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 Tax Collected at Source 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 Tax Collected at Source:

  • 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 Tax Collected at Source and deposit the same to the Income Tax Department. 

Mr Abhinav can claim the credit of the Tax Collected at Source 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%
Tendu leaves 5%
Timber wood by any other mode than forest leased 2.50%
A forest produce other than Tendu leaves and timber 2.50%
Scrap 1%
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 Tax Collected at Source @ 5% or twice the normal rates, whichever is higher. 

When will a higher rate of TCS apply?

As per Section 206CCA, a seller will collect TCS at a higher rate in the following situations:

  • If a buyer hasn’t filed Income Tax Returns for the previous two financial years before the year of TCS collection
  • In case the total amount of Tax Collected at Source and Tax Deducted at Source exceeds Rs. 50,000 in each of the two financial years
  • If the period for filing ITR has passed

Special cases

Given below are details of provisions applicable from 2020:

Section 206C (1G) (a): TCS on foreign remittance through Liberalised Remittance Scheme

  1. An authorised dealer should collect TCS at 5% for remittance from outside India if his aggregate amount is Rs. 7 lakh or more in a said financial year. This is given under Liberalised Remittance Scheme (LRS) of RBI.
  2. In non-PAN or Aadhaar cases, the applicable rate is 10%.

Section 206C (1G) (b): TCS on the selling of overseas tour package

  1. Upon receiving money from buyers, sellers of foreign tour program packages should collect TCS at a rate of 5%.
  2. There is no limit for such transactions, i.e. a seller needs to collect TCS irrespective of the amount.
  3. The applicable rate for collecting TCS will be 10% in non Aadhaar/PAN cases.

When is TCS collected?

A seller collects it on whichever is earlier of the following two dates:

  • While debiting money payable by a buyer in the books of accounts
  • After receiving money from a buyer via cash/cheque/draft

Exemptions from Tax Collected at Source

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. 

TCS returns

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 

 

Tax Collected at Source: payments and returns

  • The amounts collected by any office of the Government are required to be deposited on the same day of collection.
  • The seller must deposit the TCS amount in Challan 281 within 7 days from the last day of the month in which the tax was collected, on a monthly basis.
  • If the tax collector who holds the responsibility for collecting the tax and depositing it to the government fails to collect the tax ,or after collecting it, refuses to pay it to the government on the due dates highlighted above, then such a tax collector will be liable to pay interest at the rate of 1% per month or a part of the month.
  • Every entity that collects tax is required to furnish a quarterly TCS return i.e in Form 27EQ with regard to the tax collected in a given quarter. Any interest on delay in TCS payment to the authorities must be paid before the return is filed.

Note: The seller must also provide the buyer with a certificate in form 27D. More on that below.

Tax Collected at Source certificate

After the successful filing of TCS returns, the IT department issues a Tax Collected at Source (TCS) certificate as Form 27D. Taxpayers (sellers) need to submit TCS certificates to buyers while filing quarterly TCS returns. Quarterly TCS returns have to be filed via Form 27EQ.

Form 27D or the TCS certificate comes with the following information:

  • TAN of seller filing the quarterly returns
  • PAN of buyer and seller
  • Names of the seller and buyer
  • Total amount of Tax collected by seller
  • Tax rate
  • Date of collection

Tax Collected at Source provisions under GST for E-commerce

The provisions are as follows:

  • With respect to online transactions, E-commerce platforms are supposed to pay traders/dealers after deducting Tax at the rate of 1% under IGST, 0.5% in CGST and 0.5% in SGST
  • Traders and dealers must register themselves under GST
  • Tax amount needs to be deposited by the 10th of the following month

Submission of Form 24G

Taxpayer needs to submit Form 24G in the following instance:

  • With respect to a government office, if a taxpayer pays the requisite amount to GoI without the required challan

Rules where TDS is deposited without challan (changes to Rule 30)

The rules are as follows:

  • If you have deposited TDS without a challan, then you must submit a statement through Form 24G to the authorised agency
  • You must submit Form 24G within 15 days of the end of the month of issue
  • Form 24G has to be submitted (i) electronically under digital signature, (ii) electronically with verification via Form 27A, and (iii) after verification via the prescribed electronic procedure
  • As the person depositing the amount, you need to furnish the Book Identification Number of each person for whom you have deposited the amount
  • Principal Director General of Income Tax (Systems) decides the process of furnishing and verifying Form 24G

Rules for instances when TCS under Section 206C is deposited without challan (changes to Rule 37CA)

Given below are applicable rules when TCS under Section 206C is deposited without challan:

  • If TCS is deposited without a challan, the person to whom the TCS collector had informed about the TCS for the purpose of depositing is supposed to submit Form 24G to the authorised agency
  • You would have to submit Form 24G within 15 days from the end of the month in question
  • For the month of March, you need to submit Form 24G by 30th April. Please note that Form 24G is supposed to be issued:
  1. Electronically with verification via Form 27A
  2. Electronically under digital signature
  3. After verification through the prescribed electronic process
  • As the person depositing the amount, you need to furnish the Book Identification Number of each person for whom you have deposited the amount
  • Principal Director-General for Income Tax (systems) specifies the process of furnishing and verification of Form 24G.

Tax Deducted at Source vs Tax Collected at Source

TDS and TCS are often confused with one another. Here’s a table highlighting the difference between the two.

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. 

 

Frequently Asked Questions (FAQs)

What are TCS exemptions?

TCS exemptions are applicable if a buyer procures goods for processing, manufacturing and production and not for the purposes of trading. There are also exemptions if the goods are being used for personal consumption.

Should sellers collect TCS on an amount inclusive of GST?

According to income tax law,​ the seller is required to collect TCS from the buyer while debiting the amount payable to the buyer’s account, or when the seller receives such an amount from the aforementioned buyer by any mode, whichever is earlier. So, the amount debited to the buyer’s account or payment received by the seller would include VAT/excise/GST. Hence, as a seller, you must collect TCS inclusive of GST.

What happens in the case of late filing of TCS return?

If you fail to file the TCS return on or before the due date prescribed in the income tax law, you will have to pay a fee of Rs.200 per for as long as the failure continues. However, the amount of late fees cannot be more than the TCS dues. Moreover, you would be required to pay the late filing fees before you file the TCS return. Rs. 200 per day is a fee for the late filing of TCS returns, and not a penalty.

Are there penalties in the case of incorrect TCS return filing?

If the tax collector files an incorrect TCS return, then they would be liable to pay a penalty under Section 271H of the Income Tax Act. The minimum amount of the penalty is Rs. 10,000 and the maximum amount is Rs.1,00,000.

Does Form 26AS contain my TCS details?

Yes. Form 26AS contains details of Tax Collected at Source (TCS) by the seller of specified goods when the seller sold you such goods. Form 26AS displays the details of the seller, as well as the TCS amount, and the transaction on which tax was collected.

If a buyer has a PAN and has not filed Income Tax Returns for last two years and the seller deducts TCS @ 5%, can the buyer recover this TCS later?

Yes. The buyer has the provision to adjust the TCS at the time of making a payment towards self-assessed tax liability in further assessment years.

Why was tax collected at source introduced?

The provisions of collecting tax at source were brought into force because of the difficulties that the Income Tax department was facing in assessing the income of assessees who were party to contracts for the sale of liquor, scrap, forest products, etc. Legal entities like firms or Association of Persons (AOPs) would usually be set up for such contracts, but after signing it, there would be no way of attributing taxable income generated out of these contracts to any entity. So, to combat large scale tax evasion by income tax assessees in partaking such contracts, Section 206C of TCS was introduced.

What is tax collected used for?

The tax collected at the source is just like income tax revenue collected in advance by the Income Tax Department. It acts as a source of revenue for government bodies to undertake projects for social welfare and for the development of the country.

Author

A potterhead finding magic in words | Content Marketer @ RazorpayX

Write A Comment