How and When to claim a refund ?

Tax collected at source (TCS) is the tax collected by the seller from the buyer on sale so that it can be deposited with the tax authorities. Section 206C of the Income-tax act governs the goods on which the seller has to collect tax from the buyers. Such persons must have the Tax Collection Account Number to be able to collect TCS. Tax collection at source (TCS) for foreign remittances under LRS was raised from 5% to 20% in Budget 2023. Except for education and medical reasons, this will extend to international travel, sending money abroad, and other remittances. This new rule will take force on July 1, 2023.

You will come across many e-commerce websites such as Flipkart, Amazon, Snapdeal, Myntra, etc that collects GST at 1% taxable value of goods/ services sold via them. The amount is paid by the buyer and not the seller. This TCS is an asset for the seller to set off against the GST-tax liability otherwise this money can be claimed back as a refund.  In the context of Foreign Remittance Transactions, this kind of tax can be collected from you when you send money abroad for purposes like touring abroad, shopping, investing abroad, purchasing assets, etc.

Before the Budget 2023, for foreign equity investments under the Liberalised Remittance Scheme, the TCS was levied at the rate of 5% for remittances exceeding Rs 7 lakh. But from July 1, 2023 this levy has been increased to 20% without any threshold limit from the formerly applicable rate of 5% above 7 lakh.

“TCS or tax collected at source is very similar to tax deducted at source. The only difference between the two being the person from whose account the said sums are to be deducted and deposited.  Just as in the case of TDS credit for sums collected and deposited via TCS is available in the tax accounts of the individuals and is verifiable via their online form 26AS. These sums can be set off against any tax liability arising during the year in question or refunded back to the deductees account if the tax liability is lesser than the amount so deducted,” said Pallav Pradyumn Narang, Partner, CNK.

Suppose income of a resident individual in India for the F.Y. 2023-24, from salary and income from other sources  is Rs 10,00,000 and Rs ,00,000 respectively. Income tax on the total income after standard deduction shall be Rs 114,400 (u/s 115BAC).

Further, let’s say your foreign tour package cost for the F.Y. 2023-24 is Rs 5,00,000. TCS shall be collected @20%, i.e., 100,000.

In the instant case, having dutifully discharged the liability of 100,000 as TCS obligation, net taxable payable to the revenue authorities shall be:

Income from Salary                Rs. 1,000,000

Income from Other Sources Rs. 300,000

Gross Total Income               Rs. 1,300,000

Gross Tax Liability               Rs. 114,000

TCS Collected               Rs. 100,000

Net Tax Payable                      Rs. 14,000

TDS and TCS refer to the amounts deposited by third parties in our PAN (being an account) as proportion of tax payable on the transaction. For every amount deposited with the government as tax, the corresponding noting is made with respect to the assessee’s income.

When can I claim TCS refund?

You can claim a TCS refund in your Income Tax Return if you have paid more TCS than your actual tax liability. To claim the TCS refund, you must fill out the ITR form’s relevant sections and provide supporting documentation.  If you are subject to TDS or have already paid advance tax, the excess TCS will have to be claimed as a refund while filing tax returns but your money will be blocked till you get the refund.

TCS is shown in Form 26AS as a tax credit, which can be claimed against the tax payable while filing an income tax refund (ITR).

You can also offset TCS while filing advance taxes. For those who are not able to offset this amount against taxes payable or any other form, it will be available as a refund after filing ITR.

How can I claim a TCS refund

‘The process for claiming is again premised on self assessment. So, at the end of the year, collate your data and find that the deposited tax is more than that was due, one is required to state it in the return being filed. The process of refund from there is swift in most cases, as the systems are now automated and if there is nothing suspicious the refunds are processed within a couple of months. In fact, if the government does not pay on the fixed timeline, the interest begins to accrue on the deposit. Hence, all in all, no money is lost and it only gets processed as per our disclosures,” said  Sandeep Bajaj, Managing Partner, PSL Advocates & Solicitors

For eg. if you are receiving a professional fee and it is above RS 30,000/-, then 10% (3,000) will be deposited as TDS in your PAN. The same is considered as deemed income and reflected in the 26AS statement. The said Rs 3000 deducted and deposited are adjusted towards the income tax payable. After the conclusion of the financial year, the cumulative income will be assessed to calculate the actual income tax payable. At which point, if total amount deposited is more than what was due as tax, the assessee can claim refund in the return being filed.  

Similar is the case of payment of TCS paid in applicable cases while making a purchase. For eg. 1% payment made towards purchase of car (where value of car exceeds RS 10 lakh) is collected by seller and deposited in the government account relating to specific PAN number, the benefit of which can be claimed by assessee in a similar manner while filing return.

Points to remember:

1. 
   Both TDS (Tax Deduction at Source) and TCS (Tax Collection at Source) is in the nature of Advance Tax. Therefore, both are utilised for meeting the tax liability. Any excess deduction/payment in excess of the tax liability is refundable.
2. 
   TDS is deducted by the person from whom I receive Income. TCS is deducted by the seller from whom I avail notified products/ services.
3. 
   TDS relates to Income and TCS relates to Expenditure made.
4. 
    TCS is the liability of the seller to collect and then record it in respect of the corresponding PAN of the purchaser.The process for refund in this regard is the same as for TDA, i.e. it automatically appears in the PAN of the purchaser and the purchaser has the right to set it off against its dues or to claim refund of the same.