Simplifying tax collected at source (TCS) for you
25-May-2023 •Ravi Banagere
The Ministry of Finance recently made a bold move to check international spending. It announced that foreign remittances using a credit card under the liberalised remittance scheme (LRS) face a TCS hike from 5 per cent to 20 per cent from July 2023 onwards.
This announcement has led to a buzz of questions. Some of them are - What is TCS, how does it differ from TDS (tax deducted at source), does it mean I will pay more tax overall? Let's look into these questions.
What is TCS
TCS is a tax collected by the sellers of specific goods or services from you when you buy their products or services.
For instance, according to Indian tax laws, if you buy a car worth more than Rs 10 lakh, the car dealer must collect 1 per cent TCS from you.
So, if the car costs Rs 15 lakh, the dealer will collect an additional Rs 15,000 (1 per cent of Rs 15 lakh) as TCS. This amount is then deposited to the government by the dealer.
What is TDS
TDS is a tax that is deducted from your income by the payer before you receive the income. It could be your salary, interest from bank deposits, commission income, etc. It is deducted by your employer, the bank, or whoever is paying you the money, and is deposited with the Government of India.
How is TCS similar to TDS
How are TCS and TDS different
|Tax collected at source (TCS)||Tax deducted at source (TDS)|
|Who deducts/collects||Seller (such as a car dealer, a hotel, or subscription services)||Payer (such as employer, client, etc.)|
|When is it applicable||At the point of sale||At the time of receiving income|
|Types of transaction||Specified goods or services (e.g., cars over Rs 10 lakh)||Salaries, interest from bank deposits, commission income, etc.|
|Effect on taxpayer||Increases the cost of specific goods and services||Reduces the net income received|
Do I pay more taxes now
No. TCS is not an additional burden because it is credited against your total tax liability. You can claim for a refund if you have paid more tax than your annual tax liability. So, there is nothing for you to overthink.
Also read: Old or new? Which tax regime is better after Budget 2023-24