TCS (Tax Collected at source)

TCS (Tax Collected at source)

What is TCS:
Income tax provisions in India are dedicated at providing ample revenue to government, which the government shall use to provide better standard of living to citizens of this nation. In order to help government in smooth process of this, income tax act has provided it with provisions of tax deduction at source and tax collection at source, where tax is deposited with the government way before the actual income tax return filling. Generally, a buyer of goods or recipient of services deducts at source while making payment to seller or service provider.

However, there are certain instances when the tax is collected at Source. TCS is a mechanism under the Income Tax Act, 1961 in India which requires the collection of tax by the seller from the buyer at the time of sale of specified goods or provision of certain services. The seller then deposits this tax with the government. In simple words, seller collects tax from buyer at specific transactions. This means buyer makes payment above the purchase price to the seller. After collecting this TCS, seller deposits the same in the name of buyer with the government.

On which transactions TCS is applicable?
Income tax Act has provided a list of specified goods or transactions on which Tax is collected at source. Rates of Tax collected at source differs for every good purchased or transaction entered.

Following are the Goods or transactions on which TCS is applicable:

Sr. No.ParticularsRate of TCS in %
1Alcoholic Liquor for human consumption1%
2Tendu leaves5%
3Timber obtained under a forest lease    2.5%
4Timber obtained by any mode other than under a forest lease       2.5%
5Any other forest produce not being timber or tendu leaves     2.5%
7Minerals, being coal or lignite or iron ore*1%
8Parking lot         2%
9Toll plaza           2%
10Mining and quarrying*2%
  • “mineral oil” includes petroleum and natural gas.
  • “mining and quarrying” shall not include mining and quarrying of mineral oil.

Other transactions where TCS is applicable:-

  • Where total turnover is more than Rs.10 crore in the previous financial year and receives sale consideration of any products of more than Rs.50 lakh, such seller must collect TCS upon receiving consideration from the buyer on such amount over and above Rs.50 lakh, as per Section 206C(IH).

Rate of TCS applicable – 0.1%

(Without PAN, 1% is the rate of TCS)

  • Purchase of Motor vehicle exceeding Rs.10 lakh

 Rate of TCS applicable – 1%

There are certain instances in which a higher rate of TCS will apply as per section 206CCA, those are mentioned below:

  • Time limit to file Income Tax Return has lapsed
  • Income Tax Return is not filed for two years preceding financial year in which TCS was supposed to be deducted
  • Total of TDS + TCS was more than Rs.50,000 in each of these two financial years preceding relevant financial year

Higher rate of TCS in such cases will be highest of :-

  • Twice the rate of TCS mentioned in Income Tax Act
  • 5%

Section 206C(1G), of the Income-Tax Act, 1961 (“the Act”) provides for Tax Collection at Source (TCS) by a seller of an overseas tour program package from a buyer. 5% TCS applies where the authorised dealer arranges remittance out of India of Rs.7 lakh or more in a financial year from a buyer of foreign currency remitting under Liberalized Remittance Scheme (LRS) of Reserve Bank of India, not being the overseas tour program package.

If Aadhaar number or PAN is unavailable, then rate of TCS shall be 10%. Such TCS is collected while debiting the buyer’s account or on receipt of money.

Tax collection at source is done either at the time of debiting the amount payable by the buyer OR at the time of receipt of payment from such buyer, whichever is earlier.

Exemption from TCS:
TCS collection is exempted when:

  • Specified goods are used for personal consumption
  • Purchaser buys goods for manufacturing, processing and production purposes and not for trading purposes.

TCS Return and Payments:
TCS Payments are made in Challan 281 every month within 7 days from the last day of the month in which the tax was collected. TCS returns are submitted quarterly in form 27EQ and TCS certificate is generated in Form 27D.

It’s important for both sellers and buyers to be aware of TCS provisions to ensure compliance with the Income Tax Act and avoid any penalties or legal consequences for non-compliance. The tax collected at the source is the same as the income tax revenue collected in advance by the tax department for a financial year. Rates of TCS differs depending upon the nature of goods and transactions and not mentioning KYC details may land up a person in higher tax collection category.

About Author:

CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.

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