Changes in TCS Provisions from FY 2020-21 after enactment of Finance Act, 2020

changes-in-tcs-provisions-from-fy-2020-21-after-enactment-of-finance-act-2020

Changes in TCS provisions in Finance Act, 2020 Vs proposals in Finance Bill, 2020

The Finance Act, 2020 as notified on 24.03.2020 has amended certain proposed provisions of the Finance Bill, 2020 related to Tax Collected at Source or TCS.

A snapshot of changes in TCS provisions introduced by the Finance Act, 2020 are listed below-

1. The new proposed changes in TCS provisions shall come into effect from 1st October 2020, instead of earlier 1st April 2020.

2. According to the amendments, it is provided for tax collection at source (TCS) on remittance under Liberalised Remittance Scheme (LRS) of Reserve Bank of India exceeding Rs. 7 Lakh in a year and the rate of TCS is 5 per cent.

It is now expressly provided that no TCS shall be required on Rs. 7 Lakh.

3. In case the remittance is for a loan obtained from any financial institution as defined in section 80E shall be 0.5 per cent.

4. TCS shall also apply on sale of the overseas tour package without any threshold limit and the rate of TCS is five per cent.

5. The Finance Bill, 2020 (as passed by the Lok Sabha) has amended sub-section (1H) to provide that no tax shall be collected in respect of export or import of goods.


Section 206C of the Act provides for the collection of tax at source (TCS) on the business of trading in alcohol, liquor, forest produce, scrap, etc. 

Sub-section (1) of the said section, inter-alia, provides that every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of certain goods a sum equal to specified percentage, of such amount as income-tax. 


TCS Rate Chart for FY 2020-21 (AY 2021-22)

Section
Nature of Transaction
Goods and/or Services liable to TCS
Rate of TCS
Status
If PAN or Aadhaar is furnished
If PAN or Aadhaar is NOT furnished

206C(1)
Alcoholic Liquor for human consumption
1%
5%
Existing Provision
Tendu leaves
5%
10%
Existing Provision
Timber obtained under a forest lease
2.5%
5%
Existing Provision
Timber obtained by any mode other than under a forest lease
2.5%
5%
Existing Provision
Any other forest produce not being timber or tendu leaves
2.5%
5%
Existing Provision
Scrap
"scrap" means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons
1%
5%
Existing Provision
Minerals, being coal or lignite or iron ore
1%
5%
Existing Provision

206C(1C)
Where the Nature of contract or licence or lease, etc.
Parking lot
2%
5%
Existing Provision
Toll plaza
2%
5%
Existing Provision
Mining and quarrying
shall not include mining and quarrying of mineral oil and “mineral oil” includes petroleum and natural gas
2%
5%
Existing Provision
206C(1F)
Sale of a motor vehicle of the value exceeding Rs. 10 Lakh
1%
5%
Existing Provision

206C(1G)
(w.e.f.
01-10-2020)
Remittance under Liberalised Remittance Scheme of Reserve Bank of India exceeding Rs. 7 Lakh


New Provision
(a) If the remittance is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education
0.5%
5%
New Provision
(Amended by Finance Act, 2020)
(b) Others
5%
10%
New Provision
Sale of the Overseas Tour Package
5%
10%
New Provision
206C(1H)
(w.e.f.
01-10-2020)
Sale of goods in excess of Rs. 50 Lakh in a year by a seller whose turnover is more than Rs. 10 Crore
0.1%
1%
New Provision

As per section 206CC, if the buyer does not furnish his PAN (or Aadhaar No.) to the seller, then the rate of TCS shall be higher of-
(a) twice the prescribed rate, or
(b) 5 per cent

except for TCS on Sale of goods in excess of Rs. 50 Lakh in a year by a seller whose turnover is more than Rs. 10 Crore for which 5 per cent is substituted with 1 per cent.

In this backdrop, let us discuss each of the newly introduced TCS provisions by Finance Act, 2020 made applicable FY 2020-21.

Widening the scope of TCS: Finance Bill, 2020 proposed to provide for tax collection at source (TCS) to widen and deepen the scope of existing provisions of TCS. New TCS provisions introduced from FY 2020-21-

1. On remittance under Liberalised Remittance Scheme of Reserve Bank of India exceeding seven lakh rupees in a year, and 

2. On sale of the overseas tour package. 

3. On the sale of goods in excess of Rs. 50 lakh in a year by a seller whose turnover is more than Rs. 10 crore.

The Union Budget 2020 has proposed certain amendments in the existing TCS provisions, widened the scope of existing TCS provisions and introduced new TCS provisions vide Finance Bill, 2020. The changes in the proposed provisions related to TCS for AY 2021-22 (FY 2020-21) and the provisions finally enacted as law by Finance Act, 2020 are listed below-

Sub-Section (1G) to section 206C has two clauses. One clause is related to remittance of amount out of India under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India RBI) and the other clause is related to payments made for overseas tour programme package.

TCS on remittance of amount out of India under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India RBI)

Liberalised Remittance Scheme is a scheme framed by the RBI. Under the Liberalised 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. 

In the Finance Bill, 2020, the provisions relating to TCS were amended to require collection of tax from a person remitting the amount outside India under Liberalised Remittance Scheme (LRS) or buying an overseas tour program package.

For this purpose, a new sub-section (1G) was proposed to be inserted in section 206C of the Income-tax Act which requires the collection of tax by an authorised dealer who receives an amount or aggregate amount of Rs. 7 lakh or more during the financial year from a person for remitting such amount out of India under LRS. The tax shall be required to be collected at the rate of 5% of such amount.

The Finance Act, 2020 has addressed the following ambiguities in respect of TCS on remittance of amount out of India under the Liberalised Remittance Scheme (LRS) as introduced by section 206C(1G)-

Threshold Limit- The new sub-section (1G) prescribed that an authorised 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.

However, it was not specified in the proposed sub-section (1G) that whether authorized dealer shall be required to collect tax on the entire amount or only on the amount in excess of Rs. 7 lakh once the threshold limit of Rs. 7 Lakh exceeds.

In this respect, a new proviso has been inserted in sub-section (1G) by the Finance Act, 2020 to provide that tax shall be collected only on the amount in excess of Rs. 7 lakh. Therefore, there will be no TCS upto Rs. 7 Lakh even if the amount of remittance under LRS exceeds Rs. 7 Lakh in a financial year.

For this purpose the following two provisos have been inserted in the proposed sub-section (1G)-

Provided that the authorised dealer shall not collect the sum, if the amount or aggregate of the amounts being remitted by a buyer is less than seven lakh rupees in a financial year and is for a purpose other than purchase of overseas tour program package:

Provided further that the sum to be collected by an authorised dealer from the buyer shall be equal to five per cent. of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, where the amount being remitted is for a purpose other than purchase of overseas tour program package:

The first proviso states that the authorized dealer shall not collect TCS if the amount or aggregate of the amounts being remitted by a buyer is less than Rs. 7 Lakh in a financial year.

The second proviso clarifies that if the amount or aggregate of the amounts being remitted by a buyer is more than Rs. 7 Lakh in a financial year then authorized dealer shall collect TCS @ 5% on the amount or aggregate of the amounts in excess of Rs. 7 Lakh in a financial year.

The above two provisos are not applicable when the remittance is made for purchase of overseas tour programme package for which separate provisions have been prescribed.

Lower rate of TCS where the remittance is for repayment of educational loan- Finance Act, 2020 has inserted a third proviso in section 206C(1G) to provide for lower rate of TCS in case remittance out of India is an educational loan under LRS.

The original proposed provision did not segregate the remittance of a loan amount and others remittance. 

As per the amendment, reduced rate of TCS of 0.5% is provided on such remittance in excess of Rs. 7 Lakh in a financial year.

For this purpose, a third proviso is inserted in the proposed sub-section (1G) which is reproduced below-

Provided also that the authorised dealer shall collect a sum equal to one half per cent. of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, if the amount being remitted out is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education:

Hence, the Finance Act, 2020 amends sub-section (1G) to provide for a lower rate of 0.5% for collection of tax by an authorised dealer on the amount or aggregate of the amounts in excess of Rs. 7 Lakh where the amount being remitted out of India is a loan, which is obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education. The threshold limit of Rs. 7 Lakh is also applicable for such remittance. 

Ex 1: If the amount of remittance under LBS during a financial year is Rs. 6,00,000, then there will be no TCS.

Ex 2: If the amount of remittance under LBS during a financial year is Rs. 8,00,000, then there will be TCS of 5 percent on Rs. 1,00,000 only. If the amount of Rs. 8,00,000 remittance is an educational loan then TCS of 0.5% will be applicable on Rs. 1,00,000 only.

TCS on payments made for overseas tour programme package

Threshold Limit: There is no change in the threshold limit in the Finance Act, 2020 in case of TCS on overseas tour programme package from the proposed provision in the Finance Bill, 2020. In other words, there is no threshold limit provided for applicability of TCS in case of TCS on overseas tour programme package.

The threshold limit of Rs 7 lakh and applicability of TCS in excess of Rs. 7,00,000 is applicable for TCS on remittance of amount out of India under the Liberalised Remittance Scheme (LRS) - whether for educational loan or for otherwise but does not apply for payments made for overseas tour programme package.

Thus the rate of TCS of 5 per cent shall apply for overseas tour program package irrespective of the amount received from the buyer for such package.

In the Finance Bill, 2020, only the seller of such a package is required to collect the TCS from the buyer. As overseas travel is also covered under the Liberalised Remittance Scheme (LRS) of RBI, a buyer may make payment to seller through an authorized dealer to escape the TCS on such remittance because the authorized dealer was not required to collect TCS thereform. In other view, even if it was interpreted that the authorized dealer would otherwise collect TCS on remittance of amount out of India under the Liberalised Remittance Scheme (LRS), however, in such a case the benefit of threshold limit would apply in such a case. Thus making the payment to the seller for overseas tour package through an authorized dealer would be more advantageous than making the payment directly to the seller.

Further, there was a problem in enforcing the provision and collection of tax if the seller is a non-resident or if the package tour is purchased from an online foreign portal.

To plug the loophole and to rationalise the provision, the Finance Act, 2020 has amended section 206(1G) to provide that an authorised dealer shall be required to collect tax from the buyer of overseas tour package irrespective of the amount to be remitted out of India for that purpose. Thus, an authorised dealer shall be required to collect income-tax or TCS @ 5% even if the amount or aggregate of the amounts being remitted by the buyer for the overseas tour package in a financial year is less than Rs. 7 lakh.

A buyer of an overseas tour package can make payment to the seller directly or may remit the money to the seller through authorized dealer, there may be a case where both the seller and authorized dealer may collect TCS from the same buyer for the same payment which may result in double levy of TCS. To mitigate this ambiguity, a proviso has been inserted to sub-section (1G) by the Finance Act, 2020 to provide that the authorised dealer shall not collect TCS on an amount in respect of which the tax has already been collected by the seller. Hence, if tax is collected by the seller then the authorized dealer shall not collect TCS therefrom again.

For this purpose, a fourth proviso is inserted in the proposed sub-section (1G) which is reproduced below-

Provided also that the authorised dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller:

There is one more TCS provision proposed to be introduced in the statute is section 206(1H). This deals with TCS on sale of any goods in certain cases.

The provision of TCS on sale of goods so introduced did not distinguish between domestic sales and export sales which means tax was required to be collected when sale consideration was to be received from export of goods.

Export of goods excluded from TCS- Finance Act, 2020 has amended the said sub-section (1H) to provide that no tax shall be required to be collected in respect of goods exported out of India.

Applicability date deferred- The Finance Bill, 2020 proposed the amendments to the provisions relating to TCS to be effective from 01-04-2020.

The Finance Act, 2020 has deferred the applicability of such amendments. Now, these provisions will be effective from 01-10-2020.

Power to remove difficulty- Finance Act, 2020 has empowered the CBDT to issue guidelines, with the approval of central government, if any difficulty arises in giving effect to the provisions of subsection (1G) or sub-section (1H). It is also provided that such guidelines so issued shall be laid before the Parliament and shall be binding on the Income-tax authorities and on the person liable to collect the sum. [Section 206C(1-I) and section 206C(1J)]

There were no such provisions in the Finance Bill, 2020.

The salient features of amendment under section 206C are given below-

Amendment in section 206C(1G)

1. An authorised 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 on the amount in excess of Rs. 7 Lakh from a person remitting such amount out of India.

2. The rate of TCS is 5 per cent in the above case. In non-PAN/non-Aadhaar cases, the rate of TCS shall be 10 per cent.

3. An authorised 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 and if the remittance is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education shall be liable to collect TCS on the amount in excess of Rs. 7 Lakh from a person remitting such amount out of India.

4. The rate of TCS is 0.5 per cent in the above case. In non-PAN/non-Aadhaar cases, the rate of TCS shall be 5 per cent.

5. 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. In this case, no threshold limit is provided.

6. Either the authorised dealer or seller to collect TCS based on the medium of remittance in the above case.

7. The rate of TCS is 5 per cent in the above case. In non-PAN/non-Aadhaar cases, the rate of TCS shall be 10 per cent.


8. 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.

Amendment in Section 206C(1H)

1. It is also proposed to amend section 206C to levy TCS on sale of goods.

2. Only those seller 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.

3. Similarly, TCS shall be collected from a buyer from whom consideration of more than Rs. 50 lakh will be received in the previous year.

4. The provision only covers business entities and not professionals.

5. 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.

6. No TCS is applicable in case of export or import of goods.

7. Similarly, Central Government may notify persons, subject to conditions contained in such notification, who shall not be liable to collect such TCS.

8. 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.

9. In the case of the sale of goods, the rate of TCS is 0.1 per cent.  In non-PAN/non-Aadhaar cases the rate shall be 1 per cent.



The final bare provisions of section 206C(1G) and section 206C(1H) as enshrined by Finance Act, 2020 are reproduced below-

95. In section 206C of the Income-tax Act with effect from the 1st day of October, 2020,-

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

‘(1G) Every person,–

(a) being an authorised dealer, who receives an amount, 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 programme 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 per cent. of such amount as income-tax:

Provided that the authorised dealer shall not collect the sum, if the amount or aggregate of the amounts being remitted by a buyer is less than seven lakh rupees in a financial year and is for a purpose other than purchase of overseas tour programme package:

Provided further that the sum to be collected by an authorised dealer from the buyer shall be equal to five per cent. of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, where the amount being remitted is for a purpose other than purchase of overseas tour programme package:

Provided also that the authorised dealer shall collect a sum equal to one half per cent. of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, if the amount being remitted out is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education:

Provided also that the authorised dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller: 

Provided also 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) “authorised dealer” means a person authorised by the Reserve Bank of India under sub-section (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 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.

(1H) Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or 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 per cent. 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 per cent.”, the words “one per cent.” had been substituted:

Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

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

(a) “buyer” means a person who purchases 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) 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;

(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.’;

(1-I) If any difficulty arises in giving effect to the provisions of subsection (1G) or sub-section (1H), the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(1J) Every guideline issued by the Board under sub-section (1-I) shall be laid before each House of Parliament, and shall be binding on the Income-tax authorities and on the person liable to collect the sum.


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