Tax Collected at Source (TCS): Rates, Payment, and Exemption
Updated: Nov 7
Tax Collected at Source (TCS) is a crucial mechanism under the Indian Income Tax Act that ensures tax compliance at the initial point of sale. It is a preemptive tax collection strategy where the seller collects tax from the buyer at the time of sale. This system primarily targets business and trading transactions and helps in tracking and managing tax liabilities effectively. This article provides a comprehensive overview of TCS, including its rates, payment procedures, exemptions, and more.
Table of Content
Budget 2024 Update
According to budget 2024, 1% TCS will be levied on the notified luxury goods which are over INR 10 lakhs. This update targets the high value transactions ensuring luxury consumption fairly contributes to the tax revenue.
What is Tax Collected at Source (TCS)?
Tax Collected at Source (TCS) is the tax collected by the seller from the buyer during the sale of specified goods. This provision is governed by Section 206C of the Income-tax Act. The seller collects a specified percentage of tax from the buyer, which is then deposited with the tax authorities. For example, if a box of chocolates costs INR 100, and the applicable TCS is INR 20, the buyer pays INR 120 in total. The seller then deposits the collected TCS with an authorized bank branch.
Who Can Collect TCS?
TCS can be collected by certain categories of sellers on specific goods. Eligible sellers include:
Central Government
State Government
Local Authority
Statutory Corporation or Authority
Company registered under the Companies Act
Co-operative Society
Any person or HUF subjected to an audit of accounts under the Income-tax Act for a particular financial year
A buyer is defined as a person who obtains specified goods through sale, auction, or tender.
When Should TCS be Collected?
TCS must be collected at the earlier of the following two dates:
When the seller debits the amount payable by the buyer in their account books.
Upon receipt of the money from the buyer, regardless of the payment mode.
For motor vehicle sales, TCS is collected upon receipt of money or consideration for the vehicle from the buyer.
TCS Rates for Specific Goods
TCS rates vary based on the type of goods being sold. Here are the rates for some specific goods:
Liquor of alcoholic nature: 1%
Timber wood under a forest lease: 2.5%
Tendu leaves: 5%
Scrap: 1%
Minerals like lignite, coal, and iron ore: 1%
Motor vehicles exceeding INR 10 lakh: 1%
Parking lot, toll plaza, and mining and quarrying: 2%
Where turnover exceeds INR 10 crore in the previous financial year and sale consideration exceeds INR 50 lakh: 0.1%
Higher TCS Rates Application
Higher TCS rates apply under certain conditions, as per Section 206CCA. These conditions include:
The buyer has not filed income tax returns for the last two financial years before the relevant financial year.
The time limit for filing the ITR has expired.
The total TCS and TDS exceed INR 50,000 in each of these two financial years.
In such cases, the higher TCS rate will be the higher of two times the rate specified or 5%.
Classification of Seller for Tax Collected at Source
Specific entities are classified as sellers eligible to collect TCS:
Central Government
State Government
Local Authority
Statutory Corporation or Authority
Companies registered under the Companies Act
Partnership firms
Co-operative Society
Any individual or HUF undergoing an audit under the Income-tax Act
Classification of Buyers for Tax Collected at Source
Certain buyers are exempted from TCS collection. These include:
Public sector companies
Central Government
State Government
Embassies and High Commissions
Consulates and other Trade Representatives of a Foreign Nation
Clubs such as sports clubs and social clubs
Buyers who use the goods for manufacturing, processing, or producing articles (not for trading) and provide a declaration in writing
Example of TCS Calculation
Consider a buyer purchasing a car worth INR 11 lakh from a showroom. The applicable TCS at 1% would be INR 11,000. Hence, the total amount payable by the buyer would be INR 11,11,000.
TCS Payments and Returns
TCS payments must be deposited using Challan 281 within 7 days from the end of the month in which the tax was collected. The tax collector must submit a quarterly TCS return using Form 27EQ. Any interest for late payment of TCS is charged at 1% per month or part thereof.
TCS Certificate
Upon filing the quarterly TCS return, the tax collector must issue a TCS certificate in Form 27D to the purchaser. This certificate includes details like the seller and buyer's names, TAN and PAN, total tax collected, date of collection, and the rate of tax applied. The certificate must be issued within 15 days from the filing date of the TCS return.
TCS Exemptions
TCS is exempted in the following cases:
Goods used for personal consumption
Purchases for manufacturing, processing, or production, not for trading
TCS Provision under GST for E-commerce Sales
For e-commerce transactions, a 1% TCS (0.5% CGST and 0.5% SGST) is deducted by the e-commerce platform and deposited with the government by the 10th of the following month. All dealers/traders selling goods online must be registered under GST.
TCS Provision in Foreign Remittance Transactions
TCS applies to foreign remittances under the Liberalised Remittance Scheme (LRS). The rate for most remittances, excluding those for education and medical purposes, increased from 5% to 20% in Budget 2023, effective from 1 October 2023. Taxpayers can claim TCS deductions as refunds or credits against their tax liabilities.
Submission of Form 24G
In cases where TCS or TDS is deposited without a challan, Form 24G must be submitted to the agency authorized by the Principal Director of Income Tax (Systems) within 15 days from the end of the relevant month. For March, it should be submitted by 30 April.
Interest and Penalties
If a tax collector fails to collect or remit TCS on time, an interest charge of 1% per month or part thereof applies. Additionally, incorrect filing of TCS returns can attract a penalty ranging from INR 10,000 to INR 1,00,000 under Section 271H.
Differences Between TCS and TDS
TCS or TDS serve different purposes. TCS is collected by the seller at the time of sale of specific goods, while TDS is deducted from various payments like salaries, interest, and professional fees. TDS applies when payments reach a certain threshold, whereas TCS is collected regardless of the payment amount.
FAQ
Q1. Should sellers collect TCS on an amount inclusive of GST?
Yes, TCS should be collected on the amount inclusive of GST.
Q2. What are the consequences of late filing of a TCS return?
A fee of INR 200 per day is applicable for late filing, up to the total TCS amount. However, the late fees amount should not increase beyond the TCS amount. One should deposit the late filing fees before the TCS return filing. Also note that INR 200 is the late fee, not a penalty.
Q3. Is there any penalty for incorrect filing of the TCS return?
Yes, a penalty between INR 10,000 and INR 1,00,000 can be levied for incorrect filing.
Q4. Can I check my TCS in Form 26AS?
Yes, Form 26AS displays details of TCS collected by the seller. The particular goods when such types of goods are sold to a person. It will showcase the seller’s details along with the TCS amount and transactions on which tax was collected at the source.
Q5. The buyer has not filed IT returns for the last two years. Can they recover the TCS later on?
Yes, the buyer can adjust the TCS while paying their tax liabilities in later assessment years.
Q6. Is tax collected at source refundable?
Yes, TCS is refundable and can be adjusted against tax liabilities.
Q7. Why was tax collected at source introduced?
TCS was introduced to prevent tax evasion in transactions involving liquor, scrap, forest products, and so on. Legal entities like firms or AOPs are set up for this. After signing the contract, no proof is left. But to reduce the large-scale tax evasion by income tax assesses in such products. Section 206C of TCS was introduced.
Q8. What is a tax collected used for?
TCS is used for national development, including infrastructure, education, and uplifting backward sections of society.
Q9. Is TCS deduction on LRS transactions a regulatory requirement?
Yes, TCS on LRS transactions is mandatory as per the Income-tax Act.
Q10. Is TCS applicable on remittances from the Domestic accounts to the NRO account?
Yes, TCS applies if the transfer is under LRS, such as loans or gifts to NRIs.
Q11. What is the purpose of tax revenue?
Revenue from the income tax collected in the advance tax department for the fiscal year. It corresponds to the tax collected at the source. It is also used to improve the underprivileged areas of society, educate children, build the nation's infrastructure, and so on.
Q12. Why did tax collection at source become popular?
The tax department challenges are faced while checking the income of taxpayers who enter the agreements for alcohol, scrap, and forest goods sales. These measures are implemented.
Q13. What is meant by TCS?
TCS refers to tax collected at source. A tax collected by the seller from the buyer on sale to deposit with the tax department.
Q14. What is the TCS on the Sale of Goods?
According to Section 206C(1H), a seller will have to deduct TCS on the sale of goods if the value of the sale goes above INR 50,00,000 in a certain fiscal year. While receiving such payment, a TCS deduction will be applicable.
Q15. What is section 206q?
Section 206Q includes the provision applicable to the goods and services. It depends upon various factors like goods sales. If the seller’s annual goods sales to a buyer surpasses INR 50 lakhs then the seller is obligated to collect TCS on the amount that exceeds INR 50 lakhs.
