Taxpayers to experience a new way of tax collection

Arnav PandyaTaxpayers till now have mostly experienced tax deduction at source (TDS) and they are quite familiar with the conditions related to the entire process. However in the coming time period they will be increasingly in touch with a term called tax collection at source (TCS) which will be a new experience for most taxpayers. In these circumstances it is important to take a look at what the term means and how this will actually work out. In the recently presented Union Budget there is a provision to have tax collection at source from several additional areas like sale of a motor vehicle more than Rs 10 lakh plus cash sales of goods or services for more than Rs 2 lakh. Here is a detailed look at the distribution and the features of these two routes.Tax deduction at sourceThe idea behind ensuring a tax deduction at source is that when there is a payment made to a person there is an amount that is deducted by the person or entity making the payment and this is deposited with the government. This is a method to ensure that any income that is earned by a person does not escape from the tax net because the person earning the income does not show this in their tax return. It is a simple way of ensuring compliance because the tax deduction allows the government to know the amount that has been paid as income and this can be tracked. Also with a part of the income already having tax paid on it there is also an ease of the process of tax collection for the government. In this entire process there are a few things that make the tax deduction at source process stand out. The first is that this deduction is made by the person paying the amount and this is made on behalf of the person or entity who is going to receive the income. There is a list of several types of income or receipts where such a tax would have to be deducted and this happens when the amount that is paid crosses the threshold that has been fixed for that particular type of income.Tax collection at sourceTax collected at source works on a different principle and this is where the taxpayer needs to pay specific attention. In this type of coverage there is a person making payment for buying certain goods or services. However here the person making the payment does not deduct the tax rather the person who is receiving the payment for specific goods and services is the one who will deduct a specific percentage from the receipt and pay this to the government. The deduction will be done taking the Permanent Account Number (PAN) of the person who is making the payment but the process will be done by the receiver. This means that the person making an expense is the one who is suffering a tax deduction even though this process might not result in any income for him. This is significant because the goal here is to ensure that the various expenses made are included in the tax return and that there is a link that can be established for this particular purpose. The person whose tax has been deducted can claim a refund if the tax paid by them overall is higher than what they are supposed to pay. However this is a clear way in which transactions which would have escaped the tax net would actually come in and there is a trail that is established which can be followed up effectively.