The Finance Act 2020 inserted the new provisions and extended the scope of Tax Collected at Source (‘TCS’) on foreign remittance under the Liberalized Remittance Scheme, the sale of overseas tour packages, and the Sale of Goods to the specified sellers. Earlier, under the Income Tax Act 1961 (‘Act’) TCS was applicable on the business of trading in alcohol, liquor, forest produce, scrap, etc. On 29th September 2020 the Central Board of Direct Taxes (‘CBDT’) issued further clarification on the said new provision. These provisions would be applicable on the following transactions with effect from 1st October 2020:
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S. No
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Nature of Transaction
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Threshold Limit
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TCS rate
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| 1 |
Foreign Remittance under the Liberalized Remittance Scheme
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- Remittance of INR 7 lakh or more in a financial year by a remitter.
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5.0%
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| 2 |
Sale of Overseas Tour Package
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- NA
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5.0%
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| 3 |
Sale of Goods
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- Seller’s turnover exceeding INR 10 Crore in the preceding financial year.
- Receipt of consideration from a single customer exceeds INR 50 lakhs.
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0.1 %
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The extended provision of TCS was intended to be implemented from 1st April 2020. The various representations were made to extend the date to 1st October to provide sufficient time to review the impact of extended TCS and prepare for the necessary compliances. The readers can refer below for further details in this respect.
TCS on Remittance under the Liberalized Remittance Scheme & Sale of Overseas Tour Package
Under the Liberalised Remittance Scheme, all resident individuals, including minors, can freely remit overseas up to USD 2,50,000 per financial year for any permissible current or capital account transaction or a combination of both. The authorised dealer requires to collect tax at source at 5.0% on any remittance under the Liberalised Remittance Scheme (LRS) in case an amount exceeds INR 7 lakh (USD 10,000). The reduced rate of TCS i.e., 0.5% is applicable on the remittance where the source of funds is Education loan.
The amount paid to purchase an overseas tour package would attract TCS at the rate of 5% on the amount paid to seller, irrespective of monetary threshold limit. Below transactions are under the purview of TCS applicability:
- Liberalised Remittance Scheme - outward remittance transactions
- Foreign Currency Demand Draft or Cash issuance from domestic resident account under LRS purpose.
- International transactions, on Debit cards transactions (including transactions done on Foreign Merchants or sites)
- Transfers from domestic resident customers to NRO account under Liberalised Remittance Scheme (Loan to NRI or Gift to NRI)
TCS on Sale of Goods
Every seller whose total sales, gross receipts or turnover from his business exceeds INR 10 Crore in the immediately preceding Financial Year required to collect the tax on the specified transaction. The seller who receives an amount as consideration for the sale of any goods aggregating to INR 50 Lakh or more in a previous year from a buyer, at the time of receipt of such amount is required to collect tax at source at the rate 0.10% (0.075% for the financial year 2020-21) on the sale consideration exceeding INR 50 lakh as income-tax. In case buyer fails to provide Permanent Account Number / Aadhar, the rate of tax requires to be collected is 1.0% (0.75% for the financial year 2020-21).
The TCS on Sale of Goods shall not be applicable in the following scenarios:
- Export of goods
- Sale is made to the Central or State Government or Embassy/High-commission, Consulate or Trade Representative/Local Authority.
- Sale is made to a person who is importing any goods into India.
- The buyer is liable to deduct tax at source under any other provision of the Income Tax Act on such goods purchased from the seller and the same has been deducted.
The Central Board of Direct Tax issued a clarification to confirm that TCS on Sale of Goods shall not be applied in relation to:
- The transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges, or recognized clearing corporation located in International Financial Service Centre.
- The transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the Central Electricity Regulatory Commission.
Compliances under TCS
The compliances of Tax Collected at Source under Income Tax Act are as below:
- Monthly Due date for payment of TCS collected: 7th date of the following month for each month
- Quarterly TCS Return: Due date to file the TCS return and issue certificate:
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Quarter ended
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Quarterly statement
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TCS certificate
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30 June
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15 July
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30 July
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30 September
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15 October
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30 October
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31 December
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15 January
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30 January
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31 March
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15 May
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30 May
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Frequently Answered Question (FAQ)
The extended provision of TCS has raised various doubts and queries especially with regard to its applicability. Here are answers to few commonly asked questions on the said subject matter:
a) Whether TCS is applicable on remittance from Domestic account to NRO account?
If the purpose of transfer is under LRS (Loan to NRI or Gift to NRI), TCS will be applicable on transfers from domestic account to NRO account.
b) Whether the applicant can take a credit of TCS?
TCS paid can be adjusted against tax payable when the individual who was liable to pay the TCS files income tax returns (ITR) in India.
c) Is TCS applicable only for INR to Foreign Currency conversion transactions?
TCS is applicable on all LRS transactions. LRS permits Rupee loan and gift to an NRI/PIO who is a close relative.
d) What documents do we need to submit as a proof of Source of funds for remittance under Education purpose?
The applicant require to submit the documents such as Education loan sanction letter with student name and parent who is the co-borrower, Declaration on the LRS application from client that the source is from loan and Bank statement showing the source of funds as unutilized disbursed Education loan by a financial institute.
e) In case of return of transaction whether the TCS amount shall be refunded back by the bank?
TCS will not be reversed once debited. The Remitter can approach for refund from tax authority.
f) Whether TCS is collected on the GST amount on the Sale of the Goods?
TCS shall be collected on the amount of sales consideration inclusive of GST for the purpose of collection of tax.
g) Whether TCS is collected on the Discount or Sale Return on the Sale of the Goods?
No adjustment on account of sale return or discount is required to be made for the collection of tax.
h) Whether TCS is collected on the Sale of the Goods before 1st October 2020 but payment received on or after 1st October 2020?
TCS is applicable on all sale consideration (including advance received for sale) received on or after 1st October 2020 even if the sale was carried out before 1st October 2020.
i) Whether TCS is collected on the Sale consideration before 1st October but Sale of Goods on or after the 1st October 2020?
TCS shall not be applicable on any sale consideration received before 1st October 2020.
j) Whether the Threshold Limit of INR 50 lakh is applicable with respect to the previous year or on the implementation of TCS provision on or after 1st October 2020?
The calculation of receipt of sale consideration for TCS shall be computed from 1st April 2020. Hence, if a seller has already received INR 50 lakh or more up to 30th September 2020 from a buyer, the TCS shall apply on all sale consideration received during the previous year, on or after 1st October 2020, from such buyer.
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