There is a growing realisation the world over that deduction of tax at source not only expedites tax collection for the exchequer but, more importantly, foils tax evasion — by making the person from whose income tax has thus been deducted a marked man.
The marked men have sleepless nights and suffer stabs of conscience, even if they did not have one to start with. For, their names and other vital particulars are now borne on the records of the taxman, who may swoop down upon them and ask troubling questions about their income and tax.
That is why an individual contractor shakes in his boots when a meagre
The tax administration thus chose to extend the deduction at source tentacles to collections as well. This means, unlike TDS where tax is deducted at source, in TCS, tax is collected at source.
To wit, at present, forest and parking mafias are targeted by arraigning the seller against the buyer.
The one picking up tendu leaves to roll beedis from, has not only got to pay the price for such leaves but also pay in addition 5 per cent of the price towards his ad hoc income tax liability.
Similarly the one axing timber, thanks to a forest lease in his favour, has to, in addition to the price under the lease agreement, cough up ad hoc tax of 2.5 per cent.
The forest authorities would act as a go-between and deposit the tax with the exchequer. Those buying parking rights similarly have to pay in addition ad hoc tax at the rate of 2 per cent.
Authority figures
It would have been seen that the above two collectors, one to tame the incorrigible forest mafia and the other to tame the equally incorrigible parking mafia, are authority figures whose writ runs.
But the Finance Bill, 2012, seeks to use the TCS mechanism to target some more hard to tax categories where the enforcers are not authority figures, but ordinary mortals.
From July 1, 2012, jewellers dotting both our rural and urban landscape would have to collect 1 per cent of the selling price if it is in excess of Rs 2 lakh and is paid for in cash.
The selling price would be retained by them but the tax on it would have to be deposited with the treasury. The idea is to bring the buyers into the tax net.
A moment's reflection would show that the government's enthusiasm in this regard may not be translated into more taxes because the jeweller himself is a man of doubtful integrity, unlike the authority figures in forests and municipalities.
A dyed-in-the-wool goldsmith does almost all his deals in cash. Indeed, cash is his calling card not only to accommodate his customers but to ward off various tax liabilities that accepting payments through banking channels entails.
In the event, he is not likely to live up to the high expectations placed on him by the Finance Bill, 2012. He is likely to play ball with his cash customers.
Since the year 2011-12 was marked by a lot of mining scams, the government has decided to tame the mining mafia as well. But how? Well, with a ‘one step forward one step back' approach. The seller of coal, lignite and iron ore has been mandated to collect a 1 per cent ad hoc tax from the buyers.
This is fine, but what is not fine are the exceptions that threaten to make the regime effete. It is the buyer's word that would prevail.
If he says that he has purchased these items for personal use, no TCS. Similarly, if he declares that he has purchased these items for further manufacturing or processing, again no TCS.
Effectively, on-sellers, i.e. traders alone are sought to be brought under the regime. Some superficial processing may be done just to be rid off the disagreeable appellation ‘trader'.
Black money in real-estate
Buyers of immovable properties hereafter would have to deduct tax at source at the rate of 1 per cent if the consideration exceeds Rs 50 lakh where the properties are located in the specified urban agglomerations and Rs 20 lakh at other places. This would have salutary effects.
The Finance Bill, 2012, has done well to dovetail this requirement with registration.
Stamp duty authorities have been mandated not to register property transfers if the guideline value of the property is more than Rs 50 lakh or as the case may be Rs 20 lakh and proof of deduction and payment into treasury of the 1 per cent ad hoc tax is not adduced.
It is heartening to note that the government has heeded this writer's plea to interlock two related things — insistence on TDS as a precondition for registration.
This would ensure 100 per cent compliance with this regime even though the buyer has to take the trouble of filling a form and depositing the 1 per cent tax with the treasury. Cash component would wither away if the guideline value captures the true market value.
Secondly, the buyers would happily discharge this altruistic duty to deduct tax and deposit in their own enlightened self-interest. Truly, self-interest and altruistic interest have been interlocked.
(The author is a New Delhi-based chartered accountant)