The finance ministry might make tax collected at source (TCS) mandatory for transactions in real estate, foreign tours and mutual funds, besides credit card payments and luxury spends, among others, to plug revenue leakages.
As part of Budget 2013-14 proposals, it is considering widening the scope of source-based taxation to more areas to improve reporting mechanism for transactions, curb flow of unaccounted money and bring down cash transactions.
With the help of tax deducted at source (TDS)/TCS returns, besides information from other channels, the tax department revealed 1.2 million people had not filed their income-tax returns this year, the finance ministry said today.
“In Budget 2012-13, we added new categories for payment of TCS and TDS. Some more areas might be brought under the ambit in the upcoming Budget. One per cent TCS might be levied, especially on huge cash payments, to track the money trail,” said a finance ministry official.
TCS is collected by sellers from buyers at the time of making of payments. Sellers deposit the tax with the government and buyers get credit for the tax paid on their behalf. In the case of TDS, tax is deducted from a receiver’s income at the time of payment.
“What the finance ministry is trying to do is to widen the tax base by bringing more sections under the tax net, year after year,” said Deloitte Partner Lakshminarayanan. He added it might not be feasible to levy tax on payments at the retail end.
Normally, TCS is not levied if someone is buying goods for personal consumption. Last Budget, however, the government introduced one per cent TCS on cash sale of bullion & jewellery, irrespective of whether a buyer was a manufacturer or trader or was purchasing for personal use.
It levied one per cent TCS on sale of minerals like coal, lignite and iron ore, arguing trading of minerals had remained largely unregulated, leading to non-reporting or under-reporting of transactions for taxation. In this case, purchase for personal consumption is exempt from TCS.
Besides, in Budget 2012-13, TDS was announced on transfer of certain immovable property and remuneration to directors. More items might be added this year. Later, the provision for TDS on immovable property was withdrawn as the sector opposed it, saying it would increase compliance burden.
The finance ministry might, however, like to be careful while bringing more categories under TCS or TDS. In January, the Central Board of Direct Taxes had issued a notification exempting certain categories from TDS, since these were leading to a rise in litigation.