Relief for Income Taxpayers: Tax Credit Allowed for TCS paid on Foreign Remittances

The Income Tax Rules have been amended by way of two separate notifications issued by the Central Board of Direct Taxes (CBDT) vide CBDT Notification No. 112/2024 dated 15.10.2024 & vide CBDT Notification No. 114/2024 dated 16.10.2024 about new relief for income taxpayers on Tax Collected at Source (TCS). The first notification introduces Form 12BAA, allowing employees to declare their income from other sources to their employer so that TDS on all sources of income can be deducted at a single point. Further, the second notification permits TCS Credit on the purchase of goods, foreign remittances for education, travel abroad, etc., to a person other than the collectee. Notably, TCS credit even of minors can now be claimed if the minor's income is clubbed with the parents.

This article highlights the amendments to the Income-tax Rules, 1962, with illustrations to suggest how a salaried individual should plan their discharge of income tax liability with efficient fund management.

Background and Introduction

An income tax assessee who purchases a motor vehicle exceeding Rs. 10 lakhs during a financial year and pays Tax Collected at Sources (TCS) @ 1% u/s 206C(1F) was not eligible to claim TCS credit for the same until Assessment Year 2024-25, i.e., before this amendment takes effect.

Example 1: A person purchases a car from a showroom valued at Rs. 11 lakhs, then an amount of Rs. 11,000 (i.e., TCS @1%) is collected and deposited by the showroom as TCS. So, the total amount to be collected from the buyer is Rs. 11,11,000/- (Rs. 11,00,000 + Rs. 11,000). Earlier, the TCS of Rs. 11,000/- was not eligible for credit or refund. However, under the recent amendment, this TCS will be adjusted against his income tax liability, like TDS credit.

In another instance, if a person undertakes foreign remittances under the Liberalised Remittances Scheme (LRS) for education, travel, or medical purposes during a financial year and paid TCS u/s 206C(1G), they were not eligible to claim TCS credit for the same until Assessment Year 2024-25, i.e., before the amendment took effect.

Example 2: An employee's minor child is pursuing education in the USA, and to meet his expenses, a remittance of Rs. 30,00,000/- was made under the LRS. Accordingly, the total amount collected from the remitter (employee) was Rs. 31,50,000/- (Rs. 30,00,000 + Rs. 1,50,000). Earlier, the 5% TCS of Rs. 1,50,000/- was not eligible for credit or refund to the employee. However, under the recent amendment, this TCS can now be adjusted against the employee's income tax liability, like TDS credit.

Enabling Single-Point TDS Deduction on All Sources of Income through the Introduction of Form 12BAA

Generally, Form 12BB (as per Rule 26C of the Income Tax Rules) is submitted by the employee to the employer, providing a statement of investments and claims made during the financial year. Employers typically deduct TDS from salary as per the declaration given by the employee, considering investments and expenses eligible for tax deductions. They do not adjust the taxes paid / TDS deducted by the employee against other sources of income. Consequently, employees, while furnishing Income Tax Return, often face difficulties in the computation of tax liability on income from other sources, such as house rent income, set-off of loss from house property, capital gains, interest income, etc.

In many cases, assesses end up in excess tax payments, initially through TDS deduction, and later through payment of Self-Assessment Tax. The refund is then claimed at the time of filing the income tax return, resulting in unnecessary blocking of funds. There has been a long-standing demand from employees to synergize all sources of income and all taxes paid at one place at the end of the financial year, and not to wait for the due date of filing of return. The Honorable Finance Minister assured in Budget 2024 to tackle the issue of their commitment to better tax transparency and ease of taxes.

CBDT has introduced Form 12BAA vide Notification No. 112/2024 on October 15, 2024, to address the above issue. It also allows a different person to claim credit for TCS instead of the individual who made the payment while incurring specific expenses. This amendment aims to assist taxpayers in reducing their income tax liability by allowing them to claim the TCS credit, rather than the person who originally deposited the money in the treasury. These amendments underscore the government's commitment to improve tax compliance and simplify the tax reporting process for individuals, tax authority, and corporates.

This new Form 12BAA is to be furnished by employees to the employer to report the tax deductions from all sources, such as fixed deposits, insurance commissions, dividends from equity shares, or tax collected at source on the purchase of a car or foreign remittances. Additionally, employees are required to disclose all the details of income or losses derived or incurred from other sources or under the head "Income from House Property" in this form. This move aims to streamline TDS computation under section 192, allowing for more accurate tax calculations and clarity on tax obligations.

Allowance of TCS Credit to Income Taxpayers on Purchase of Car, Foreign Remittances, and Other Transactions

As per the PIB press release dated October 16, 2024, "Further, sub-section (4) of Section 206C of the Act was amended vide FA (No. 2) to 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. Accordingly, Vide CBDT Notification No. 114/2024 dated 16.10.2024 Rule 37-1 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."

This shift in the person's entitlement from collectee to the actual consumer is clearly illustrated in the following two scenarios:

• Scenario I: A Ltd. purchases goods of Rs. 10 Crores from B Ltd. As per Section 206C, A Ltd. collects TCS and deposits it with the government within the prescribed due date. Subsequently, A Ltd. is entitled to claim credit for the TCS against its income tax liability.
• Scenario II: Mr. A purchases a car from Mr. B Ltd. for Rs 11 lakhs, and B Ltd. collects TCS from Mr. A and deposits it to the government treasury, but here, instead of the TCS collectee, i.e., B Ltd., Mr. A is entitled to take the TCS credit in his Income Tax liability.

Extract of Press Release on the Amendments

The extract of the Press Release issued by PIB is given below: -

CBDT Notifies Amendments in Income-tax Rules for Ease in Claiming Credit for TCS Collected/TDS Deducted for Salaried Employees and Enabling claiming TCS Credit of Minors in the Hands of Parents
Posted On: 17 OCT 2024 2:55PM by PIB Delhi

"Central Board of Direct Taxes (CBDT) has notified amendments in income-tax rules for ease in claiming credit for TCS collected/TDS deducted for salaried employees and enabling claiming TCS credit of minors in the hands of parents. Sub-section (2B) of Section 192 of the Income-tax Act, 1961 ('the Act') was amended vide the Finance (No. 2) Act, 2024 (FA (No. 2)) to include any tax deducted or collected at source under the provisions of Chapter XVII-B or Chapter XVII-BB, as applicable, for the purpose of making tax deductions in the case of salaried employees.

Vide CBDT Notification No. 112/2024 dated 15.10.2024, the Income-tax Rules, 1962 ('the Rules') have been amended, introducing Form No. 12BAA as the prescribed statement of particulars required under sub-section (2B) of Section 192 of the Act. Employees must provide these particulars to their employers, who are responsible for making payments under sub-section (1) of Section 192. The employer, in turn, shall deduct TDS on salary after taking into account the furnished particulars.

Further, sub-section (4) of Section 206C of the Act was amended vide FA (No. 2) to 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. Accordingly Vide CBDT Notification No. 114/2024 dated 16.10.2024 Rule 37-1 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."

Rule 26B of Income Tax

Rule 26B has been revised to guide taxpayers on reporting income outside of salary, TDS, and TCS via Form 12BAA. This change enhances transparency and ensures that all income types are adequately documented and reported. The extract provisions as amended are given below.

"26B. Statement of particulars of income under heads of income other than "Salaries" or details of tax deducted at source or tax collected at source. The assessee may submit to the person responsible for making payment under sub-section (1) of section 192, the details of (a) any income chargeable under any head of income other than 'Salaries' received in the same financial year; or (b) any tax deducted at source or tax collected at source under the provisions of Part B or Part BB of Chapter XVII, for the same financial year; or (c) loss, if any, under the head "Income from house property" in the same financial year, in Form No. 12BAA, for the purpose of computing the tax deduction at source under sub-section (1) of section 192."

Form 12BAA Format

Employees must furnish the following information:

(a) Details of Other Tax Deducted at Source

(b) Details of Other Tax Collected at Source

Illustration

A brief illustration of 5 cases is produced below for a clear understanding of an income tax assessee under the new regime of the Income Tax Act:

Illustration: 1

Illustration: 2

Illustration: 3

Note: This TDS/ Tax liability saving of Rs. 27,300/- can be read with Illustration 4 as mentioned below.

Illustration: 4

Illustration: 5

Important Insights on CBDT's New TCS Framework

The changes introduced by the Central Board of Direct Taxes (CBDT) have brought significant relief for income taxpayers, particularly in the context of claiming Tax Collected at Source (TCS). With the issuance of CBDT Notification No. 112/2024 dated October 15, 2024, and Notification No. 114/2024 dated October 16, 2024, the applicability of amendments has been brought into immediate effect. As a result, it can be interpreted that TCS collected on or after October 15, 2024, is eligible to be claimed by the assessee.

The primary objective of these amendments is to simplify the process of claiming TCS credit, particularly for individuals who incur substantial TCS through foreign remittances. The initiative aims to promote awareness among taxpayers about the tax benefits available to them and encourage timely and accurate filing of income tax returns.

Importantly, there is no requirement for a separate TCS certificate like Form 16A for claiming such credits. The TCS credits will now be auto-populated in the relevant fields of the Income Tax Return (ITR) through details reflected in Form 26AS, thereby reducing administrative burdens and paperwork for taxpayers.

In line with these developments, employers are also expected to comply with revised reporting requirements. Form 24Q, the quarterly TDS return related to salaries, has been amended to include a new column that captures the amount reported under Section 192(2B) specifically, other tax deducted or tax collected at source.

Another significant aspect of the amendment concerns the claim of TCS credit in cases involving minors. Effective from January 1, 2025, as per the Union Budget 2024, the rules have been amended to allow TCS credit to be claimed by a parent if the income of the minor is clubbed with the parent's income. This enables parents to claim TCS on taxable investment income, such as interest earned on fixed deposits held in the minor's name, while the tax liability is borne by the parent.

Further, Form 12BAA has been introduced as a vital tool for both employees and employers. This form enables employees to furnish complete details of their income, including from other sources, to their employer. In turn, this facilitates accurate deduction of tax at source (TDS) under Section 192. Timely and correct submission of Form 12BAA ensures that TDS is computed considering all sources of income, preventing excess deduction and aiding in efficient cash flow management.

Conclusion

The amendment to allow TCS Credit to salaried assesses along with Form 12BAA enables employees to disclose all sources of income to the employer in one place, which will not only facilitate better accuracy in TDS computation and enhance the clarity of tax obligations for taxpayers but will also provide a cash surplus in the hands of the salaried person. Tax Collected at Source is shown in Form 26AS as a tax credit and can be claimed while an employee files an income tax return hassle-free and without further tax demand or refund.

References

• https://incometaxindia.gov.in/communications/notification/notification-112-2024.pdf
• https://incometaxindia.gov.in/communications/notification/notification-114-2024.pdf
• https://www.business-standard.com/budget/news/union-budget-2024-gives-salaried-individuals-some-relief-on-tds-tcs-124072401177_1.html