Income tax TCS provisions applicable from 1st October 2020

Quick view on the New income tax provisions applicable from 1st October 2020.

As all aware of the Amendment  made in the  section 206C in the budget 2020 by inserting subsections.

1. insertion of subsection – 206(1G)

2. insertion of subsection – 206(1H)

Insertion of subsection – 206(1G) 

Section read as follows 

(I) after sub-section (1F), the following sub-sections shall be inserted, namely:––

‘ (1G) Every person,––

(a) being an authorized dealer, who receives an amount, or an aggregate of amounts, of seven lakh rupees or more in a financial year for remittance out of India from a buyer, being a person remitting such amount out of India under the Liberalised Remittance Scheme of the Reserve Bank of India;

(b) being a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package,

shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five percent. of such amount as income-tax:

Provided that the provisions of this sub-section shall not apply, if the buyer is,––

(i) liable to deduct tax at source under any other provision of this Act and has deducted such amount;

(ii) the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority as defined in the Explanation to clause (20) of section 10 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.

Explanation.––For the purposes of this sub-section,––

(i) “authorized dealer” means a person authorized by the Reserve Bank of India under subsection (1) of section 10 of the Foreign Exchange Management Act, 1999 to deal in foreign exchange or foreign security;

(ii) “overseas tour program package” means any tour package which offers a visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.

To understand better section 206(1G) as follows

i. An authorized dealer receiving an amount or an aggregate of amounts of Rs. 7 Lakh or more in a financial year for remittance out of India under the LRS of RBI shall be liable to collect TCS if he receives a sum in excess of said amount from a buyer being a person remitting such amount out of India.

ii. A seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such a package, shall be liable to collect TCS. In this case, no threshold limit is provided. For example, Mr. A who buys a Tour package worth 5lakhs, in this case, no TCS since the value is less than Rs.7 Lakhs.  Another Example Mr. B who buys a Tour package worth 20 lakhs, then ((20lakhs- 7 lakhs)*5%= Rs65,000). The Tour operator will charge  Rs 20,65,000 from Mr.B

iii. Studying Abroad: For students planning to go abroad for studies, and who have taken an education loan from a financial institution, the rate of TCS shall be 0.5 percent on the amount exceeding Rs 7 lakh. Wadhwa says, “At the rate of 0.5 percent if the amount being remitted out has been sourced from an education loan as defined in Section 80E. If the buyer does not furnish his PAN, the tax shall be collected at the rate of 5 percent.”

iv. The rate of TCS is 5 percent in the above two cases. In non-PAN/non-Aadhaar cases, the rate shall be 10 percent.

v. The above TCS provision shall not apply if the buyer is,-

(a) liable to deduct tax at source under any other provision of the Act and he has deducted such amount.

(b) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State,  a local authority as defined in Explanation to clause (20) of section 10 or any other person notified by the Central Government in the Official Gazette for this purpose subject to such conditions as specified in that notification.

Insertion of subsection – 206 (1H)

section read as follows

(1H) Every person, being a seller, who receives any amount as consideration for the sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 percent. of the sale consideration exceeding fifty lakh rupees as income-tax:

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five percent.”, the words “one percent.” had been substituted:

Provided further that the provisions of this subsection shall not apply if the buyer is liable to deduct tax at source under any other provision of this Act and has deducted such amount.

Explanation.––For the purposes of this sub-section,––

(a) “buyer” means a person who purchase any goods, but does not include,––

(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B) a local authority as defined in the Explanation to clause (20) of section 10; or

(C) 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;

(b) “seller” means a person whose total sales, gross receipts, or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a 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.’;

(II) in sub-section (2), for the words, brackets, figures, and letter “sub-section (1) or sub-section (1C)”, the words “this section” shall be substituted;

(III) in sub-section (3), for the words, brackets, figures, and letter “sub-section (1) or sub-section (1C)”, the words “this section” shall be substituted;

(IV) in sub-section (6A), in the first proviso, for the words “in accordance with the provisions of this section”, the words, brackets, figures, and letter “in accordance with the provisions of sub-section (1) and sub-section (1C)” shall be substituted;

(V) in the Explanation, in clause (c),––

(i) for the word “means”, the words, brackets, figures and letter “with respect to subsection (1) and sub-section (1F) means” shall be substituted;

(ii) for the words, brackets, letters, and figures “the monetary limits specified under clause (a) or clause (b) of section 44AB”, the words “one crore rupees in case of business or fifty lakh rupees in case of a profession” shall be substituted.

To understand better the new sub-section 1H to section 206 as follows

  1. It is also proposed to amend section 206C to levy TCS on sale of goods for the items not covered in subsection 1F and subsection 1G.
  2. Only those sellers whose total sales, gross receipts, or turnover from the business carried on by it exceed Rs. 10 crore during the financial year immediately preceding the financial year, shall be liable to collect such TCS. As of now the term not clearly defined to include GST for the purpose of computation. Section denotes that  “a seller, who receives any amount as consideration for the sale of any goods “. So GST may also consider for this purpose. However, CBDT clarification is required.
  3. Similarly, TCS shall be collected from a buyer from whom the consideration of more than Rs. 50 lakh will be received based on the previous year’s transaction.
  4. No TCS is to be collected from the Central Government, a State Government and an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to conditions as prescribed in such notification.
  5. Similarly, Central Government may notify persons, subject to conditions contained in such notification, who shall not be liable to collect such TCS.
  6. No such TCS is to be collected, if the seller is liable to collect TCS under other provision of section 206C or the buyer is liable to deduct TDS under any provision of the Act and has deducted such amount.
  7. In the case of the sale of goods, the rate of TCS is 0.1 percent.  In non-PAN/non-Aadhaar cases the rate shall be 1 percent.

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