Tax Collected Source
Tax Collected at Source (TCS) follows the principle of “COLLECT AS YOU EARN”. It is a taxation mechanism in which the seller collects an additional amount as tax from the buyer.
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The amount of TCS deducted depends on the amount of payment, the applicable tax rate and is only levied on transactions related to a specified list of goods and services.
Let’s find out more details about how this unique taxation system works in India.
What is Tax Collected at Source?
Tax Collected at Source is an additional tax amount that is imposed by the seller on the buyer at the point of sale. The seller is only responsible for collecting this tax from the buyer and depositing the same to the Government; he or she is not responsible for paying it.
TCS is applicable only in case of specific goods/transactions that are related to trading of timber wood, minerals, etc. It is essentially an additional amount that is collected as income tax revenue on the trading of goods by the Government of India.
Tax Collected at Source Applicability
Section 206C of the Indian Income Tax Act has specified a list of goods and services that fall under the provision of TCS. Collection or payment of TCS will only be applicable if the seller or buyer belongs to the classification categories mentioned in the tax law.
Failure to collect and deposit the tax to the concerned authorities within the due date can attract penalties for the seller. On the other hand, buyers can claim a TCS refund if their income is below the tax exemption limit by filing their IT return.
Classification of Sellers for TCS
There are some specific entities that are classified as sellers for tax collected at source. Only such types of organizations are allowed to collect tax at source from the buyers:
Statutory Corporation or Authority
Company
Co-operative Society
Local Authority
Partnership Firms
State Government
Central Government
Any individual or Hindu Undivided Family (HUF) who is subjected to an audit of account as per Section 44AB of the Income Tax Act
Classification of Buyers for TCS
A buyer is any individual or entity who receives the goods or even the rights to receive the goods at a sale, auction, tender, etc. All buyers are liable to pay tax at source to the seller; however, there are some entities that are exempted from this kind of taxation:
Embassy of High Commission
Central Government
State Government
Public sector enterprises
Consulate and other Trade Representatives of Foreign Countries
Sports clubs and social clubs
Buyers who purchase goods for purposes of manufacturing or producing things related to generation of power and not for trading.
What are the Goods covered under TCS Provisions?
The following table of goods and services are considered for Tax Collected at Source:
Item | GST Rate |
Alcoholic liquor (including Indian-made Foreign Liquor) | N/A (subject to separate excise duty and value added tax) |
Forest produces (other than timber and tendu leaves) | 5% |
Scrap | 5% |
Tendu leaves | 5% |
Timber wood obtained from a leased forest area | 5% |
Timber wood obtained by any other mode than a forest lease | 5% |
Minerals such as iron ore, lignite or coal | 5% |
Bullion that exceeds Rs.2 lakhs/ Jewelry that exceeds Rs. 5 lakhs | 3% (under section 272AB of the Income Tax Act) |
Motor vehicle purchases of more than Rs. 10 lakhs | N/A (subject to TCS of 1% under section 206C(1)(e) of the Income Tax Act) |
Parking lot tickets, Toll Plaza, Mining and Quarrying | 5% |
However, it has to be noted that the goods mentioned above would only fall under the provision of TCS if the transaction is related to trading. Since the goods mentioned above are subject to duty, TCS collected at source is only applicable when they are used for trading. Trading means the act of purchasing items from one party and selling them to another. The tax payable will simply be collected by the seller at the point of sale.
However, if the transactions take place for the purposes of processing, manufacturing or producing other goods, then no tax is payable.
When is TCS Collected?
The seller must collect TCS from the buyer at the earlier of the following two dates:
After receiving money from a buyer via cash/cheque/draft
When debiting the money payable by the buyer to the seller’s books of accounts.
In case the transaction is related to the purchase of a motor vehicle, the TCS is collected by the seller upon the receipt of the money. This means that the tax amount would be a part of the total price that the buyer has to pay at the time of purchase.
It should be noted that TCS would only be applicable if the motor vehicle costs over Rs. 10 lakhs. The seller is then required to deposit the collected tax amount to the Government before the end of the month in which the tax was collected.
TCS Rates in India for FY 2023-24
The rate of TCS is different for the different goods that come under the provision of this type of taxation. The rates applicable for the current financial year are listed below:
Nature of goods/transaction | Rate of TCS* |
Timber wood bought under a forest lease | 2.5% |
Timber wood obtained from any other source | 2.5% |
Alcoholic liquor for human consumption | 1% |
Sale of scrap | 1% |
Tendu leaves | 5% |
Forest produce other than Tendu leaves | 2.5% |
Minerals (lignite/coal/iron ore) | 1% |
Lease/license of parking lot, toll plaza, mining and quarrying | 2% |
Sale of any goods where the total value exceeds Rs.50 lakhs [applicable only if total sales/turnover of the seller exceeds Rs.10 crores during the current FY] | 0.1% |
Sale of motor vehicles of value exceeding Rs.10 lakhs | 1% |
Transactions involving Bullion that exceed Rs. 2 lakhs/ Sale of Jewelry that goes over Rs. 5 lakhs | 1% |
Foreign remittance under the Liberalized Remittance Scheme for the purpose of education/medical treatment | NIL if value is less than Rs.7 lakhs 20% if the value exceeds Rs.7 lakhs |
Foreign remittance obtained from an education loan | NIL up to Rs.7 lakhs 0.5% if the value exceeds Rs.7 lakhs |
Foreign remittance for other purposes | NIL for a value up to Rs.7 lakhs 20% if the value exceeds Rs.7 lakhs |
Overseas Tour Package | 5% if value is less than Rs.7 lakhs 20% if the total value goes above Rs.20 lakhs |
*Rate effective from 1st October, 2023
Due Dates for TCS Payments and Returns
There are certain rules and regulations that all entities must follow when it comes to making TCS payments and filing returns:
Any amount collected by a government office must be deposited on the same day of collection.
The collector has to deposit the TCS amount in Challan 281 within 7 days from the final day of the month in which TCS was collected from the buyer.
If the collector fails to collect and deposit the tax or doesn’t deposit it after collection, he/she will be liable to pay interest at a rate of 1% every month or for a portion of the month.
Every tax collector has to mandatorily submit a quarterly TCS return (Form 27EQ) in respect of the taxes collected in that specific quarter. Any interest payment that is left outstanding due to any delay in payment has to be cleared before submitting Form 27EQ.
After filing the quarterly TCS return, the tax collector must provide a TCS certificate to the buyer of goods. The certificate generated (Form 27D) contains the following information:
Names of the seller and buyer
Tax Deduction and Collection Account Number (TAN) of the seller, who is responsible to file the quarterly return
Permanent Account Number of both the seller and the buyer
Total tax collected by seller and date of collection
The TCS rate that was applied by the seller
One needs to keep in mind that the TCS certificate has to be issued to the buyer within 15 days from the date of submitting the TCS quarterly return. The due dates for filing the payment returns and issuing the certificates are mentioned below:
Quarter Ending | Due date to deposit TCS | Due date to submit Form 27EQ | Due date to generate Form 27D |
For the quarter ending on 30th June | 7th of every month | 15th July | 30th July |
For the quarter ending on 30th September | 15th October | 30th October | |
For the quarter ending on 31st December | 15th January | 30th January | |
For the quarter ending on 31st March | 15th May | 30th May |
Example of TCS Collection
Let’s try to understand how TCS works with the help of an example:
Let’s say you decide to purchase a car worth Rs. 25 lakhs. Here, you are the buyer, and the car manufacturer is the seller.
The car manufacturer, as per the TCS rates set down by the Income Tax Department, has to charge an additional 1% tax on top of the selling price of the car at the point of sale.
Therefore, you would need to pay an additional Rs. 25,000 as tax on top of Rs 25 lakhs. This means that the final selling price of the car will be Rs. 25,25,000.
This is how the seller is supposed to collect the tax at source. In this case, the amount of tax collected at the source is Rs. 25000. The seller is now liable to deposit this amount via Challan 281 before the end of the month in which the transaction took place. The seller has to ensure timely TCS payments to the Income Tax Department as well as timely issuance of TCS certificate to the buyer.
How to Deposit TCS?
The seller must compulsorily submit Challan 281, either online or offline, within 7 days from the last day of the month in which the TCS was collected.
To deposit the challan online, visit the official website of the Income Tax Department.
Navigate to the TDS/TCS section and select Challan No./ ITNS 281.
Enter the following details in the challan - name of the deductee, type of payment, details of goods and services, mode of payment, assessment year, TAN details, and other relevant personal details.
Submit the form and complete the payment.
The seller can also submit the challan offline. He/she would simply need to visit the nearest bank branch and submit the filled up challan. The bank will provide a receipt in return.
Importance of TCS Certificate
The TCS certificate (Form 27D) must be submitted within a week of the last day of the month when the TCS was paid to the seller. If there are multiple certificates to be issued to a particular buyer for a particular FY, there’s an option to issue a consolidated certificate within a month of the last day of the financial year.
Form 27D is an important document, and if it is misplaced, the collector can issue a duplicate certificate to the buyer which needs to be attested.
What is Form 24G?
When depositing TCS under section 206C without a challan, specific rules under Rule 37CA of the Income Tax Rules, 1962, apply. Here's an overview of the key points:
Timelines for deposit:
Government offices: Same day for deposits without challan, or within 7 days from the end of the month for deposits with challan.
Non-government collectors: Within one week from the last day of the month in which the collection is made.
Additional requirements include -
Form 24G: Required if no challan, deadlines vary for March vs. other months.
Submission methods: Digital signature, Form 27A verification, or electronic process.
Form details: Amount, collector info, TAN, etc.
Consult official rules: Stay updated and ensure accurate procedures.
If the tax collector wants to deposit the TCS without Challan, he/she will also have to submit a duly filed Form 24G and submit it to the concerned agency. The form needs to be submitted within 15 days from the last day of the relevant month.
What is TCS Refund?
For buyers who earn less than the basic tax exemption limit but have been charged with TCS by a seller during a specific financial year, there is an option to claim refund of TCS amount paid.
Any excess deduction is refundable; however, the buyer will have to file the income tax return to claim the refund.
To claim TCS refund, one must fill out the relevant sections of the ITR form and submit the necessary documents. This may include the TCS certificate issued by the seller, along with the proof of the transaction.
TCS is shown in Form 26AS as a tax credit. This can be claimed by the buyer against the tax payable. There’s also the option to offset TCS while filing advance taxes.
Who is Exempt from TCS?
Tax collection at source is exempted in two types of scenarios:
Tax Collected at Source: Lower Rate
The buyer has the option to file an application to the Assessing Officer (AO) and request him/her to collect the tax at a lower rate. This involves submission of Form 13 to the AO, where the buyer has to explain that the eligible goods are just for personal consumption and that the lower rate is justifiable as per the buyer’s level of income. If the AO is convinced, he/she will issue a certificate mentioning the lower rate of TCS applicable.
Total Tax Exemption
The buyer can also submit Form 27C to declare that he/she is eligible for total TCS exemption. This can happen only if the declaration proves that the goods purchased are meant to be used for manufacturing or production and not trading.
If the buyer gets exempted, he/she has to provide a duplicate copy of the declaration to the seller, who, in turn, will then submit the form to the authorities.
When will a Higher TCS Rate Apply?
There are some scenarios when a seller will have to collect TCS at a higher rate:
If the period for filing ITR has passed
If the buyer hasn’t filed IT returns from the last two financial years
In case the total amount of TCS and TDS exceeds Rs. 50,000 in each of the last two financial years
TCS Provision Under GST for e-Commerce Sales
E-commerce operators, like Flipkart and Amazon, are also responsible for collecting and depositing TCS at a rate of 1% for each transaction (0.5% CGST, 0.5% SGST). The rate of tax is applicable to the net sales of goods and services.
Let’s understand this with an example.
Mr. X is a trader who receives an order of Rs. 50,000 from Flipkart. Here, Mr. X is the seller and the e-commerce operator is the buyer. As per GST regulations, Flipkart will have to deduct TCS on the amount payable to Mr. X.
This means that any trader selling goods on the e-commerce platform would get the payment from the online platform after the deduction. This tax would have to be deposited to the government by the 10th of the next month.
Here, it must be noted that the trader has to be registered under GST and have a valid GSTIN.
Electronic TCS - What is e-TCS?
The process of filing TCS returns through electronic media is referred to as e-TCS. Since FY 2004-2005, it has become compulsory for corporate and government collectors to file TCS returns in electronic format. Collectors belonging to other categories, however, have the option to file the return in paper format as well.
The National Securities Depository Limited (NSDL) is in charge of collecting the e-TCS returns from the collectors.
What is the Difference between TDS and TCS?
The full form of TDS is Tax Deducted at Source. Just like TCS, TDS is also a tax collection mechanism in India where the tax payable is deducted from payments made to individuals and entities. On the other hand, TCS deals with collection of tax from the buyer and depositing the same to the Government.
Discussed below are some of the key differences between the two types of taxes:
TDS is deducted at the time of payment, while TCS is collected at the point of sale.
TDS is deducted by the person who makes the payment, while TCS is collected by the person who collects the payment from the buyer.
TDS is applicable on payments made to individuals; however, TCS is applicable on transactions related to certain goods.
How is TCS related to the LRS policy?
Effective 1st October, 2023, the Government of India has introduced a TCS rate of 20% on foreign remittances made through the Liberalised Remittance Scheme. The tax rate is applicable on transactions exceeding Rs.7 lakhs in a particular fiscal year.
LRS allows Indian citizens to freely remit up to $250,000 to foreign countries in a single fiscal year without any permission required. A value exceeding this would require approval from the Reserve Bank of India.
Key Takeaways
Timely collection and payment of taxes are crucial for both parties involved in a transaction. To avoid unnecessary penalties due to delayed or incorrect tax filings, it is important to understand the significance of each document and file the relevant forms within the prescribed due dates.
If you are looking for expert TCS return filing assistance, download the TaxBuddy app today. Enjoy simplified e-filing of income tax forms along with guaranteed accuracy. With TaxBuddy, on-time and accurate filing of tax returns becomes hassle-free!
Frequently Asked Questions
Q1 Is there any penalty for filing the TCS return incorrectly?
Yes, as per Section 271H of the Income Tax Act, 1961, you might have to pay penalties if you file incorrect tax returns. The minimum amount of penalty is Rs. 10,000, which can go up to a maximum of Rs. 1,00,000.
Q2 What happens if TCS is collected by the seller but not deposited?
If the seller collects the TCS but doesn’t deposit it, it can lead to legal repercussions. TCS is a tax collection mechanism where the seller holds the responsibility to deposit the tax collected at the point of sale of specific goods. Failing to deposit the tax amount to the government can lead to interest charges, penalties, and even legal issues under income tax laws and regulations.
Q3 Do sellers collect TCS inclusive of GST?
As per the income tax laws, the seller is required to collect TCS while debiting the amount payable from the buyer’s account. The amount received would definitely have the GST amount included. Hence, sellers have to collect TCS inclusive of GST.
Q4 What happens if I file my TCS returns late?
For late filing of TCS return to the tax authorities, you will have to pay a fine of Rs.200 for each day of the default period. In addition to the fine, you might also be liable to pay interest on the outstanding tax amount.
Q5 Does Form 26AS contain TCS details for the buyer?
Yes, Form 26AS contains details of Tax Collected at Source (TCS) by the seller of specified goods when the seller sold you such goods. The details include the TCS amount, date of transaction, details of the seller, etc.
Q6 Is TCS applicable on the purchase of a second-hand car?
Yes, TCS is applicable to transactions involving motor vehicles, even if it is a second-hand car. However, it is only applicable if the value of the transaction exceeds Rs. 10 lakhs. In this case, a TCS rate of 1% would be applicable.
Q7 How is TCS collected for foreign exchange?
Effective from 1st October, 2023, forex card transactions will attract TCS at a rate of 20% if the usage goes over Rs. 7 lakhs in a particular financial year. However, there is no TCS on international credit cards.
Q8 Who needs to pay TCS under GST?
As per the GST rules and regulations, every e-commerce operator needs to collect 0.5% TCS as CGST and another 0.5% as SGST, which means the total tax rate is 1%. If the transactions are inter-state, 1% of TCS would be applicable under the IGST Act.
Q9 What happens if seller fails to collect TCS?
If the seller who is responsible for collecting the tax and depositing it to the authorities does not collect the tax, then he/she will have to pay interest at the rate of 1% per month or part of the month. Additionally, he/she will also have to pay the due tax amount that he/she has failed to collect.
Q10 What is a foreign remittance?
Foreign remittance is the amount of money that an individual, organization or business transfers from one country to another for reasons ranging from trading, investments or personal use. Individuals who transfer money abroad for travel, investments, etc., are liable to pay TCS.
