Central Board of Direct Taxes (CBDT) announced an amendment to income tax law, allowing a second party to claim credit for TCS (tax collected at source) instead of the individual who made the payment when incurring specific expenses. This amendment will help taxpayers reduce their income tax liability by allowing them to claim the credit, rather than the person who originally paid the money, for the income to which it is attributed.
TCS, or tax collected at source, is a tax that is applied when an individual makes significant purchases or buy specific goods. Such tax is collected in advance to prevent tax evasion. Currently, TCS applies to car purchases over Rs 10 lakh and any foreign travel, education, medical treatment, or remittance exceeding Rs 7 lakh in a financial year.
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Further in another release CBDT release a new form called Form 12BAA that can be used by employees to report any tax deductions from sources other than their salaries, such as fixed deposits, insurance commissions, dividends from equity shares, or any TCS collected to their employers.
The TCS notification states, “where under any provisions of the Act, the income of the collectee is assessable in the hands of any person other than the collectee, the credit for the tax collected at source, shall be given to such other person and not to the collectee.”
The government in an official release said that the amendment will "allow the credit of TCS to a person other than the collectee—such as a parent in the case of a minor collectee—when the minor’s income is clubbed with that of the parent."
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Rule 37-I of the Rules has been amended to allow credit of tax collected at Source to a person other than the collectee, in whose hands the income of the collectee is assessable, it said.
This amendment is expected to simplify how individuals can claim credit of tax collected at source (TCS). Economic Times cited an example, where a parent sends their child abroad for education and if parent exceeds the Rs 7 lakh remittance limit for her expenses abroad, a 5 per cent TCS is applied. Previously, the TCS certificate was issued in the daughter's name. Now, the bank can issue it in the parent's name, enabling them to claim the TCS credit, lower their tax liability, or to receive a tax refund.
As per the CBDT notification, the collectee (the one paying the TCS) is required to submit the declaration to the collector (bank or other institution collecting the tax), specifying that the TCS must be credited to another person’s PAN; a declaration containg name, address, PAN of the person to whom credit is to be given.
