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Tax Collected at Source (TCS) was introduced under section 206C of the Income Tax Act, 1961 to curb tax evasion and money laundering by the Income Tax Department.
Read on to know everything about TCS and its impact on your business.
What is Tax Collected at Source (TCS)?
Section 206C of the Income Tax Act demands sellers of certain ‘specified goods’ to collect tax from the buyers over and above the sale price of the goods; this tax is defined as tax collected at source. It is the seller’s liability to deposit this amount collected by the buyer with the government within the prescribed deadline.
These organizations and persons are classified as sellers under section 206C –
- Central Government
- State Government
- Local Authority
- Statutory Corporation or Authority
- Company registered under the Companies Act
- Partnership firms
- Co-operative Society
- Any person or HUF is liable to get his accounts audited under the Income-tax act
A buyer is classified as a person who obtains the specified goods through sale, auction, tender, or any other way. However, the following buyers are kept outside the purview of TCS:
- Public Sector Companies
- Central Government
- State Government
- Embassy of High commission
- Consulate and other Trade Representative of a Foreign Nation
- Clubs such as Sports clubs and Social Clubs
- The local authority for the purchase of a vehicle
How is Tax Collected at Source calculated?
Let’s say Mr Abhinav buys jewellery worth Rs 45 lakh. The shop will charge Mr Abhinav an additional 1% of his purchase value as TCS and deposit the same to the Income Tax Department.
Mr Abhinav can claim the credit of the TCS amount paid while computing his business income tax liability for the assessment year via 26-AS.
Tax Collected at Source (TCS) rate chart
Apart from the below-mentioned goods, TCS shall not be applicable on the purchase of any other goods.
|Goods||Rate of TCS to be deducted|
|Liquor of alcoholic nature, made for consumption by humans||1%|
|Timber wood under a forest leased||2.50%|
|Timber wood by any other mode than forest leased||2.50%|
|A forest produce other than Tendu leaves and timber||2.50%|
|Minerals like lignite, coal, and iron ore||1%|
|Bullion that exceeds over Rs 2 lakhs/ Jewellery that exceeds over Rs 5 lakh||1%|
|Purchase of motor vehicle exceeding Rs 10 lakhs||1%|
|Parking lot, toll plaza and mining and quarrying||2%|
Note: If the buyer fails to furnish his PAN, he shall be liable to pay TCS @ 5% or twice the normal rates, whichever is higher.
Exemptions from TCS
No collection of TCS shall be made in cases where the goods are for personal consumption. The buyer finishes a declaration that the goods so purchased are not for trading. Instead, they are to be used in manufacturing, production, and processing.
However, the buyer shall furnish one copy of such declaration to the Chief Commissioner of Income Tax or the Commissioner of Income Tax before the 7th of the next month.
The deductor of TCS, i.e., the seller must file a quarterly return in the form of Form 27EQ online on or before the 15th of the next month from the close of each quarter.
|Quarter||Last date of filing|
|1st Quarter||15th July|
|2nd Quarter||15th October|
|3rd Quarter||15th January|
|4th Quarter||15th May|
Note: The seller must also provide the buyer with a certificate in form 27D.
TDS vs TCS
TDS and TCS are often misunderstood; here’s a distinctive difference between them.
|Basis of difference||TDS||TCS|
|Definition||TDS is tax deducted at source by any company or individual making a payment if the payment exceeds the thresholds mentioned under respective sections.||TCS is a tax collected by the seller, at the time of sale.|
|Liability to deduct||It’s the liability of the buyer of goods and services to deduct TDS||The seller recovers TCS|
|Nature||TDS is an expense||TCS is an Income|
|Applicability||TDS is deducted on contractors’ payments, professional fees, commission, salary, rent, brokerage, interest, etc.||TCS is collected on the sale of specified goods mentioned above.|
We hope this helped you understand everything about TCS. Subscribe to our weekly newsletter to stay updated about all the recent tax changes & their effect on your business.