How FM can simplify TCS to ease cash flow pressure
Evolution of TCS TCS has existed for nearly four decades, evolving from a narrow anti-evasion measure into a tool for real time tax monitoring.
Initially limited to high-risk sectors such as liquor, timber, tendu leaves, scrap and forest produce, it required a small tax collection at the point of sale to create a transaction trail.
As the economy expanded and digital reporting improved, TCS was extended to high value buys such as motor vehicles above Rs 10 lakh and later to foreign remittances and overseas tour packages, bringing everyday taxpayers into its ambit. TCS in a world of remittances abroad and big spendsTo widen and deepen the tax net, the scope of TCS was extended in 2020 to include foreign remittances under the Liberalised Remittance Scheme (LRS).
Individuals usually remit money abroad for education, medical treatment, overseas tours and other purposes such as gifts, donations, etc.
TCS on LRS was introduced not as an additional tax but as an advance collection mechanism, adjustable against final tax liability. The Finance Act, 2025 responded to rising education and travel costs by raising the TCS threshold on LRS remittances from Rs 7 lakh to Rs 10 lakh per financial year and removing TCS on loan-funded overseas education.
For self-funded education remittances above Rs 10 lakh, TCS now applies at 5%, reinforcing the intent to avoid burdening genuine education expenses.
From April 22, 2025, TCS was also extended to select luxury goods such as watches, yachts, sunglasses, shoes and sportswear, reflecting higher spending in this segment.
TCS at 1% applies only where the value of a single item exceeds Rs 10 lakh.
Thus, a wristwatch priced at Rs 12 lakh attracts TCS, while two watches costing Rs 6 lakh each do not.
The tax is collected at the point of sale and can be claimed as credit while filing the income tax return, enabling tracking of high value buys without denying tax credit. Challenges for taxpayers A key concern with TCS is that even individuals with little or no final tax liability must pay it upfront and wait to claim a refund, resulting in blocked funds and cash flow strain.
To address this for salaried taxpayers, changes effective Oct 1, 2024 allow TCS paid to be reported to employers through Form 12BAA, enabling adjustment against monthly tax deductions and easing cash flow pressure.
Accurate disclosure of the amount, date and purpose of TCS is essential for this mechanism to work.
While this relief benefits salary income earners, taxpayers earning non-salary income must still adjust TCS against advance tax or claim refunds at year end.
For example, Kaushal, a self-employed consultant, remits Rs 75 lakh abroad under LRS for his child’s education.
The TCS collected cannot be adjusted immediately, forcing him to wait until return filing to recover a substantial sum.
The balance required There are ways to improve this experience without compromising the system’s intent.
Faster refunds and better digital integration between TCS and TDS could ease cash flow pressures.
TCS has strengthened India’s tax reporting framework and with thoughtful fine-tuning, it can continue to meet its objectives while remaining responsive to taxpayers’ needs.
A balanced tax system works best when it ensures both transparency and convenience. (Karmakar is tax partner, EY India; Rajesh Sureshan, director at EY India, also contributed to the article.
Views expressed are personal)
