Tax Collected at Source [TCS]

TCS, or Tax Collected at Source, is a tax payable by the seller but collected from the buyer. The Income Tax Act, 1961 lists down all the provisions for TCS, let's discover here.

What is Tax Collected at Source

TCS full form stands for Tax Collected at Source. The purchaser is responsible for paying the TCS bill, which is collected from the lessee or buyer. Although it is the responsibility of the buyer to pay TCS, the seller is equally liable to collect the TCS duly.

To better understand the mechanism, look at an example. If a box of chocolates costs Rs. 100, the customer will pay Rs. 20 in all, with the Rs. 20 representing the tax received at the source. The money is then sent to a specific branch of a bank that has been approved to accept the payments.

The seller is only responsible for collecting this tax from the buyer; he or she is not responsible for paying it. The tax is intended to be collected while selling merchandise, making purchases, issuing a cash refund from a customer, or issuing a check or draught, whichever method is paid first. The Income Tax Act of 1961, Section 206C, makes this provision.

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TCS Applicability

- Seller Classifications of TCS 

The sellers are known as TCs for the purpose of collecting tax at the source. TCS must be collected only by these vendors. The following is a list of those vendors:

  • 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 whose accounts are being audited under the Income Tax Act for a specific financial year

- Buyer Classifications of TCS

A buyer is an individual who acquires goods of a specified nature in any certain sale or avails of a right to receive any such goods by way of a tender, auction, or any other way. A few types of buyers, including vendors, are exempted from paying tax at source to the seller:

  • Public sector companies
  • Central Government
  • State Government
  • Embassy of High Commission
  • Consulate and other Trade Representation of a Foreign Nation
  • Clubs such as sports clubs and social clubs

Goods Covered under Tax Collected at Source (TCS)

The items mentioned below can be used for two different purposes. The tax is determined by the reason for purchasing the products.

  • Trading of Goods - Since these goods are subject to duty, TCS collected at source will apply when they are used for trading purposes. Trading simply refers to the act of purchasing items from one party and selling them to another.
  • Manufacturing, Processing, or Producing Other Products - When the above-mentioned goods are used for the purpose of manufacturing, processing, or producing other goods, they are exempt from tax. As a result, no TCS is needed.

Type of Goods and Rate of TCS

Each type of product has a separate TCS tax rate:

Type of Goods Rate of TCS
Liquor of alcoholic nature, made for consumption by humans 1.00%
Scrap 1.00%
Minerals like lignite, coal, and iron ore 1.00%
Bullion that exceeds over Rs. 2 lakhs/ Jewellery that exceeds over Rs. 5 lakhs 1.00%
Purchase of Motor vehicle exceeding Rs. 10 Lakhs 1.00%
Parking lot, Toll Plaza and Mining and Quarrying 2.00%
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%
Tendu leaves 5.00%

TCS Return Due Dates

Here are the due dates to submit Tax Collected at Source-

Quarter Ending

Due date to file TCS return in Form 27EQ

Date for Generating Form 27D

30th June

15th July

30th July

30th September

15th October

30th October

31st December

15th January

30th January

31st March

15th May

30th May

Certificate of Tax Collected at Source

This certificate must be submitted in Form 27D within a week of the last day of the month in which the tax was paid by individuals or organizations that collect the tax at source. When there are several certificates to be released for a buyer for TCS within the term that ends on September 30 and March 31 for a financial year, a combined certificate will be issued within a month of the last day of the year. The customer would have to order this certificate.

If a TCS certificate is misplaced, the agency in charge of tax collection at the source may issue a new certificate that can be written and attested on plain paper that includes all of the relevant information from Form 27D.

Interest Chargeable on Non-payment

In case the tax collector who is accountable for collecting the tax and depositing it to the government fails to collect the tax or, after collecting, does not pay it to the government within the stipulated due dates, then he/she will be liable to pay interest of 1% per month or a part of the month.

Penalty for Incorrect Filing of the TCS Return

Under Section 271H, a penalty can be levied if the tax collector files an inaccurate TCS return.

A minimum penalty of Rs 10,000 and a maximum penalty of up to Rs 1,00,000 can be levied if the collector files a wrong TCS return.

TCS Exemptions

TCS is exempted-

  • When the eligible goods are utilised for completely personal consumption
  • The purchaser buys the goods for manufacturing/processing/production and not for trading those particular goods

e-TCS

The method of filing TCS returns by electronic media is referred to as e-TCS. Government and corporate collectors are required to file TCS returns in electronic format beginning with the 2004-2005 fiscal year. Other collectors have the option of filing TCS returns in either paper or electronic format.

The NSDL is in charge of collecting the e-TCS returns from the Income Tax Department’s collectors. Several TCS-specific type formats should provide all of the details needed to file TCS returns.

Difference Between TDS and TCS

  • TDS is the tax withheld from a company’s payout to an employee. TDS is deducted in this case under the Income Tax Act of 1961. TCS is obtained by the vendor as the items are sold to the buyer.
  • TCS applies to the selling of scrap, wood, tendu leaves, minerals, and other similar products. TDS is deducted from wages, interest, dividends, leases, professional fees, brokerage and commission, and other payments.
  • When a bill reaches a certain rate, TDS is deducted, while TCS is applied regardless of the payment amount. TCS is collected at a flat rate depending on the given type of product.
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