What is Tax Collected At Source (TCS)?

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By Hiral Vakil on March 8, 2019

Tax Collected at Source (TCS) is an income tax, collected by the seller of a specified goods, from the buyer at the time of sale of such goods. TCS is a concept where a person selling specific items is liable to collect tax from a buyer at a prescribed rate and deposit the same with the Government.

Let’s take an example to understand the concept of TCS:

Ram purchases scrap from Yash for Rs. 10,000. Here, as per the provisions of TCS Ram would be liable to pay Rs. 10,100 to Yash ( Rs. 10,000 for Scrap and Rs. 100 as TCS at the rate 1% on Rs. 10,000).

Who needs to collect TCS?

Every seller of a specified goods shall collect TCS from the buyer of the goods. TCS should be collected at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from buyer, whichever is earlier.

Following are the specified goods on which tax is collected at source under section 206C of the Income Tax Act.

  • Alcoholic Liquor for human consumption
  • Tendu leaves
  • Timber obtained under a forest lease
  • Timber obtained by any mode other than under a forest lease
  • Any other forest produce not being timber or tendu leaves
  • Scrap
  • Minerals, being coal or lignite or iron ore
  • Parking Lot, Toll Plaza, Mining and Quarrying
  • Bullion if consideration exceeds Rs. 2 lakhs or Jewellery if consideration exceeds Rs. 5 lakhs. (Or on any amount which is received in cash)
  • Sale of Cars (New and Old) when sale is above Rs. 10 lakhs.
  • Sale of any goods in cash exceeding Rs. 2 lakhs.
  • Providing any service (other than one on which TDS has been deducted) exceeding Rs. 2 lakhs.

Tax credit would be available to the buyer, for the TCS collected by the seller. This TCS can be claimed by the buyer at the time of filing income tax return.

Who is seller under TCS?

Every following person is considered as the seller for the purpose of TCS:

  1. The Central and State Government
  2. Local authority
  3. Statutory corporation or Authority
  4. Company
  5. Partnership Firm
  6. Co-operative society
  7. Individual or Hindu undivided family(HUF) if covered under section 44AB (mandatory Audit)

Who is buyer under TCS?

According to the act, Buyer means a person who obtains in any sale, by way of auction, tender or any other mode, the specified goods or right to receive any such goods but does not include:

  1. Public sector company,
  2. Central/State Government
  3. Embassy, a High commission, legation, consulate and the trade representation of a foreign state
  4. A Club
  5. A buyer in the retail sale of such goods purchased for personal consumption. Therefore goods purchased by end consumers are not covered under TCS

What is Lower Rate TCS?

The buyer of a specified product can apply to his Assessing Officer (AO) for collecting tax at a lower rate, by making an application in Form 13. Once the AO is convinced that the buyer’s total income is justifiable for the lower rate of TCS, he will issue a certificate with the lower rate of TCS specified in it.

The certificate issued by the assessing officer shall be valid till the time it is not cancelled by the assessing officer.

Who is exempt from TCS?

  • No tax will be collected from a buyer who purchases specified goods not for the purpose of trading but for the manufacturing, processing or production of goods/ article or thing.
  • In this case buyer gives a declaration for above use in duplicate in Form 27C to the seller.
  • And the seller should deliver one copy of from 27C collected from buyer to Chief Commissioner/ Commissioner of Income Tax.

Frequently Asked Questions

1. What is certificate of TCS?

It is a certificate issued by the seller collecting tax at source from the buyer. The certificate of collection of tax at source has to be submitted in Form No. 27D by seller within a week from the last day of the month in which the tax was collected.

2. How to retrieve lost TCS Certificate??

If an issued TCS certificate is lost, the person collecting tax at source may issue a duplicate certificate on plain paper, with necessary details as contained in Form-27D. The Assessing Officer (AO), before giving credit for the tax collected at source on the basis of the duplicate certificate, has to get the payment certified and obtain an Indemnity Bond from the assessee.

3. Which TDS return needs to be filed by seller?

The seller/Collector is required to file a quarterly return in form 27EQ on or before due date. The seller can file TCS return from his TRACES login or E-filing login.

4. IS TCS applicable in case of purchase of Jewellery?

In case of purchase of jewellery, tax is collected by seller if the purchase amount exceeds Rs. 5 lakhs Or when any amount is paid in cash to the jeweller.