Budget 2024: Employees can claim TCS credit against TDS deduction on salary; here’s how

In the recent past, did you make a remittance outside India under the LRS scheme for your child’s education or book an overseas tour package? Based on the transaction amount, you must have paid Tax Collected at Source (TCS) of 5% or 20%. To claim the TCS amount paid, you will have to wait till you file your Income Tax Return (ITR). It is a situation faced by many individuals paying TCS on specified transactions.

In Budget 2024, the Finance Minister has provided relief for salaried individuals facing this situation. They will be able to claim TCS credit against the TDS deduction on their salary.

Proposal for allowing credit of all TCS and TDS paid

During her Budget 2024 speech, the Finance Minister proposed that credit of TCS to be given in the Tax Deducted at Source (TDS) to be deducted on salary. The FM quoted: "It is proposed to allow credit of all tax deducted or collected while computing the amount of tax to be deducted on salary income under Section 192".

It means that when the proposal is passed and implemented, salaried individuals can take credit for the TCS and TDS they have paid. The TDS from salary will be calculated after considering the TCS and TDS already paid.

The employees will have to declare the details of TCS and/or TDS paid to the employer. The employer will have to consider these details and calculate the TDS to be deducted from the salary based on the employee's income, tax regime, and tax slab. The details of how this mechanism will work are awaited. The amendment will come into effect from 1st October 2024.

TCS relief for salaried individuals

The above proposal comes as a big relief for salaried individuals who have paid huge amounts in the form of TCS. The TCS rate charged on specified transactions ranges from 0.1% to 20%, and the TDS rate ranges from 0.1% to 30%.

The TCS charged on various transactions is as follows:

Source: RSM India – India Budget 2024 Highlights

Earlier, if an individual had paid for an overseas tour package costing more than Rs. 7 lakhs, the TCS was charged at 20%. In such a scenario, a huge amount is stuck in the form of TCS, even though it can be claimed later. The individual has to claim a refund when filing the ITR, which usually happens in June or July.

If the individual has booked the overseas tour package at the start of the financial year (April or May when kids have summer vacation), they have to wait more than a year to claim the refund. Also, after filing the ITR, the refund may take up to a month or more to be processed and credited to the ITR filer’s bank account.

However, the Finance Minister's budget proposal of TCS credit will provide a huge relief for the salaried individuals. They will be able to offset the TCS paid against the TDS to be deducted from their salary. The TCS credit will help in the reduction of the TDS deduction from salary. The lower TDS deduction from salary will result in higher cash in hand for the employees. Also, the employee will not have to wait till filing their ITR to claim the refund for the TCS.

Simplification of the taxation: A step in the right direction

The change in the TDS framework will streamline the tax processes. It will result in higher cash flow in the hands of employees. Apart from allowing TCS credit for TDS from salary, the Finance Minister also announced a reduction in the TDS rate on various transactions. These steps are in line with the Government's objective of ease of doing business and ease of living.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.