A Dummy’s Guide To TCS: What It Is, How It’s Calculated, The Limit, And How To Redeem It!

Prepare to embark on a journey into the heart of taxation’s uncharted territory, where complex algorithms meet fiscal responsibility. Welcome to “A Dummy’s Guide To TCS,” your ticket to unravelling the enigma that is Tax Collected at Source. Join us as we navigate this thrilling landscape, guided by Rikant Pittie, the Co-founder of EaseMyTrip. Together, we’ll demystify TCS, decode its intricacies, and learn how to wield it to your advantage. Buckle up, for this is where financial literacy transforms into financial empowerment!

Here’s All You Need To Know About It

1. What is Tax Collected at Source (TCS)?

Imagine Tax Collected at Source (TCS) as your financial GPS, guiding you through a labyrinth of transactions. Similar to its cousin, Tax Deducted at Source (TDS), businesses play the role of diligent sentinels, collecting taxes during specific transactions on behalf of the government. To put it simply, Rikant said, “Essentially, TCS enables the government to collect taxes at the initial stage of a transaction rather than relying on individuals or businesses to report and pay their taxes later, ensuring equitable tax contributions from all.” It’s like paying taxes upfront, ensuring everyone contributes their fair share. 

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2. What exactly does the ₹7 lakh limit mean?

Rikant stated, “Under the new tax rules starting from October 1, 2023, when purchasing overseas tour packages worth more than ₹7 Lakhs in a year, a 20% TCS rate applies.” For journeys valued up to ₹7 Lakhs in a financial year, the 5% TCS rate remains dormant. But here’s the twist: beyond these rates, TCS also keeps a watchful eye on foreign remittances under the Liberalised Remittance Scheme (LRS). It imposes a 20% tax (up from 5%) on remittances exceeding ₹7 Lakhs, except for education and medical purposes. The silver lining? You can still remit up to $250,000 annually under LRS without encountering TCS, as long as it stays within ₹7 Lakhs.

3. What kinds of transactions fall under TCS?

TCS casts its net over a vast ocean of transactions, including luxury car purchases, exotic travel escapades, and even scrap material sales. To explain it further, Rikant shared, “For instance, when purchasing a luxury vehicle, a fraction of the total price is collected as TCS by the dealer and forwarded to the government. Similarly, when booking a costly international travel package, the tour operator collects TCS and remits it to tax authorities.”

4. How would you clarify TCS using an example related to travel, including the costs?

Let’s dive into a thrilling travel example. Picture booking a dream vacation package worth ₹7 lakhs through a travel agency. According to the TCS playbook, the travel agency collects 5% of the package’s value, which amounts to ₹35,000, and forwards it to the government. You part with ₹7.35 lakhs, and the agency acts as your tax emissary, transmitting ₹35,000 to the government. According to Rikant, “TCS guarantees that a portion of the transaction amount is paid to the government at the time of the purchase, aiding in income monitoring and preventing tax evasion, particularly for high-value transactions like luxury travel packages.”

5. What happens if you spend more than ₹7 lakhs on travel in a year? Is the ₹7 lakh TCS limit for each trip or for the entire year?

Rikant shared,‘ ₹7 Lakhs limit is per PAN for the whole financial year.’ In this thrilling journey, all transactions, whether domestic or international escapades, play a part in this limit.

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6. When and who can redeem TCS?

The tantalising promise of redemption awaits! Buyers can transform TCS into a tax credit, reducing their total income tax liability. “Redemption can be claimed if the buyer’s tax liability is less than the buyer’s tax claim”, said Rikant.

7. How can TCS be claimed during the tax filing process?

To unlock TCS’s secrets during your tax filing adventure, follow these steps:

• Secure TCS certificates from sellers or collectors, validating the sums.
• In your annual income tax return, venture into the realm of tax credits and deductions.
• Document the TCS amount disbursed over the year.

Rikant shared, “This is an integrated part of the tax filing process, simplifying the use of TCS credits and avoiding double taxation on the same income or transaction.”

In conclusion, understanding TCS is essential for navigating the world of taxation and financial transactions, ensuring that you comply with the law while managing your finances efficiently.

Cover Image Courtesy: Canva