Why many taxpayers miss the TCS credit, and how to claim it when operators don’t deposit the tax

Many taxpayers still struggle to understand how tax collected at source (TCS) works, which often leads to confusion about why the credit does not show up and how it can be used to reduce their tax bill. According to the report, experts say people sometimes think TCS is an extra charge, especially on foreign transfers or overseas tour packages, even though it actually works like TDS and can be fully claimed. Problems arise when operators collect TCS but fail to deposit it, leaving taxpayers unsure about their rights and the steps they can take to recover the missing credit.

Avnish Arora, Executive Director,  Direct Tax,  Forvis Mazars India, said, "It is difficult to pinpoint a single reason why some taxpayers fail to claim TCS credit. In some cases, it may stem from limited general awareness that TCS operates in the same manner as TDS and can be adjusted against their overall tax liability."

Arora said that taxpayers often see 5% or 20% TCS reflected in Form 26AS, particularly for foreign remittances or overseas tour packages but misunderstand its purpose, treating it as an additional cost rather than a claimable tax credit.

"In reality, the rate at which TCS is collected does not affect the right to claim it; once it has been collected and appears in Form 26AS, it functions like TDS and can be fully claimed as credit while filing the income tax return," said Arora.

If a tour operator fails to deposit the TCS and the credit consequently does not appear in Form 26AS, the situation becomes challenging. Drawing from established principles in TDS cases, Courts have generally held that when tax has been deducted from the taxpayer, they should not be denied credit merely because the deductor failed to deposit it.

By analogy, once TCS is collected from the taxpayer, the credit should ideally be allowed. However, since non-deposit of TCS means it will not reflect in Form 26AS, the taxpayer may need to contest the matter- either through representations before the tax authorities or, in some cases, through litigation -to assert their claim for the TCS credit.

Arora said, "Section 140A of the Income-tax Act expressly allows taxpayers to utilise any tax collected at source while computing their net tax payable. This means that once TCS is collected and reflected in Form 26AS, it can be adjusted against the taxpayer’s advance tax or self-assessment tax obligations. Taxpayers should therefore remain mindful that TCS operates similarly to TDS in terms of credit availability and can be seamlessly set off against their overall tax liability."