The government is trying to link tax collected at source (TCS) for payments made by individuals with tax deducted from their income sources (TDS), a move that will help in ensuring cash flows of the individual taxpayers are not impacted, said Chief Economic Advisor (CEA) V Anantha Nageswaran while addressing the CII Annual Session 2023. 

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The government introduced the tax collected at source or TCS on May 19 and as per the new regulations, the government is set to impose a 20 per cent Tax Collection at Source (TCS) on certain international spends from July 1.

Generally, TCS is the tax collected by a seller at the time of sale of goods or services, while Tax Deducted at Source (TDS) is the amount levied as tax by the government.

The government has exempted transactions up to Rs 7 lakh from the TCS, providing relief to small taxpayers. So, the bulk of the transactions made by most will not be covered under 20 per cent TCS, the Chief Economic Advisor said.

He further added, "And it (government) also attempts to link the TCS with your TDS such that if there are TCS payments made by you it has to reflect a lower TDS. Such that it simply is a matter of making sure that you are not affected from a cash flow perspective."

It will also provide a huge amount of relief for people who are concerned about the annoyance or irritation of seeing this TCS apart from TDS, he said at the industry body's event on Thursday.

The 20 per cent TCS levy on international credit card spending will be implemented from July 1.

In the last one week, the ministry has tweaked the tax structure in various ways. The finance ministry last week, exempted up to Rs 7 lakh spend from the TCS ambit after it faced several criticisms. On the other hand, the revenue department also introduced some new exemptions for taxpayers on May 25. As per the new tax structure, non-government employees can make leave encashment up to Rs 25 lakh exempt from taxation. The exemption limit has been raised from Rs 3 lakh to Rs 25 lakh. The exemption will apply to taxpayers in both Old and New Tax Regimes.

 "The exemption was done... The pass-through of TCS into TDS deduction will also make sure that ordinary taxpayers do not see an impact as far as they are concerned," he said.

Further, CEA said one point of view is that all that "you needed was to levy 1 per cent or 5 per cent so that you can track it".

According to him, data is available with the government that do point out that this mechanism has been not just abused by a small set of people but the volumes involved are fairly substantial.

Currently, overseas medical treatment and education expenses up to Rs 7 lakh a year is exempt from TCS. A 5 per cent levy is charged on expenses exceeding Rs 7 lakh. For those who have availed education loans, the rate of TCS is 0.5 per cent.

 

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