TCS provisions applicable from 01.10.2020 – Detailed Analysis

As we all are aware that Finance Act, 2020 has come up with new insertion of TCS Provisions of Section 206C(1G)(a) – TCS on foreign remittance through Liberalised Remittance Scheme (LRS), Section 206C(1G)(b) – TCS on selling of overseas tour package and Section 206C(1H) – TCS on sale of any goods [except goods on which TCS applicable as per Section 206C (1), 206C (1F) and 206C (1G)]. But as we observe in the industry there are various doubts which people are facing regarding implementation of these sections hence today, we are coming here with detailed discussion of the same.

Before starting this discussion, the most important point to be noted is that all these amended provisions of TCS will be effective from 1^st October, 2020 instead of 1^st April, 2020.

A. New inserted TCS provisions as applicable from 01.10.2020

1. Section 206C(1G)(a) – TCS on foreign remittance through Liberalised Remittance Scheme (LRS)

• An authorised dealer receiving an amount or an aggregate of amounts of seven lakh rupees 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 sum in excess of said amount from a buyer being a person remitting such amount out of India, at the rate of five per cent.
• In non-PAN/Aadhaar cases the rate shall be ten per cent.
• This section will not be applicable in following cases:
  • If the buyer is liable to deduct TDS under any other provisions and has deducted
  • If a buyer is CG, SG, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, a local authority or any other person as notified by CG
• “authorised dealer” is proposed to be defined to mean a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of Foreign Exchange Management Act, 1999 to deal in foreign exchange or foreign security.

2. Section 206C(1G)(b) – TCS on selling of overseas tour package

• A 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 at the rate of five per cent.
• In non-PAN/ Aadhaar cases the rate shall be ten per cent.
• There is no monetary limit for this transaction, irrespective of any amount TCS must be collected by seller of that package
• This section will not be applicable in following cases:
  • If the buyer is liable to deduct TDS under any other provisions and has deducted
  • If a buyer is CG, SG, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, a local authority or any other person as notified by CG
• “Overseas tour program package” is proposed to be defined to mean 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 expense of similar nature or in relation thereto.

3. Section 206C(1H) – TCS on sale of any goods [except goods on which TCS applicable as per Section 206C (1), 206C (1F) and 206C (1G)]

• A seller of goods is liable to collect TCS at the rate of 0.1 per cent on consideration received from a buyer in a previous year in excess of fifty lakh rupees.
• In non-PAN/ Aadhaar cases the rate shall be one per cent.
• Only those sellers whose total sales, gross receipts or turnover from the business carried on by it exceed ten crore rupees during the financial year immediately preceding the financial year, shall be liable to collect such TCS.
• Central Government may notify person, subject to conditions contained in such notification, who shall not be liable to collect such TCS.
• 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.
• No such TCS is to be collected, if the seller is liable to collect TCS under other provision of section 206C such as Section 206C (1), 206C (1F) and 206C (1G) or the buyer is liable to deduct TDS under any provision of the Act and has deducted such amount.

B. Some Important Points to keep in mind:

• Though the TCS on all forex transactions under LRS will be applicable from 1st October, 2020. But, for tracking the threshold limit of INR 7 lakhs, all under LRS made from 1st April, 2020 would be considered.
• The TCS will be applicable even if the foreign exchange facility is availed in Cash or Forex cards

C. FAQs on New TCS provisions applicable from 01.10.2020

1. Whether TCS on foreign remittance through Liberalised Remittance Scheme (LRS) will be applicable on entire amount of remittance or only on excess of Rs 7 Lacs?

Ans: TCS shall be applicable on amount in excess of ₹ 7 lakhs in a financial year and not on the total amount.

2. Whether all foreign remittance transactions through Liberalised Remittance Scheme (LRS) will be charged at 5%?

Ans: Normally, Yes all remittance out of India under the LRS of RBI, shall be liable to collect TCS at 5%. But in non-PAN/Aadhaar cases the rate shall be 10% But please note that in cases where the amount is remitted for the purpose of pursuing education through a loan obtained from any financial institute, rate of TCS shall be 0.5% on amount exceeding ₹ 7 lakhs.

Note: Remember, there is no monetary threshold prescribed for remittance for the purchase of overseas tour program package and the bank will collect the TCS on the entire amount irrespective of its value.

3. Elaborate tax implication on remittances for pursuing overseas education?

Ans: The TCS at 0.5% shall be applicable on the amount exceeding INR 7,00,000 in a financial year under LRS, if the amount remitted is obtained out of a loan from a Financial Institution for pursuing education.

‘Financial Institution’ means a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf.

For instance, if the total amount remitted under LRS in a financial year is INR 8,00,000 for pursuing overseas education, TCS at 0.5% will be applicable on INR 1,00,000 (INR 8,00,000 – INR 7,00,000).

Note:

a) If the education abroad is incurred from own fund or loan has been taken from non-specified or private parties then TCS at 5% will be applicable on remittances exceeding Rs 7 lacs in a financial year.

b) Remember, if the educational program is subsequently decided to cancelled or not persuaded, then the bank will not refund the TCS collected by it. But, the credit for the same can be available to the customer and they can claim refund by filing income tax returns.

4. Elaborate tax implication of remittances for the purchase of overseas tour program package under LRS?

Ans: The TCS at 5% will be applicable on the total amount remitted and the bank will collect the TCS on the entire amount irrespective of its value.
For instance, if the amount remitted is INR 2,00,000, the TCS at 5% will be applicable on entire INR 2,00,000.

Note: Remember, if the tour package is subsequently decided to cancelled, then the bank will not refund the TCS collected by it. But, the credit for the same can be available to the customer and they can claim refund by filing income tax returns.

5. Will GST be applied on Tax collected at source under Liberalised Remittance Scheme (LRS)?

Ans: The GST will continue to apply on currency conversion and on Remittance Service Charge. The same will not be applied on the tax collection.

6. What are the scenarios under which the provision will not apply?

Ans: The above mentioned TCS provisions will not applicable in the following cases:

• The remitter is liable to deduct tax at source under any other provision of the act and the amount has been deducted and proof of the same is submitted to the bank
• The remitter is the Government or any another person notified by the Government
• The seller of the overseas tour program package has already collected TCS

7. Can customer avail tax credit of the TCS?

Ans: Yes, the customer can claim credit for the tax collected by the bank while filing for their tax returns as the TCS is deemed to be a payment of tax on behalf of the person from whom the amount has been collected.

8. Whether Section 206C(1H) is applicable on provision of services?

Ans: This section is not applicable on provision of services; hence all service provider should keep in mind that they are not covered under prevue of Section 206C(1H).

9. Whether TCS has to be collected on the amount of consideration received before 01 October, 2020?

Ans: TCS u/s 206C(1H) shall be applicable only on the amount received on or after 1^st October, 2020.

E.g. If a seller has received 80 Lakhs before 01^st October, 2020 from a particular buyer and receives 10 lakhs after 01^st October, 2020. Then in such case the seller would be required to collect tax on Rs. 10 lakhs only and not on Rs. 40 lakhs [i.e. Rs 90 lakhs – Rs 50 lakhs (Threshold)]

[Refer – Clarification on doubts arising on account of new TCS provisions issued by CBDT]

10. Threshold limit of Rs 50 lakhs for sales consideration as per Section 206C(1H) is calculated from which date?

Ans: Though the section is effective from 01^st October, 2020, the threshold limit of Rs 50 lakhs of sale consideration will be computed from 01 April, 2020. i.e. from beginning of the financial year.

11. Whether the GST amount will be considered as a part of sales consideration or not for the purpose of calculation of threshold limit and TCS u/s 206C(1H)?

Ans: Yes, GST component should be considered as a part of sale consideration for the purpose of calculation of threshold limit and TCS

12. Whether any adjustment for sales return, discount or indirect taxes required for purpose of TCS u/s 206C(1H)?

Ans: No adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax under sub-section (1H) of section 206C of the Act since the collection is made with reference to receipt of amount of sale consideration. [Refer – CBDT Circular No. 17/2020 dtd. 29-09-2020]

13. If Mr. A has sale the goods in the month of July, 2020 and he has received the payment in the month of October, 2020 then whether the TCS will be applicable in this case? If the threshold limit has already complied in the month of September.

Ans: Yes, TCS has to be calculated on the amount of receipts since as per the section 206C(1H), the TCS applicable on actual receipt of sale consideration and not on merely raising the invoice of the same.

14. Can Advance received before October and sales is completed after October will be eligible for the TCS u/s 206C(1H)?

Ans: Yes, in such situation if the total amount is above threshold limit then the TCS will be applicable in such situation.

E.g. If sale upto 30th September – Rs. 70,00,000,

Sales on 15 October 50,00,000

Amount Received on 25 September – Rs. 1,20,00,000/- (Incl Advance against sales of October month)

The TCS will be applicable in this case on amount of Rs 70,00,000 (Rs. 1,20,00,000 – Rs 50,00,000)

[Refer – CBDT Circular No. 17/2020 dtd. 29-09-2020]

15. What compliance are required with respect to these new sections?

Ans: The due date of payment of TCS is on or before 7th day of the next month in which tax has been collected. TCS return shall be filed in Form 27EQ on a quarterly basis. The due date of filing of quarterly return is within 15 days of the end of the quarter. Further, when the tax collector files his quarterly TCS Returns in Form 27EQ, he has to provide a certificate of TCS in Form 27D to the buyer within 15 days of the date of filing.

D. Practical Example of TCS on foreign remittance through Liberalised Remittance Scheme (LRS)

Case: Mr. A has made remittance during FY 2020-21 as follows:

Transaction 1 – Rs. 5,00,000

Transaction 2 – Rs 8,00,000

Transaction 3 – Rs 1,50,000

Answer:

TCS applicability transaction wise is as under:

Transaction	TCS Applicability
Transaction 1 – Rs. 5,00,000	No Tax will be collected since the amount is below Rs 7,00,000/-
Transaction 2 – Rs 8,00,000	TCS will be applicable on Rs 6,00,000 [(Rs 5,00,000 + Rs 8,00,000 = Rs 13,00,000) – Rs 7,00,000 = Rs 6,00,000]
Transaction 3 – Rs 1,50,000	TCS will be applicable on Rs 1,50,000 entirely since Rs 7,00,000 limit has been exceeded in transaction 2 only.

We have tried to cover most of the doubts which people are facing in the industry. Hope this will help while implementing the provisions correctly at the time of compliance.

(Article is been Authored Jointly with CA Prapti Raut)