Changes in Tax Collected at Source (TCS) Statement

CBDT introduced the changes in Tax Collected at Source statement (Form 27EQ) vide notification no. 54/2020 on 24th July 2020. Amendments have been made in Rules 31AA, 37BC, 37CA, and 37-I of the Income Tax Rules, 1962 via the notification.

Related Provisions of TCS

Section 206C of the Income Tax Act, 1961 deals with TCS (“Tax Collection At Source”) provisions. It requires every seller to collect TCS from the buyer on the amount received from such a buyer in case of certain goods and services. The seller has to remit the amount collected to the credit of the Government. The section also requires sellers to furnish a statement of the amounts collected and deposited in the prescribed form and within the prescribed time limit.
Further, Rule 31AA of the Income Tax Rule, 1962 require the sellers to furnish quarterly statement of the tax collected at source in Form 27EQ within the following due dates:

Quarter of the financial year ended	Due date
30th June	15th July
30th September	15th October
31st December	15th January
31st March	15th May

Latest Amendments in Finance Act, 2020

Finance Act, 2020 brought in certain amendments in section 206C and extended the scope of TCS provisions. The Act brought the following transactions in the ambit of tax collection at source provisions:

Remittances of amounts outside India under the Liberalised Remittance Scheme (LRS) of RBI: Section 206C(1G)

Authorized dealers who receive any amounts for remittance out of India from persons making remittances outside of India under LRS of RBI amounting to or in excess of Rs. 7 lakhs in a financial year shall collect TCS on the amounts received to them for such remittance. The authorized dealers shall collect tax @ 5% of the amount in excess of Rs. 7 lakhs remitted by a person during a financial year. Further, the rate shall be 0.5% in a case where a person remits remitted out of India an amount which is a loan that has been obtained from a financial institution as prescribed in section 80E for the purposes of pursuing any education.

Overseas tour program packages: Section 206C(1G)

The sellers of the overseas tour packages shall collect TCS on any amount received from the buyers of the tour packages @ 5%. There is no threshold prescribed in the case of overseas tour program packages. The seller shall collect tax on any amount received by the seller from a person on account of overseas tour packages. For amounts being remitted outside India by the buyer in relation to overseas tour packages, either the authorized dealer or the seller of the package shall collect TCS. The section also provides certain classes of buyers for which the provisions contained in the section shall not apply.

Sale of goods of the value exceeding Rs. 50 lakhs: Section 206C(1H)

The amendments proposed that tax collection at source shall be made applicable to the sale of goods as well. Although, only those sellers whose total sales, gross receipts, or turnover from the business during the financial year immediately preceding the financial year exceeds Rs. 10 crores shall collect TCS. Thus, it is important to note that the section covers only sellers involved in a business and not professionals. Such sellers shall collect TCS from the buyers on the amounts received from them on account of the sale of goods to them in excess of Rs. 50 lakhs in the financial year. The sellers shall collect tax @ 0.1% on the amounts received in excess of Rs. 50 lakhs from the buyer. The rate shall be 1% in case the buyer fails to furnish the PAN or the Aadhaar. The section provides an exemption from TCS provisions in case of import and export of goods and for certain buyers.

Amendments in Income Tax Rules Via Notification

The Income Tax department has made the following amendments through this notification.

Amendment in Rule 31AA: Sub-clauses “(vi)” and “vii” added

Sub-clause "vi" Implication

The implication of the sub-clause “vi” is that the seller, being an authorized agent or the seller of overseas tour program shall furnish the details of TCS not collected from the amount received from the buyer in the following cases:

The amount received by the authorized dealer for remittance out of India from the person making such remittances is less than Rs. 7 lakhs during the financial year and the person remits such amount for purposes other than the purchase of an overseas tour package program.
The amount received by the authorized dealer for remittance out of India by a person for the purpose of purchase of overseas tour package program and the seller of the program has collected the tax on such amount.
The buyer is liable to deduct TDS under any other provisions of the Act and such tax has been deducted.
The buyer is 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 has prescribed by way of notification.

Sub-clause "vii" Implication

The implication of the sub-clause “vii” is that the seller of goods shall furnish details of such transactions on which the seller doesn't collect tax from the buyer on account of the following reasons:

The buyer is liable to deduct TDS under any other provisions of the Act on the amounts paid to the seller for the purchase of goods and the buyer has deducted tax.
The buyer of the goods is the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State, or a local authority as defined in the Explanation to clause (20) of section 10, or a person importing goods into India or any other person as the Central Government may specify by notification.

Amendment in Rule 37BC

Rule 37BC suggests that a deductor shall not deduct tax at a higher rate in the absence of PAN of the deductee if the deductee furnishes certain details to the deductor. This is applicable only where the deductee is a non-resident or a foreign company. Thus, the rule provides relaxation from the deduction of tax at a higher rate as prescribed in Section 206AA when the deductee doesn't furnish PAN. Earlier the payments in the nature of interest, royalty, fees for technical services, and payments on the transfer of any capital asset were only covered. Now dividend payments are also included in the list. This change has been brought due to the fact that dividends are no more exempt from tax.

Amendment in Rule 37CA

Rule 37CA contains provisions regarding the time and mode of payment of TCS by the sellers under section 206C. Earlier references were made to tax collected at source under sub-section (1) and (1C) only of the section 206C. Since the amendments have extended the scope of section 206C, the rule has been modified to remove these references. As a result, the rules now cover tax collected at source under section 206C.

Amendment in Rule 37-I

Rule 37-I contains provisions regarding granting credit for the tax collected at source to the buyer. The rule states that the credit of the tax collected at source during the financial year shall be available to the buyer in the year in which the relevant income is assessable to tax. The notification has amended the rule to the effect that the buyer shall get credit for the tax collected at source in the year in which a person collects tax under sub-clauses (IF), (IG), and (IH). Further, a new annexure of the TCS statement has been notified in place of the existing one.

Conclusion

The changes introduced in the TCS statement are in line with the changes introduced in the TCS provisions by the Finance Act, 2020. To download the full text of the notification, you can click here.