Tax Collected at Source (TCS): Rates, Payment, and Exemption (2024)

Tax Collected at Source (TCS) is a crucial mechanism under the Indian Income Tax Act that ensures tax compliance at the initial point of sale. It is a preemptive tax collection strategy where the seller collects tax from the buyer at the time of sale. This system primarily targets business and trading transactions and helps in tracking and managing tax liabilities effectively. This article provides a comprehensive overview of TCS, including its rates, payment procedures, exemptions, and more.

Table of Content

What is Tax Collected at Source (TCS)?

Tax Collected at Source (TCS) is the tax collected by the seller from the buyer during the sale of specified goods. This provision is governed by Section 206Cof the Income-tax Act. The seller collects a specified percentage of tax from the buyer, which is then deposited with the tax authorities. For example, if a box of chocolates costs INR 100, and the applicable TCS is INR 20, the buyer pays INR 120 in total. The seller then deposits the collected TCS with an authorized bank branch.

Who Can Collect TCS?

TCS can be collected by certain categories of sellers on specific goods. Eligible sellers include:

A buyer is defined as a person who obtains specified goods through sale, auction, or tender.

When Should TCS be Collected?

TCS must be collected at the earlier of the following two dates:

For motor vehicle sales, TCS is collected upon receipt of money or consideration for the vehicle from the buyer.

TCS Rates for Specific Goods

TCS rates vary based on the type of goods being sold. Here are the rates for some specific goods:

Higher TCS Rates Application

Higher TCS rates apply under certain conditions, as per Section 206CCA. These conditions include:

In such cases, the higher TCS rate will be the higher of two times the rate specified or 5%.

Classification of Seller for Tax Collected at Source

Specific entities are classified as sellers eligible to collect TCS:

Classification of Buyers for Tax Collected at Source

Certain buyers are exempted from TCS collection. These include:

Example of TCS Calculation

Consider a buyer purchasing a car worth INR 11 lakh from a showroom. The applicable TCS at 1% would be INR 11,000. Hence, the total amount payable by the buyer would be INR 11,11,000.

TCS Payments and Returns

TCS payments must be deposited using Challan 281 within 7 days from the end of the month in which the tax was collected. The tax collector must submit a quarterly TCS return using Form 27EQ. Any interest for late payment of TCS is charged at 1% per month or part thereof.

TCS Certificate

Upon filing the quarterly TCS return, the tax collector must issue a TCS certificate in Form 27D to the purchaser. This certificate includes details like the seller and buyer's names, TAN and PAN, total tax collected, date of collection, and the rate of tax applied. The certificate must be issued within 15 days from the filing date of the TCS return.

TCS Exemptions

TCS is exempted in the following cases:

TCS Provision under GST for E-commerce Sales

For e-commerce transactions, a 1% TCS (0.5% CGST and 0.5% SGST) is deducted by the e-commerce platform and deposited with the government by the 10th of the following month. All dealers/traders selling goods online must be registered under GST.

TCS Provision in Foreign Remittance Transactions

TCS applies to foreign remittances under the Liberalised Remittance Scheme (LRS). The rate for most remittances, excluding those for education and medical purposes, increased from 5% to 20% in Budget 2023, effective from 1 October 2023. Taxpayers can claim TCS deductions as refunds or credits against their tax liabilities.

Submission of Form 24G

In cases where TCS or TDSis deposited without a challan, Form 24G must be submitted to the agency authorized by the Principal Director of Income Tax (Systems) within 15 days from the end of the relevant month. For March, it should be submitted by 30 April.

Interest and Penalties

If a tax collector fails to collect or remit TCS on time, an interest charge of 1% per month or part thereof applies. Additionally, incorrect filing of TCS returns can attract a penalty ranging from INR 10,000 to INR 1,00,000 under Section 271H.

Differences Between TCS and TDS

TCS and TDS serve different purposes. TCS is collected by the seller at the time of sale of specific goods, while TDS is deducted from various payments like salaries, interest, and professional fees. TDS applies when payments reach a certain threshold, whereas TCS is collected regardless of the payment amount.

FAQ

Q1. Should sellers collect TCS on an amount inclusive of GST?

Yes, TCS should be collected on the amount inclusive of GST.

Q2. What are the consequences of late filing of TCS return?

A fee of INR 200 per day is applicable for late filing, up to the total TCS amount.

Q3. Is there any penalty for incorrect filing of the TCS return?

Yes, a penalty between INR 10,000 and INR 1,00,000 can be levied for incorrect filing.

Q4. Can I check my TCS in Form 26AS?

Yes, Form 26AS displays details of TCS collected by the seller.

Q5. The buyer has not filed IT returns for the last two years. Can they recover the TCS later on?

Yes, the buyer can adjust the TCS while paying their tax liabilities in later assessment years.

Q6. Is tax collected at source refundable?

Yes, TCS is refundable and can be adjusted against tax liabilities.

Q7. Why was tax collected at source introduced?

TCS was introduced to prevent tax evasion in transactions involving liquor, scrap, forest products, and so on.

Q8. What is tax collected used for?

TCS is used for national development, including infrastructure, education, and uplifting backward sections of society.

Q9. Is TCS deduction on LRS transaction a regulatory requirement?

Yes, TCS on LRS transactions is mandatory as per the Income-tax Act.

Q10. Is TCS applicable on remittances from Domestic account to NRO account?

Yes, TCS applies if the transfer is under LRS, such as loans or gifts to NRIs.