The finance ministry on Friday provided relief to traders by withdrawing a rule that required them to charge goods and services tax (GST) on the compulsory income tax to be collected at source (TCS) from consumers who make high value purchases such as premium cars. A circular issued in December had said that the value of the product on which GST is to be levied is inclusive of TCS, leading to confusion among traders as it amounted to a tax on tax.

The Income Tax Act mandates a marginal tax to be collected at source on certain high-value transactions to ensure that those who make large purchases do not under-report their income. This tax is available as a credit at the time of making the income tax payment.

However, the Central Board of Indirect Taxes and Customs (CBIC) issued a circular on Friday clarifying that such income tax collected at source by dealers—over and above the value of the goods sold—and paid to the government on behalf of the consumer is not subject to GST.

CBIC said that the income tax department has clarified that the TCS was just an interim levy on the "possible income" of the buyer. There is a TCS of 1% on automobiles with an ex-showroom price of above Rs.10 lakh.

“For the purpose of determination of value of supply under GST, tax collected at source under the provisions of the Income Tax Act, 1961, would not be includible as it is an interim levy not having the character of tax," Friday’s circular said.

The clarification comes as a relief for businesses, especially the automobile sector, according to experts.

The government on Thursday issued a clarification on another vexed tax problem faced by traders. It said that traders will not be denied credits for taxes paid while sourcing goods that are eventually given away free under discount schemes such as ‘buy one, get one free’. #casansaar (Source - PTI, LiveMint)