New Delhi: The government will soon clarify that the $300-billion exports sector would not be covered by the proposal for 1% tax collected at source (TCS), introduced by the budget. Officials told ET that the budget has an enabling provision to provide exclusions.

“The intent is not to tax overseas buyers of Indian goods. Since these entities are based abroad, they do not have any tax liability here. The idea is not to bring them under the tax net. There is an enabling clause that allows the government to notify entities that would not be covered, and exporters will be excluded,” said a senior government official.

A seller of goods has to deduct TCS at the rate of 0.1% before making payments in excess of Rs 50 lakh. In cases where the buyer doesn’t have a Permanent Account Number (PAN) or Aadhaar — which is the case with exports — the rate will be 1%, says the budget proposal.

Tax experts said the provision means that export of goods could attract this levy, and since overseas buyers of Indian goods would not have PAN or Aadhaar, the tax rate would be 1%.

Tax Net Widened

“Proposed TCS provisions apply even to exports, and Indian exporters (who receive more than Rs 50 lakh in a financial year) will need to collect 0.1% TCS from buyers. However, the proposed Section provides a mechanism for the CBDT (Central Board of Direct Taxes) to exempt certain classes of people. And in all probability, exporters will be exempted,” said Amit Maheshwari, partner at Ashok Maheshwary & Associates LLP.

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Only sellers whose total sales, gross receipts or turnover exceed Rs 10 crore during the preceding fiscal year shall be liable to collect such TCS.

“Central government may notify person, subject to conditions contained in such notification, who shall not be liable to collect such TCS,” the budget says. This means exporters can be excluded by a simple notification.

TCS provisions were introduced to widen the tax net. They are being gradually expanded to include more entities and businesses.

The budget has introduced TCS on overseas remittances through the liberalised remittance scheme (LRS) and even overseas tour packages.

The person on whom the incidence of TCS falls can set off the tax against his financial liability. The deduction of tax creates a transaction trail and helps check evasion. At the least, it accrues some tax to the government in case it is not claimed or adjusted.



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