What is Tax Collected at Source (TCS)?

Tax Collected at Source (TCS) is a tax payable by a seller which he collects from the buyer at the time of sale of goods. Section 206 of the Income Tax Act mentions the list of goods on which the seller should collect tax from buyers.

TCS Amendment

Section 206C(1G) – Enhanced TCS rate on certain remittances made outside India

Tax is to be collected at an enhanced rate of 20% as against the existing rate of 5% in the case of all the remittances under Liberalised Remittance Scheme (LRS) and overseas tour packages. However, the TCS rate on remittances made for medical and educational purposes in excess of INR 7 lakh continues to be at 5%. Further, in case a remittance in excess of INR 7 lakh is made for educational purposes out of a loan obtained from the financial institution, the TCS rate of 0.5% remains unchanged.

The proposed amendment will be applicable from 1 July 2023.

Though the taxpayer is eligible for a credit of tax collected by way of filing a return of income, it may lead to blockage of funds till the refund is credited to the taxpayer’s bank account. Moreso, in cases where large refunds are claimed by the taxpayer, it may result in unwarranted scrutiny. This will largely impact the foreign tourism industry and the overseas investments made by residents under LRS.