{"id":8628,"date":"2020-10-17T11:12:21","date_gmt":"2020-10-17T05:42:21","guid":{"rendered":"https:\/\/itatonline.org\/articles_new\/?p=8628"},"modified":"2020-10-17T11:12:21","modified_gmt":"2020-10-17T05:42:21","slug":"tax-collection-at-source-understanding-the-law-addressing-the-challenges","status":"publish","type":"post","link":"https:\/\/itatonline.org\/articles_new\/tax-collection-at-source-understanding-the-law-addressing-the-challenges\/","title":{"rendered":"Tax Collection At Source: Understanding The Law & Addressing The Challenges"},"content":{"rendered":"

\"ShashiAdvocate Shashi Ashok Bekal has explained the applicability of the Scheme of TCS, its compliance procedure and the consequences of non-compliance. He has also highlighted the concerns of taxpayers regarding the levy of TCS on sale of goods above specified limits. He has also identified certain lacuna and ambiguities in the law and requested that these be addressed at the earliest so as to avoid unwanted litigation<\/strong><\/p>\n

Abstract<\/p>\n

The Article attempts at explaining the evolution of the Tax Collection  at Source (TCS<\/strong>) provisions, and the intention of the Parliament, each time the widened the TCS base. Further, it explains the applicability of the Scheme of TCS, its compliance procedure, and consequences of non-compliance. The Finance Act, 2020 has amended the provisions of TCS by widening its base with new transactions. Some aspects of the new transactions can be held ultra vires the Constitution. Further, the Article explains the current concerns with the issue of levy of TCS on sale of goods above specified limit. Although the Administration has issued certain clarifications, a minor lacuna still exists. It is imperative to address these ambiguities at the earliest so as to avoid unwanted litigation.<\/em><\/p>\n

<\/p>\n

Table of contents<\/u><\/strong><\/p>\n

\n1. Introduction
\n2. Levy of TCS
\n  2.1. Applicability of TCS
\n    2.1.1. Rates
\n    2.1.2. Exemption
\n    2.1.3. Buyer & Seller
\n  2.2. Compliance procedure
\n    2.2.1. Certificate
\n    2.2.2. Due Dates
\n  2.3. Non-compliance
\n    2.3.1. Late filing fee\/Interest
\n    2.3.2. Penalty
\n    2.3.3. Prosecution
\n3. Finance Act, 2020
\n  3.1. Constitutional validity of TCS on LRS transaction
\n  3.2. CBDT Circular No. 17 of 2020 dated September 29, 2020
\n    3.2.1. Frequently asked Questions
\n    3.2.2. Litigative issues
\n4. D\u00e9nouement\n<\/p>\n

1. Introduction<\/strong><\/span><\/p>\n

Tax collection  at Source (TCS<\/strong>) was introduced as section 206C of the Income -tax Act, 1961 (Act<\/strong>) vide Finance Act, 1988(1988) 171 ITR 53<\/em><\/strong>. It was introduced to as a consequence to Section 44AC of the Act which was titled “Special provision for computing profits and gains from the business of trading in certain goods.”<\/strong><\/p>\n

According to the scheme of TCS, the seller of certain specified goods, at the time of sale, is required to collect a tax in form of a percentage of the sales from the buyer. The seller is then required to deposit the same with the Government. The buyer of the goods is allowed the credit of the tax paid, in the same year.<\/p>\n

As per the Memorandum to the Finance Bill, 1988(1988) 170 ITR 176<\/em><\/strong>, these provisions have been enacted on account of the considerable difficult faced by the department in making the assessment of the income in case of assesses who contracts in for sale of liquor, scrap, forest products etc. As per the experience of the Department, for securing such contracts legal entities such as firms or AOPs are constituted, and after the execution of the contract, no trace is left either by the them or their members. Therefore, with a view to combat large scale tax evasion by dealers in such products, section 44AC and section 206C was introduced.<\/p>\n

The Constitutional validity of the provision was challenged and the same was upheld by the Hon’ble Supreme Court in the case of UOI v.A. Sanyasi Rao[1996] 219 ITR 330 (SC) <\/em><\/strong>wherein it was held that the TCS provisions are akin to the statutory provisions obliging to pay ‘advance tax’. <\/p>\n

Further, the Constitutional validity was upheld by The Hon’ble High Court of Kerala in the case of T.K. Aboobacker v. UOI [1989] 177 ITR 358 (Ker) (HC ) s<\/em><\/strong>wherein it was held that section 44AC and section 206C of the Act does not travel beyond legislative field assigned to Parliament by entry 82 in List I of the Seventh Schedule of the Constitution. In the decision of the Hon’ble High Court of Punjab & Haryana in the case of Sat Pal & Co. <\/em><\/strong>vs. Excise & Taxation Commissioner [1990] 185 ITR 375 (P &H ) (HC) <\/em><\/strong>it was held that the Parliament was competent to enact sections 44AC and 206C of the Act. Further, section 44AC of the Act, read literally, would be violative of articles 14 and 19(1)(g) of the Constitution, but in interest of social justice, instead of being struck down, it should be read down as an adjunct to sections 28 to 43C of the Act so as to make it consistent with the constitutional guarantees enshrined in Articles 14 and 19(1)(g) of the Constitution.<\/p>\n

Section 44AC of the Act was omitted vide Finance Act, 1992 (1992) 195 ITR 214<\/em><\/strong> with effect from April 1, 1993. As per the memorandum to the Finance Bill, 1992 (1992) 194 ITR 170<\/em><\/strong>, the section resulted into controversies with respect to interpretation and administrative difficulties in its implementation. However, it has been expressly mentioned that section 206C of the Act i.e. TCS would continue to remain in force.<\/p>\n

Although, the Memorandum to Finance Bill, 1988 and section 206C of the Act refers to “scrap” in its title, no rate was specified for transaction in scrapuntil 2003.Scope of TCS waswidened to include “scrap”vide Finance Act, 2003(2003) 261 ITR 62<\/em><\/strong>.<\/p>\n

Further,vide Finance Act (No. 2), 2004 (2004) 269 ITR 101<\/em><\/strong>, the scope of TCS was further widened to include every person who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest in any parking lot or toll plaza or a mine or a quarry to another person, other than a public sector company, for the use of such parking lot or toll plaza or mine or quarry for the purposes of business.<\/p>\n

Finance Act, 2012 further widened the scope of TCS to include sale of jewellery of bullion in cash. The Memorandum to the Finance Bill, 2012 (2012) 342 ITR 234 <\/em><\/strong>explains that the provisions are introduced in order to reduce the quantum of cash transaction in bullion and jewellery sector and for curbing the flow of unaccounted money in the trading system of bullion and jewellery.<\/p>\n

Finance Act, 2016 (2016) 384 ITR 1 (St) <\/em><\/strong>widened the scope of TCS sale of motor vehicle of the value exceeding ten lakh rupees and sale in cash of any goods (other than bullion and jewellery), or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees. According the Memorandum to the Finance Bill, 2016, this provision has been introduced in order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net.<\/p>\n

Finance Act, 2020 further widened the scope of TCS to include TCS on foreign remittance through Liberalised Remittance Scheme (LRS) and on selling of overseas tour package as well as TCS on sale of goods over a specified limit. Further, the Act also sought to discriminate the non-PAN\/ Aadhaar cases with a higher rate of tax,<\/p>\n

Thus, it has been made clear that, the Scheme of TCS has been upheld for Constitutional validity. Further, the Scheme of TCS has been enacted as an anti-abuse provision, and subsequently, widened with a view to curb cash transactions, etc. It is now important to understand, how TCS is levied and collected.<\/p>\n

2. Levy of TCS<\/strong><\/span><\/p>\n

As mentioned above, TCS is paid by the buyer to the seller of the goods or services, as applicable. The seller is liable to deposit the same with the Government within the prescribed time. The buyer can avail the credit of such taxes paid, in the year of payment.<\/p>\n

2.1. Applicability of TCS<\/strong><\/span><\/p>\n

2.1.1. Rates<\/strong><\/span><\/p>\n

A snap shot of the rate of TCS for good and services which attract TCS are as under:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Sr. No<\/strong> <\/strong><\/td>\nType of Goods<\/strong> <\/td>\nRate<\/strong> <\/td>\n<\/tr>\n
1. <\/td>\nAlcoholic Liquor for human consumption <\/td>\n1% <\/td>\n<\/tr>\n
2. <\/td>\nTimber obtained under a forest lease <\/td>\n2.5% <\/td>\n<\/tr>\n
3. <\/td>\nTendu leaves <\/td>\n5% <\/td>\n<\/tr>\n
4. <\/td>\nTimber obtained by any mode other than under a forest lease <\/td>\n2.5% <\/td>\n<\/tr>\n
5. <\/td>\nForest produce other than Tendu leaves and timber <\/td>\n2.5% <\/td>\n<\/tr>\n
6. <\/td>\nScrap <\/td>\n1% <\/td>\n<\/tr>\n
7. <\/td>\nMinerals like lignite, coal and iron ore <\/td>\n1% <\/td>\n<\/tr>\n
8 <\/td>\nBullion (including coins\/articles) that exceeds over Rs. 2 lakhs\/ Jewellery that exceeds over Rs. 5 lakhs [in cash] <\/td>\n1% <\/td>\n<\/tr>\n
9. <\/td>\nPurchase of Motor vehicle exceeding Rs. 10 Lakhs <\/td>\n1% <\/td>\n<\/tr>\n
10. <\/td>\nParking lot, Toll Plaza and Mining and Quarrying <\/td>\n2% <\/td>\n<\/tr>\n
11. <\/td>\nSale of Goods more than Rs. 50 lakhs. [Finance Act, 2020] <\/td>\n0.1%
\n (1 % For non-PAN\/Aadhaar cases) <\/td>\n<\/tr>\n
12. <\/td>\nLiberalized Remittance Scheme (LRS<\/strong>) [Finance Act, 2020] <\/td>\n5% <\/td>\n<\/tr>\n
13. <\/td>\nOverseas Tour Program Package [Finance Act, 2020] <\/td>\n5% <\/td>\n<\/tr>\n<\/table>\n

 
\n As per section 206CC of the Act, Failure to furnish Permanent Account Number (PAN<\/strong>) would attract the higher rate of:<\/p>\n