Tax Collected at Source (TCS)
Tax Collected at Source (TCS)
Tax Collected at Source (TCS) is a tax payable by a seller, which is collected from the buyer at the time of sale of specified goods. Section 206C of the Income Tax Act lists the goods on which TCS must be collected. Buyers can claim credit for TCS when filing their Income Tax Returns (ITR), so the seller is not responsible for refunding it directly. In this article, we will explore TCS in detail.
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Tax Collected at Source (TCS) is a tax levied by the seller on the buyer during a sale transaction. The seller collects this tax from the buyer and then remits it to the government; the seller does not bear the cost of this tax.
TCS applies only to specific goods or transactions, such as trading timber, minerals, and other designated items. It allows the Indian government to collect income tax revenue directly at the source of the transaction.
Applicability of TCS
Under Section 206C of the Indian Income Tax Act, specific goods and services are identified for applying Tax Collected at Source (TCS). TCS obligations arise only if the seller or buyer falls within the specified categories outlined in the tax legislation.
Sellers face penalties if they fail to collect and remit TCS to the relevant authorities by the stipulated deadline. Conversely, buyers whose income falls below the tax exemption threshold can claim a refund of TCS by filing their income tax return.
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Classification of Sellers for Tax Collected at Source
Certain entities are designated as sellers to collect tax at source (TCS). Only these specific types of organizations are authorized to collect TCS from buyers:
- Statutory Corporations or Authorities
- Companies
- Co-operative Societies
- Local Authorities
- Partnership Firms
- State Government
- Central Government
- Any individual or Hindu Undivided Family (HUF) subject to account audits under Section 44AB of the Income Tax Act
Classification of Buyers for Tax Collected at Source
In Tax Collected at Source (TCS), a buyer is defined as any individual or entity that acquires goods or even the rights to receive goods through a sale, auction, tender, or similar means. All buyers are obligated to pay the seller for TCS. However, certain entities are exempt from this taxation:
- Embassies and High Commissions
- Central Government
- State Government
- Public Sector Enterprises
- Consulates and other Trade Representatives of Foreign Nations
- Sports Clubs and Social Clubs
- Buyers acquire goods for manufacturing or power generation purposes rather than trading.
Goods Covered Under TCS Provisions
Below is the list of goods and services that fall under the Tax Collected at Source (TCS) provisions:
- Alcoholic liquor (including Indian-made Foreign Liquor)
- Forest produces (other than timber and tendu leaves)
- Scrap
- Tendu leaves
- Timber wood obtained from a leased forest area
- Timber wood obtained by any mode other than a forest lease
- Minerals such as iron ore, lignite, or coal
- Bullion exceeding Rs. 2 lakhs/Jewelry exceeding Rs. 5 lakhs
- Motor vehicle purchases over Rs. 10 lakhs
- Parking lot tickets, Toll Plaza, Mining and Quarrying
These goods are only subject to TCS provisions if the transactions involve trading, defined as buying items from one party and selling them to another. The tax is collected by the seller at the point of sale. However, if transactions are conducted for processing, manufacturing, or producing other goods, TCS does not apply.
Exemptions from Tax Collected at Source (TCS)
Tax Collected at Source (TCS) includes provisions for exemptions under two specific scenarios:
Option for Lower TCS Rate
Buyers may apply to the Assessing Officer (AO) for a reduction in the TCS rate. This process involves submitting Form 13, in which the buyer must justify that the goods purchased are for personal use and that a lower TCS rate is warranted based on their income level. If the AO finds the request reasonable, a certificate specifying the reduced TCS rate will be issued.
Total Exemption from TCS
Buyers can also seek total exemption from TCS by submitting Form 27C. This exemption applies if the buyer can substantiate that the purchased goods are intended for use in manufacturing or production processes rather than for trading purposes. Upon approval, the buyer must provide a duplicate copy of this declaration to the seller, who is responsible for submitting it to the relevant authorities.
When is Tax Collected at Source (TCS) Collected?
TCS is collected by the seller from the buyer at the earlier of these two occurrences:
- Upon receipt of payment from the buyer, whether by cash, cheque, or draft.
- When the amount payable by the buyer is debited to the seller’s books of accounts.
For transactions involving the purchase of motor vehicles, TCS is collected when the seller receives the payment. This means the tax is included in the total price the buyer pays at the time of purchase.
It is important to note that TCS applies only if the cost of the motor vehicle exceeds Rs. 10 lakhs. After the tax is collected, the seller must deposit the TCS with the government before the end of the month.
TCS Rates in India for FY 2023-24
The Tax Collected at Source (TCS) rates vary depending on the type of goods or transactions. The applicable rates for the current fiscal year are as follows:
| Nature of Goods/Transaction | TCS Rate |
| Timber wood purchased 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 lots, toll plazas, mining, and quarrying | 2% |
| Sale of goods where total value exceeds Rs.50 lakhs (applicable only if the total sales/turnover of the seller exceeds Rs.10 crores during the FY) | 0.1% |
| Sale of motor vehicles valued over Rs.10 lakhs | 1% |
| Transactions involving bullion over Rs. 2 lakhs or jewellery over Rs. 5 lakhs | 1% |
| Foreign remittance under the Liberalized Remittance Scheme for education or medical treatment | NIL if less than Rs.7 lakhs, 20% if over Rs.7 lakhs |
| Foreign remittance from an education loan | NIL up to Rs.7 lakhs, 0.5% if over Rs.7 lakhs |
| Foreign remittance for other purposes | NIL up to Rs.7 lakhs, 20% if over Rs.7 lakhs |
| Overseas tour package | 5% if the value is less than Rs.7 lakhs, 20% if the total value exceeds Rs.20 lakhs |
TCS Payments
Tax Collected at Source (TCS) must be diligently managed by collectors. Depositing any TCS amounts collected by government offices on the same collection day is required. Other collectors must deposit the TCS amount using Challan 281 within seven days after the last day of the month during which the TCS was collected from the buyer.
Penalties for Delay in TCS Collection and Deposit
If there is a failure to collect or deposit the tax, or if the collected tax is not deposited, the collector is liable to pay interest at a rate of 1% per month or part of a month during which the delay continues.
Due Dates for TCS Payments
The rules stipulate that every collector must submit TCS amounts on specific deadlines, depending on the quarter in which the tax was collected.
- For the quarter ending June 30, TCS must be deposited monthly by the 7th of the following month.
- For the quarters ending September 30, December 31, and March 31, the due dates for depositing TCS are October 15, January 15, and May 15, respectively.
TCS Returns – Form 27EQ
Tax collectors must file quarterly TCS returns using Form 27EQ, reflecting the taxes collected during that quarter. Any outstanding interest payments due to delays must be cleared before submitting this form.
TCS certificate – Form 27D
After filing the quarterly TCS return, collectors must issue a TCS certificate to the buyer using Form 27D, which includes the following details:
- Names of the seller and buyer
- Tax Deduction and Collection Account Number (TAN)
- Permanent Account Number (PAN)
- The total tax collected
- The date of collection
- The TCS rate applied.
This certificate must be issued within 15 days of filing the quarterly return.
Importance of TCS Certificate
The TCS certificate, known as Form 27D, is a crucial document that must be issued within a week of the last day of the month in which the seller paid the TCS. If multiple certificates need to be issued to a particular buyer within a fiscal year, a consolidated certificate can be issued within a month of the last day of the financial year.
Form 27D serves as proof of tax collected at the source and is necessary for the buyer to claim tax credits. If the certificate is misplaced, the collector can issue a duplicate, which must be duly attested, ensuring the buyer still has access to crucial tax documentation.
TCS Compliance Calendar
The due dates for TCS payments, submissions of Form 27EQ, and issuance of Form 27D are presented in a table format for clear reference:
| Quarter Ending | Due Date to Deposit TCS | Due Date to Submit Form 27EQ | Due Date to Generate Form 27D |
| Jun-30 | 7th of every month | Jul-15 | Jul-30 |
| Sep-30 | Oct-15 | Oct-15 | Oct-30 |
| Dec-31 | Jan-15 | Jan-15 | Jan-30 |
| Mar-31 | May-15 | May-15 | May-30 |
How to Deposit Tax Collected at Source (TCS)
To ensure compliance with the tax regulations, sellers must deposit Tax Collected at Source using Challan 281. This can be done online and offline and must be completed within seven days from the end of the month the TCS was collected.
Online Deposit:
- Visit the official website of the Income Tax Department.
- Go to the TDS/TCS section and select Challan No./ ITNS 281.
- Please complete the required details on the challan, including the deductee’s name, type of payment, details of the goods or services, payment mode, assessment year, TAN details, and other relevant personal information.
- Submit the form and proceed to make the payment online.
Offline Deposit:
- To deposit TCS offline, the seller must visit the nearest authorized bank branch.
- Submit the completed Challan 281 at the bank.
- The bank will issue a receipt once the challan is processed.
Understanding Form 24G
Form 24G is utilized when depositing TCS under section 206C of the Income Tax Act, particularly when no challan is used, in accordance with Rule 37CA of the Income Tax Rules, 1962. Here are the key details regarding Form 24G:
Timelines for deposit:
- Government offices: TCS must be deposited on the same day when no challan is used or within seven days from the end of the month if a challan is employed.
- Non-government collectors: TCS should be deposited within one week from the last day of the month of collection.
Additional requirements for Form 24G:
- Submission deadlines:Form 24G must be submitted within 15 days from the end of the relevant month. The deadlines vary for the month of March compared to other months.
- Submission methods: Options include digital signature, verification via Form 27A, or through an electronic process.
- Form details: The form should include the amount collected, collector information, TAN, and other relevant data.
- Consult official rules: It is essential to stay updated with the official guidelines to ensure accurate and compliant procedures.
Form 24G facilitates the proper reporting and depositing of TCS when a challan is not used, helping streamline tax collectors’ administrative processes.
When will a Higher TCS Rate Apply?
Sellers are required to collect TCS at a higher rate under certain circumstances:
- Past Due ITR Filing: If the deadline for filing the Income Tax Return (ITR) has lapsed.
- Non-filing of IT Returns: If the buyer has not filed IT returns for the previous two financial years.
- High TCS/TDS Amounts: If the combined total of TCS and TDS exceeds Rs. 50,000 in the last two financial years.
The law mandates an increased TCS rate to ensure compliance and proper tax collection in these scenarios.
How do you claim a refund for tax collected at Source (TCS)?
Buyers who earn less than the basic tax exemption limit but have had TCS charged by a seller during a specific financial year can claim a refund for the TCS amount paid. This excess deduction is refundable, but the buyer must file an income tax return to initiate the refund process.
To successfully claim a TCS refund, the buyer should correctly fill out the relevant sections of the Income Tax Return (ITR) form and attach the necessary documentation. This includes the TCS certificate provided by the seller and proof of the transaction.
TCS is recorded in Form 26AS as a tax credit, which the buyer can claim against their tax payable. Additionally, TCS can offset the amount due when filing advance taxes, providing further financial flexibility for the taxpayer.
Differences Between TDS and TCS
Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are both mechanisms for tax collection in India. Still, they apply at different points in financial transactions and cover different types of payments:
| Feature | TDS | TCS |
| Point of Taxation | Deducted at the time of payment | Collected at the point of sale |
| Collector | Deducted by the payer (person making the payment) | Collected by the seller (person receiving payment from the buyer) |
| Applicability | Applicable on salaries, professional fees, rent, interest, etc. | Specifically, it targets transactions involving certain goods like alcoholic beverages, tendu leaves, scrap, etc. |
For more information on Tax Deducted at Source (TDS), refer to our detailed article on TDS.
Conclusion
Timely collection and payment of taxes are crucial for both parties involved. To avoid unnecessary penalties due to delayed or incorrect tax filings, it is essential to understand the significance of each document and file the relevant forms within the prescribed due dates.
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