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

[Aditya]

In the union budget, the Government of India had announced that an additional 1% tax will be collected on sales of vehicles costing over Rs. 10 lakh. This is known as TCS (tax collected at source).

Dealerships will collect the tax from a customer, deposit it with the government and hand over a TCS certificate to him. This amount will be credited back to the customer at the time of filing income tax. The aim of the government behind the introduction of this practice is to get more people buying vehicles costing over Rs. 10 lakh to file their income tax returns.

However, the introduction of TCS has led to confusion in the automobile industry. It was earlier believed that TCS would be applicable to passenger cars only. Now, it appears that it will be applicable to all types of motor vehicles including trucks, buses, two-wheelers and cars sold by manufacturers, dealers and the government.

Additionally, it is not just the end customer who will have to pay this tax, but the dealer as well. Even individuals selling used cars costing over Rs. 10 lakh will have to collect 1% of the value and pay it to the government. This will make car buying and selling transactions more complicated.

Further, this tax will be applicable on purchase of spare parts costing over Rs. 2 lakh as well.

Source:

Originally Posted by GTO

From June 2016 onward, an additional 1% tax will be collected at the source (i.e. dealership) on all cars costing over Rs. 10 lakh. This is TCS (tax collected at source). If you are a tax-paying citizen (which you should be), the 1% TCS shouldn't make much of a difference as it will be credited back to you at the time of filing your income taxes. Dealerships will collect the tax, deposit it with the government and hand over a TCS certificate to you. This practice widens the tax base as there are a lot of evaders who buy million rupee cars, but don't file their returns!

Important to mention that manufacturers who have priced their best-selling variants at Rs. 9.95 lakhs (or in the whereabouts) stand to gain from the post-budget scenario. We can fully expect repositioned middle variants of popular sedans & SUVs.

[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.

[naut]

Originally Posted by Aditya

In the union budget, the Government of India had announced that an additional 1% tax will be collected on sales of vehicles costing over Rs. 10 lakh. This is known as TCS (tax collected at source).

Dealerships will collect the tax from a costumer, deposit it with the government and hand over a TCS certificate to him. This amount will be credited back to the customer at the time of filing income tax. The aim of the government behind the introduction of this practice is to get more people buying vehicles costing over Rs. 10 lakh to file their income tax returns.

Additionally, it is not just the end customer who will have to pay this tax, but the dealer as well. Even individuals selling used cars costing over Rs. 10 lakh will have to collect 1% of the value and pay it to the government. This will make car buying and selling transactions more complicated.

Further, this tax will be applicable on purchase of spare parts costing over Rs. 2 lakh as well.

Source: Economic Times

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. This made sense, as this would bring the seller into the tax net. Also, in the whole transaction the buyer is only paying the purchase price of the property.

However here, the buyer is required to pay: cost of the vehicle in full + 1% TCS to the seller. Because it is the seller who is paying the tax and not the buyer unlike real-estate.

What about those who buy the vehicles at the beginning of the financial year? Do they get back the refund only after their return is processed in subsequent financial year? This is seriously messy!

Although messy!, it will definitely help bring more people into the tax net which is very good!

Wonder if this will lead to a flux of sub 10L cars/SUVs like the sub 4m cars .

[hybridpetrol]

Originally Posted by naut

it will definitely help bring more people into the tax net which is very good!

Wonder if this will lead to a flux of sub 10L cars/SUVs like the sub 4m cars .

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!

[nik hill]

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!

The idea behind the move is to bring those people in tax net who never pay taxes or file returns by tracking high value sales like million rupee car. If the government can earn revenue even if the customer fails to seek credit nothing wrong with also.

[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). The honest taxpayer will file the return and claim this back. The dishonest tax evader will not file the return for this and thus can be served notice for the same asking for proof of income.

[shifu]

Does this impact the insurance premium as well? I have booked a car and the delivery is due in couple of days. I am told that if I take delivery on Wed (1-Jun), I'll have to pay this 1% TCS along with increased insurance premium. Is that right?

[heydj]

Smart move from government. Even if individual does not file ITR then also since dealer would have submitted information to the treasury with 1% amount collected, customer information gets in government records.

Now if the individual does not file ITR then he/she gets in tricky situation as government already know this guy has the money to buy vehicle over 10 lakhs hence why is there no ITR?

First step taken towards getting black money details. Great move!

[naut]

Originally Posted by shifu

Does this impact the insurance premium as well? I have booked a car and the delivery is due in couple of days. I am told that if I take delivery on Wed (1-Jun), I'll have to pay this 1% TCS along with increased insurance premium. Is that right?

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?

Please note that this is not a charge or an expense. It is only a customary credit of Tax to the IT dept for having bought a car. In case, you pay your tax every year, your tax burden at the end of the year should ideally be reduced by the amount of TCS paid towards car purchase.

However, one aspect of this policy is really bad. In most other cases, where the tax is deducted @ source, people receiving cash (in a transaction) are taxed. This is the only case, where a person paying cash (in a transaction) will be taxed by the dealer or seller. If you notice closely, the 10K that you are liable to pay may get locked with the IT dept for more than year bearing no interest.

For salaried individuals, who are buying cars after paying TDS, this is not fair! Because buying a car is a not a source of income, IT dept should pay market interest for TCS the amount collected for the duration it is with them!

[deevee]

Nice to read this. I have just returned from VW Gurgaon and the SA didnt tell me that I would get this amount back when I file ITR. He was saying why pay extra and went onto say that you need to take delivery also only then will you escape this 1%. Guess he was taking me for a ride because I was in a hurry to make the purchase. It gives me more time now. Thanks.

[stanjohn123]

Or this will seriously start denting more expensive car sales.

For those who purchase this is a good source of income again for the government as I don't think many people will bother going through the hassle in retrieving this money from the government.

People who buy super expensive cars with not so good RTI records will now defer from purchasing these cars. This is the same scenario that happened to the real estate market in TN when the government asked to show IT returns before purchasing a land, the whole market turned upside down and now land value has fallen down so sharply.

I think this is a bad move for auto manufacturers as I feel there will now be much lower sales for expensive cars.

[msdivy]

Originally Posted by stanjohn123

I think this is a bad move for auto manufacturers as I feel there will now be much lower sales for expensive cars.

If someone is buying with legal money, this move shouldn't bother them. If people are buying with illegal money, then auto manufactures must not act as conduits.

Originally Posted by stanjohn123

This is the same scenario that happened to the real estate market in TN when the government asked to show IT returns before purchasing a land, the whole market turned upside down and now land value has fallen down so sharply.

Thats good ! people who really need a home can afford them.

Originally Posted by heydj

First step taken towards getting black money details. Great move!

Glad that Govt is trying out something (rather than doing nothing).

[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. The government should instead turn its head towards corruption within the system preventing the building of proper top quality roads and maintenance etc. before asking more citizens to file their income tax reports That will give people more incentive IMO. This just sounds like another way to get rake in more cash. Disappointing steps being taken by the government.

[condor]

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!

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!

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 !

[mayankk]

Can this not conversely be used by the govt to get after people who have not claimed their TCS after IT filing windows closed?
That could be ideal.
However, I still believe they will be happy to have pinched people a bit more and added to the cesspool. The coffers, they be growing, m'man!