The government plans to link tax collected at source (TCS) with tax deducted at source (TDS), to reduce the impact on taxpayers’ cash flow, said V. Anantha Nageswaran, chief economic adviser, at a recent meeting of the Confederation of Indian Industry (CII). After linking TCS with TDS, a salaried individual’s TDS is expected to come down as per the TCS he pays on any transactions.
Nageswaran says the change will ensure a lower TDS for the salaried class. “It simply is a matter of making sure that you are not affected from a cash flow perspective,” PTI quoted him as saying.
What Are TDS And TCS?
TDS stands for tax deducted at source. TDS is deducted when an individual receives salary, rent, professional fees, brokerages, commissions, or transfers virtual digital assets, or earns dividends, interest on securities, etc.
On the other hand, TCS is tax collected at source by sellers, applicable in specific business transactions such as alcohol, forest produce, scrap, foreign remittance, overseas tour packages, and motor vehicle sales above Rs 10 lakh. TDS and TCS are deposited with the government and are reflected in the taxpayer’s Form 26AS.
The more comes close on the heels of the government’s decision to hike the TCS for foreign remittances—a 20 per cent TCS on certain international spending, effective from July 1. However, payments using international debit or credit cards up to Rs 7 lakh per financial year will be exempt from TCS. The government said most transactions made by individuals would not fall under the 20 per cent TCS.
In cases where either TDS or TCS has been deducted beyond the taxpayer's actual liability, a refund for the excess amount can be claimed when filing the income tax return. The linkage will streamline the tax collection process, and ensure a smoother cash flow for taxpayers while also simplifying tax compliance.
Recent Change In TCS
TCS is levied when you send money abroad—not only person-to-person transfers but also expenses related to travelling, asset purchases, and investments overseas. The Liberalised Remittance Scheme (LRS) facilitates international transactions. Earlier, the TCS rate for remittances exceeding Rs. 7 lakh was 5 per cent.
However, in the 2023 Union Budget update, the TCS rate has been increased to 20 per cent for all remittances except those for education or medical treatment, starting from July 1, 2023.