Income tax laws require a seller of certain goods and services to collect tax on the payment received above the specified amount. This is called tax collected at source (TCS).
From October 1, 2023, a TCS rate of 20% will be applicable on foreign payments exceeding Rs 7 lakh in a financial year. Foreign payments made for medical and educational purposes have different TCS rates.
TCS is also applicable if you buy ‘motor vehicles’ costing above Rs 10 lakh. If the individual does not pay TCS, the seller of the motor vehicle will be classified as ‘assessee in default’. Hence, buying a vehicle above Rs 10 lakh without paying TCS is next to impossible.
Rate of TCS on buying a motor vehicle The rate of TCS on buying a motor vehicle is 1%. However, if the buyer does not provide PAN to the seller, then the TCS rate will be 20%. If an individual has not filed their income tax return (ITR) in READ ON APP previous two financial years, then TCS can be applicable at the rate of 5%.
On what type of motor vehicles is TCS applied?
The Income-tax Act, 1961, does not define what is a motor vehicle on which TCS will be applicable. According to tax experts, the Income-tax Act refers to the definition provided under the Motor Vehicles Act (MVA) for defining the term ‘motor vehicles. However, the MVA covers a wide range of motor vehicles. The Income-tax Act levies TCS on few of them
- Any vehicle with four or more wheels,
- Any Bikes,
- Any scooter, or
Any custom vehicle which is fitted for road use legally.
All the vehicles, bikes, scooters or any have an engine with cubic capacity (CC) of 25CC or more. However, if the value of the vehicle does not exceed Rs 10 lakh or vehicle’s engine is less than 25CC (eve¹ READ ON APP cost exceeds Rs 10 lakh) then TCS is not applicable