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Businesses should be aware of the change known as Tax Collected at Source.

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Businesses should be aware of the change known as Tax Collected at Source.

  • 27 Jul 2023

A nation's economy cannot function without taxes. The tax has many procedures and already has a certified amount that the businessperson must deposit at the appropriate time and location. A country's tax system must also have a transparent tax structure that complies with its financial system. Because of this, the effectiveness of any tax system greatly depends on how clear, transparent, stable, economical, and convenient it is.

We'll go over the specifics of the most recent changes to the tax department's tax collection at source (TCS) program in this blog.

The Government of India has broadened its reach by making many changes to the Tax Collected of Source (TCS) in an effort to further increase the tax-net. Section 206C of the Income Tax Act, 1961 has been changed by the Government of India by the addition of a new sub-clause (1H), which is now section 206C (1H), pertaining to "collection of tax at source." Beginning on October 1, 2020, the new TCS provisions will be applicable.

What is TCS?

Tax Collected at Source (TCS) is an income tax collected by the seller of specified goods from the buyer. It is a concept where a person selling specific goods collects tax from the buyer at a fixed rate and is liable to deposit it with the government. For example:- A person (P)  purchases jewelry items from Jewelry shop (Q) worth rupees 10,00,000. P will now be liable to pay rupees 10,10,000 to Q. It is when TCS is applicable at the rate of 1%.

What is TCS under GST?

The tax collected at source (TCS) under GST means tax received by an e-commerce operator using an online platform, on behalf of the supplier of goods or services received. TCS will be charged as a percentage on the net taxable supplies.

The IGST Act imposes a 1% fee on TCS (0.5% CGST and 0.5% SGST). The e-commerce site deducts the sum and gives the supplier the balance.

Who is responsible for collecting TCS under GST?

Some operators who operate and efficiently manage e-commerce platforms are a liable person to collect TCS. TCS only applies when operators collect considerations from customers on behalf of vendors or suppliers.

The e-commerce operator responsible for collecting TCS is required to register under GST. No limit is waived to the operator for this. Also, sellers who supply their goods through online portals are required to be registered under GST. However, some exceptions exist.

A Summary of Tax Collected at Source (TCS)

The Tax Collection at Source (TCS) under the GST is the concept where the seller collects a percentage of tax from the buyer on the sales amount. The tax collected by the seller is then to be deposited with the government. It is applied to selected transactions involving prescribed goods and services.

A seller who receives any amount on the sale of any goods aggregating to 5 million or more in a financial year from a buyer, at the time of receipt of such amount is required to collect tax at source (TCS) at the rate 0.1 percent on the sale consideration exceeding INR 5 million as income-tax. If the buyer fails to provide PAN/Aadhar, TCS shall be collected at the rate of 1 percent.

The new provisions added by subsection 1(H) of section 206C under GST will be Applicable from the 1st of October, 2020.

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