to contact tax authorities or financial advisors for assistance. For information on specific TCS rates, exemptions and filing procedures, it’s advisable to refer to official government websites or consult with a qualified tax professional.
Don’t let the complexities of taxes discourage you! With knowledge and guidance, you can navigate the world of TCS like an expert. So go ahead and conquer the maze and always remember that knowledge is power—especially when it comes to taxes!
Frequently Asked Questions
TCS timing depends on the transaction. Cars, bank withdrawals, rent, fees, and foreign remittances all have specific points when TCS gets deducted. Check the rules and limits for your situation.
TCS on foreign remittance applies to Indian residents sending money abroad under the LRS scheme if exceeding the $7 lakh limit. Rates are 5% for education/medical (beyond ₹7 lakh but not exceeding ₹10 lakh) and 20% for other purposes. Check updated regulations before remitting.
Not entirely! While certain thresholds and exemptions exist, TCS applies to a wide range of transactions, from buying fancy cars to receiving hefty rent payments. However, understanding the applicability rules and exploring alternative payment methods can sometimes help minimize your TCS burden.
If you’re exceeding the permitted limit for foreign remittances under schemes like liberalized remittance scheme (LRS), you might encounter TCS deductions. Plan your international travel expenses accordingly and consult with your bank or financial advisor for specific guidance.
A TCS certificate is an official document issued by the entity that deducted Tax Collected at Source (TCS) from a specific transaction. It serves as proof of the deducted tax amount and is crucial for claiming tax credit when you file your income tax return.
