1% TCS on vehicles above Rs. 10 lakh from June 1, 2016

[rkg]

It is similar to TDS on Bank FD interest above threshold limit, TDS on rental paid to land lord, TDS on buying a property etc.

Once it is collected by dealer, he has to deposit the same with IT dept against the PAN number of customer. It will reflect in AIR ( annual information report, Form 26 AS) of the customer. He is duty bound to show the purchase in returns, otherwise notice will come.
There is no escaping by not filing returns. if returns are not filed, then also notice will come

[autobahnjpr]

Logical step by the state. But the assumption is that people who use black money will try to recover the 1% paid by filing income tax returns.
If they try to file it, they will have to disclose lot of things and are subject to scrutiny and penalty if they hide or misinform.
What if they do not care and are happy to donate 1% to government? In that case, government gets 1% money. So for every 100 cars sold, govt makes money equal to a car. Last year 20L+ cars were sold in India and let us assume 5L(25%) of them are above 10 lakhs. Assuming mean car value to be 12 lakhs, The total taxable amount is 60,000 crore. 1% tax amounts 600 crores and if 50% do not claim black, government makes 300 crores through this taxation. I hope they use it make sure all Toll Plazas are electronic and every car has RFID based toll collection at booth.

Win-Win, I say.

[the_skyliner]

Excellent move by the Government.

It was due anyway. Especially, owners of small businesses from rural side would now come under lens. I have known many people who buy cars much more expensive than 10L and don't even declare their income as taxable.

[ksameer1234]

This is a good initiative and reading the interpretation from others, make me feel why wasn't it implemented all this while. Government is nicely throwing a carrot to those who do not file their ITR.

This reminds me of what used to be when we were little kids. We would buy soft drinks in glass bottles and take them home. The shopkeeper would charge 1 rupee extra which was returned on giving the empty glass bottle back. I would, in fact be happy to see such approach being adopted more in India. Time we put a price against our carelessness.

[Rajeevraj]

Honda started advertising-Buy before TCS kicks in.

[dozer]

Originally Posted by condor

The idea looks to be increase the tax-payer base. With the example you have given, if a person does not claim that 1% by not paying IT, then the govt knows one more person who has not paid IT, and can go after him !

I don't know if it's that simple.

Scenario 1 - I've declared my taxes correctly, I buy the car, and claim a refund of the 1% TCS.
Scenario 2 - I've declared less income than the actuals, I buy a car and claim a refund of 1% TCS. This rule doesn't change anything.
Scenario 3 - I haven't declared any tax returns at all, I buy a car, don't claim refund. Goverment can now come after me.

Scenario 3 is improbable. Most people do declare the minimum they need to; it's not that they don't file IT returns at all. Unless they actually are earning very little.

[Nav-i-gator]

Originally Posted by dozer

I don't know if it's that simple.

Scenario 1 - I've declared my taxes correctly, I buy the car, and claim a refund of the 1% TCS.
Scenario 2 - I've declared less income than the actuals, I buy a car and claim a refund of 1% TCS. This rule doesn't change anything.
Scenario 3 - I haven't declared any tax returns at all, I buy a car, don't claim refund. Goverment can now come after me.

Scenario 3 is improbable. Most people do declare the minimum they need to; it's not that they don't file IT returns at all. Unless they actually are earning very little.

Interesting!

Actually, <3% of all Indians file Income tax return every year. That's like

And in such case, Scenario 3 does look quite effective.

[the_skyliner]

Originally Posted by Rajeevraj

Honda started advertising-Buy before TCS kicks in.

Attachment 1511130

This ad is kind of misleading. There is no saving as such just that it will be deducted and one has to claim during filing returns.

[sudhir3127]

Dont understand the Honda advt. What is buy before May 31? delivery of the car before May 31 or book the car before May 31? Can Honda actually give the delivery of the car in 3/4 days , I doubt .

[samabhi]

What in the case of company owned cars? If I am purchasing a new car through my company lease program, the car will be registered in the name of my company. In this case, who should pay the 1% TCS and how the returns can be submitted at the end of the financial year? Even if I pay the 1% TCS, since I will be purchasing and using the car, how can I file returns in my name?

[Rajeevraj]

Originally Posted by sudhir3127

Dont understand the Honda advt. What is buy before May 31? delivery of the car before May 31 or book the car before May 31? Can Honda actually give the delivery of the car in 3/4 days , I doubt .

This is an ad that came in Times of India Bangalore Edition. Dealers probably have units of the Honda CVT Automatic in stock ready for delivery. The TCS piece is probably just an attempt to sweeten the deal.

[classic86]

Originally Posted by Nav-i-gator

A welcome step I believe. Its like laying a diktat - I will keep 1% of your money with me, if you want it back, file your ITR. This will surely increase the no of people filing income tax returns.

Or not. People could just use cash or some part cash in the transaction to keep the overall value below Rs. 10 lakhs. I only see this increasing the presence of black money further

[Sommos]

Originally Posted by hybridpetrol

Let us say the customer buys a 15L rupee car - 1% of this is 15K.
If that particular person is earning a huge sum, and has not been paid income tax for a long period of time, he will continue to do so, even at the cost of losing that 15K! For such people, they would simply assume the OTR price has simply gone up by 1%, and store the TCS certificate along with vehicle records!

Earning 1% TCS is not the main objective of the IT dept, the main objective is to build a database and bring more people into the tax network. If the person does not claim refund or does not file ITR then the IT dept. will surely be after him. And if they can somehow prove that a person is not disclosing his/her proper income and thus evading IT they can even open up his/her records for past years.

The same approach was taken by the Govt. when they introduced the Reverse Charge mechanism for Service Tax and it is successful.

Originally Posted by naut

Insurance should not increase! Ideally, the way it should work is

Price of car: 10 L excluding TCS (As used to be calculated earlier).
TCS : Rs.10,000/- Paid separately.

Only question is: Should the TCS be on Ex-showroom price of car? or OTR price?

It is the ex-showroom price and not OTR. Kindly read the law (given below), it is the consideration received by the seller.

Originally Posted by samabhi

What in the case of company owned cars? If I am purchasing a new car through my company lease program, the car will be registered in the name of my company. In this case, who should pay the 1% TCS and how the returns can be submitted at the end of the financial year? Even if I pay the 1% TCS, since I will be purchasing and using the car, how can I file returns in my name?

If the vehicle is purchased in the name of the Company then TCS is to be paid by the Company. You are not a purchaser of the vehicle in this case.

The relevant clause of the Finance Bill says :

Every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding Rs 10 lakh, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 1% of the sale consideration as income-tax

Buying of parts for Rs 2 lakh or more will also attracts this tax provision.

As of now, the interpretation is, that even an individual selling a second hand car over the threshold limit has to collect the TCS. If this is true then it will be really messy for one will require a TAN to collect/deposit TCS.

My main isuue with this (at the time of the budget speech) was what if the dealers collect the TCS and not deposit the same with the Govt. Now, I understand, the dealers will also come into the tax net because the manufacturers will also collect TCS from the dealers for every vehicle invoiced over Rs. 10 Lakh.

[GTO]

Originally Posted by naut

When a similar rule was introduced for real estate, it was the buyer's duty to credit x% of the purchase price to the Income tax dept and (1-x)% to the seller.

The purpose of that was to increase tax collection.

The purpose of the TCS is to increase the base of tax-paying citizens.

Originally Posted by hybridpetrol

If that particular person is earning a huge sum, and has not been paid income tax for a long period of time, he will continue to do so, even at the cost of losing that 15K! For such people, they would simply assume the OTR price has simply gone up by 1%, and store the TCS certificate along with vehicle records!

Originally Posted by IshaanIan

So 1% value is supposed to give people incentive to file their tax reports? How ridiculous! Anyone who can afford a vehicle so expensive will easily be able to write-off 1% of its value.

It's not that simple. A lot many people buy 10+ lakh cars without paying taxes.

Here, they come directly under the IT department's nose (hmmm, so you bought a 10 lakh car & still haven't filed your returns in 7 years - here's an IT notice!).

Originally Posted by TSIched'Out

If the Government is serious about bringing more people into the tax net, they should make the PAN submission mandatory along with 1% TCS while buying any vehicle (irrespective of floor/ceiling amount).

It will be. How else will you deposit the TCS? It can be done only with the PAN.

Originally Posted by shifu

Does this impact the insurance premium as well?

Nope. The cost of the car hasn't gone up.

Originally Posted by samabhi

What in the case of company owned cars? If I am purchasing a new car through my company lease program, the car will be registered in the name of my company.

The registered owner (i.e. company) will pay TCS, and get a refund later.

Originally Posted by classic86

People could just use cash or some part cash in the transaction to keep the overall value below Rs. 10 lakhs.

You cannot buy a brand new car with unaccounted cash. Every car is accounted for in this country. One of the few big ticket items that are bought 100% officially.

Even if you pay 4 lakhs in cash & 6 lakhs via cheque, you'll still have to pay TCS. The dealer will declare that entire 10 lakhs.

[apachelongbow]

Originally Posted by hybridpetrol

Let us say the customer buys a 15L rupee car - 1% of this is 15K.
If that particular person is earning a huge sum, and has not been paid income tax for a long period of time, he will continue to do so, even at the cost of losing that 15K! For such people, they would simply assume the OTR price has simply gone up by 1%, and store the TCS certificate along with vehicle records!
Once you are into the income tax net, it is very hard for those who have little knowledge about the subject.
Many who are in business (small scale) earn much greater than the income tax limits, but they do not maintain any proper record of their accounts. For them setting up records to pay the income tax is much greater pain than letting the 1% go to the Government.
Even I do not think the dealer would make an attempt to educate such customers about filing the IT returns to get the money back.
I see this idea will work out only to serve as a revenue stream for the Government, and very less people (out of those who can buy 10L plus cars) would claim it back by paying IT returns!

I disagree. Even if the black monied businessman refuses to file ITR, the tax authorities will have knowledge of who bought the 15 lac car, which period it was purchased and then it's a simple process of reconciliation of his tax receipts against his previous ITR. And just for your information, if you own a registered business you need to have a PAN and have to file ITR every year even if under zero tax bracket. If you are a rich farmer with bag loads of cash who buys a fortuner in cash, the dealer has to supply the 1% tax challan to the government who will question you on your source of income. Nice foolproof way to trap the black money rats

They must apply same idea to second hand car as well.. that will truly stop black money circulation