TaxTMI 
TaxTMI 
Navigating the New Landscape of Tax Collection at Source : Clause 394 of the Income Tax Bill, 2025 Vs. Section 206C(1), (1A), (1B), (1C), (F) and (1G) of the Income-tax Act, 1961
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.... Clause 394, its objectives, its comparison with the existing law, and its practical implications. Objective and Purpose The legislative intent behind Clause 394 is to ensure that specified transactions, often involving cash flows outside the formal banking or tax net, are subjected to tax collection at source. The rationale is both to widen the tax base and to create a trail for high-value or potentially tax-evading transactions. The provision also aims to harmonize and simplify the existing scattered TCS provisions, reduce ambiguity, and incorporate recent economic developments (such as the rise in overseas remittances and luxury expenditures). Policy considerations include preventing tax evasion, improving compliance, and aligning with international best practices on transaction reporting. Detailed Analysis 1. Scope of Transactions Covered Clause 394(1) sets out a table specifying the nature of receipts, the person responsible for collection, the rate of TCS, and the timing of collection. The table substantially mirrors the transactions covered u/s 206C(1), (1C), (1F), and (1G) of the 1961 Act but with some notable modifications and consolidations. * Alcoholic Liquor for ....
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....sideration > Rs. 10,00,000 Seller 1% 7 Remittance under LRS exceeding Rs. 10,00,000 Authorised dealer 5% (education/medical), 20% (others) 8 Sale of overseas tour programme package Seller 5% (up to Rs. 10 lakh), 20% (> Rs. 10 lakh) 9 Use of parking lot, toll plaza, mine/quarry (excluding mineral oil) Licensor/Lessor 2% 2. Timing of Collection Clause 394(1)(c) prescribes TCS at the time of debiting the buyer's account or receipt of payment (in any mode), whichever is earlier. This is consistent with Section 206C(1) and (1C), which require collection at the earlier of the two events, thus ensuring early capture of the transaction for tax purposes. 3. Exemptions Based on Declaration (Manufacturing, Processing, Power Generation) Clause 394(2) provides that TCS need not be collected (for Sl. Nos. 1-5 of the Table) if the buyer is a resident in India and furnishes a written declaration (in prescribed form and manner) that the goods are for manufacturing, processing, producing articles/things, or generating power, and not for trading. This mirrors Section 206C(1A) and (1B), which also allow exemption from TCS upon furnishing a declaration (Form 27C u/r ....
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....ate system updates for authorized dealers and travel agents. The exclusion of mineral oil from mining/quarrying TCS requires careful contract vetting. * Overlap Avoidance: The explicit provisions to prevent double collection (remittance/tour package) reduce the risk of disputes but require careful transaction tracking. 2. For Individuals and Buyers * Declaration Requirement: Resident buyers in manufacturing/processing must be proactive in providing timely and properly filled declarations to avoid TCS. * High-Value Transactions: Purchasers of cars, overseas tours, or those remitting funds abroad must be aware of TCS applicability, especially with increased rates for non-education/medical purposes. * Credit Mechanism: TCS is not a final tax; buyers can claim credit while filing returns, but this may impact interim liquidity. 3. For Tax Authorities * Enforcement: The clear timelines and documentation requirements (including Form 27C) facilitate easier monitoring and enforcement. * Data Analytics: TCS data provides valuable inputs for cross-verification with returns, especially for high-value or foreign transactions. 4. Procedural and Form Requirements * Rule 37C conti....
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....mittances and tour packages, in line with recent amendments. 5. Rule 37C: Procedural Safeguards * Rule 37C prescribes the form, manner, and timeline for declarations u/s 206C(1A), which is effectively incorporated by reference in Clause 394. The requirement to furnish the declaration in duplicate and report to the Commissioner within seven days is maintained, ensuring procedural continuity and audit trail. 6. Overlap and Double Taxation Prevention * Section 206C(1G): Introduces anti-overlap provisions, ensuring that TCS is not collected twice on the same transaction (e.g., where both LRS and overseas tour package provisions could apply). * Clause 394(4)-(5): Explicitly incorporates these safeguards, stating that TCS by an authorized dealer is not required if the seller has already collected TCS on an overseas tour package, or if the buyer has already deducted TDS under another provision. 7. Omitted or Changed Provisions * Section 206C(1H): The provision requiring TCS on aggregate sale of goods exceeding Rs. 50 lakh per buyer per year is set to be omitted from April 2025, as per recent amendments. Clause 394 does not include an equivalent provision, reflecting t....