Budget 2021 Expectations: Need to rationalise the provisions of TCS

Union Budget 2021-22 Expectations: Tax Collection at Source (TCS) is a mechanism to collect tax by the seller in specified transactions from the buyer or licensee or lessee. In the last few years, the government has enhanced the scope of TCS provisions. Earlier Section 206C of the Income-Tax Act provided for the TCS on the business of trading in alcohol, liquor, forest produce, scrap etc.

The government’s objectives are to check tax evasion and add another source of tax collection. Considering this, the Finance Act 2020 has widened the scope of TCS to include the collection of tax on foreign remittance through Liberalised Remittance Scheme (LRS), on the selling of overseas tour package and sale of goods over a threshold limit.

Here are the recommendations to rationalise the TCS provisions in the Income-Tax Act.

Relaxation from the rigour of ‘assessee-in-default’

If any person, responsible for the collection of tax at source, fails to collect the whole or any part of the tax or after collection fails to deposit the same to the credit of the Central Government, then he shall be deemed to be assessee-in-default. A collector is not deemed to be in default if the amount is received from a person who has considered such amount while computing income in the return and has paid the tax due on such declared income. The receiver will have to obtain a certificate to this effect from a Chartered Accountant in Form No. 27BA and submit it electronically.

The object behind the deduction/ collection of TDS/ TCS is the same, that is, to ensure the advance recovery of the taxes from the concerned payer/seller to be credited to the account of the concerned recipient/buyer. Therefore, it is recommended to extended this benefit under Sub-section (6A) of section 206C to the persons covered under sub-section (1F), (1G) and (1H) of section 206C, namely, collection of tax from sale of the motor vehicle, remittance out of India under LRS, sale of overseas tour package and collection exceeding Rs 50 lakh from the sale of goods.

Parity in the rate of interest for non-deposit of TDS & TCS amount

Section 201 provides the consequences in case of any failure to deduct or to pay the tax deducted at source. The provision provides that deductor shall be liable to pay interest at the rate of 1% per month/part of the month in case there is a failure to deduct tax. However, where a deduction has been made but tax has not been deposited, the interest is levied at the rate of 1.5% for every month or part of the month.

In contrast to above Section 206C prescribed only a single rate of interest. If the collector fails to collect TCS or after collecting fails to deposit it with the government, interest is levied at the rate of 1% for every month or part month. It is expected that the government may bring parity in the penal provision for both the default. Section 206C could be amended to provide a higher rate of interest in case tax has been collected but not deposited to the credit of Central government.

Enhance the scope to apply for lower tax collection certificate

An assessee can apply to the Assessing Officer to issue a certificate for collection of tax at lower rates under section 206C(9). Such certificate shall be issued if existing and estimated tax liability of assessee justifies collection of tax at a lower rate. This benefit is only available to the persons covered under sub-sections (1) and (1C) of section 206. The assessee covered under sub-section (1F) (sale of motor vehicle), (1G) (remittance of foreign currency under LRS or sale of an overseas tour package) and (1H) (sale of goods) does not have the option to approach the assessing officer to issue lower tax collection certificate. It is recommended that the benefit to apply for lower collection certificate should also be extended to the persons covered under sub-sections (1F), (1G) and (1H) of section 206C.

Penalty for Failure to Furnish TCS Returns

If a person fails to file the TCS return or does not file it by the due dates, he shall be liable to pay penalty under Section 271H. The penalty under Section 271H is also levied in case of furnishing of inaccurate information under TCS return. The minimum amount of penalty for failure to furnish TCS return or providing inaccurate information therein is Rs. 10,000 which can go up to Rs. 100,000. The penalty payable under this provision is in addition to the fees payable under Section 234E.

It is recommended that penalty for non-filing should not be levied if the TDS or TCS return is filed before the expiry of the due date of filing of return of income of the previous year in which the tax was so deducted or collected, irrespective of the quarter to which the tax relates.

Further, the penalty may be prescribed having regard to the quantum of default and the period of delay, and no discretion may be given to the Assessing Officer in this regard. In any case, it should not exceed the tax collectable at source, in respect of which the quarterly statement has not been filed.

(By CA Naveen Wadhwa, DGM, Taxmann, with CA Tarun Kumar, Consultant, Taxmann)