Understanding the Recent Amendment in Income Tax Laws Regarding TCS Credit
The Central Board of Direct Taxes (CBDT) has recently revised income tax laws to allow a different person to claim credit for Tax Collected at Source (TCS) instead of the individual who made the payment. This significant amendment, effective from October 16, 2024, aims to assist taxpayers in reducing their income tax liability by enabling them to claim TCS credit for income attributed to them, even if they were not the ones who originally made the payment.
The Amendment Explained
The CBDT’s notification states, “Where under any provisions of the Act, the income of the collectee is assessable in the hands of any person other than the collectee, the credit for the tax collected at source shall be given to such other person and not to the collectee.” This means that if the income generated from a TCS transaction is assessable in the hands of someone other than the person who made the payment, that individual can now claim the TCS credit.
This amendment is particularly beneficial in cases where the income of a minor is clubbed with that of a parent. For instance, if a parent pays for their minor child’s education abroad, the TCS would typically be collected in the child’s name. However, with the new rules, the parent can claim the TCS credit, thereby reducing their overall tax liability.
How the Amendment Benefits Taxpayers
Sudhir Kaushik, CEO of Taxspanner, highlights that this amendment simplifies the process for individuals who need to claim TCS credits. Previously, individuals had to file income tax returns to claim refunds for TCS paid on behalf of others, which could be cumbersome, especially for those with no taxable income. Now, the individual who incurs the expense can directly claim the TCS credit, streamlining the process and making it more efficient.
For example, consider a scenario where a parent sends their dependent daughter abroad for education. If the foreign remittance exceeds Rs 7 lakh, a 5% TCS would apply. Under the previous rules, the TCS certificate would be issued in the daughter’s name, complicating the tax credit claim for the parent. With the new amendment, the bank can issue the TCS certificate in the parent’s name, allowing them to claim the TCS credit and potentially lower their tax liability or even receive a refund.
Claiming TCS Credit: The Process
The CBDT notification outlines a clear mechanism for transferring TCS credit from the collectee to another individual. The collectee must submit a declaration to the collector (typically a bank or financial institution) specifying that the TCS credit should be attributed to another person’s Permanent Account Number (PAN).
This declaration must include:
- The name and address of the person to whom the TCS credit is to be given.
- The PAN of that individual.
- The amount of payment related to the TCS credit.
- The reasons for attributing the credit to that person.
Once the declaration is submitted, the individual claiming the TCS credit must collect Form 27D (the TCS certificate) from the collector. It is crucial for them to verify the TCS amount against their PAN by checking their Form 26AS and Annual Information Statement.
Understanding TCS: When is it Collected?
TCS, or Tax Collected at Source, is applicable when individuals make significant purchases or remittances. This mechanism helps the government ensure that individuals have sufficient income to make such purchases and aids in preventing tax evasion.
Currently, TCS is applicable in various scenarios, including:
- Purchasing a car costing more than Rs 10 lakh.
- Foreign travel exceeding Rs 7 lakh.
- Foreign education expenses exceeding Rs 7 lakh.
- Medical treatment abroad exceeding Rs 7 lakh.
- Any other foreign remittance exceeding Rs 7 lakh in a financial year.
This amendment not only simplifies the tax process for individuals but also enhances compliance and transparency in tax collection, ultimately benefiting the overall tax ecosystem in the country.