Tax Collected at Source (TCS) is an income tax, collected by the seller of specified goods, from the buyer. 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. Section 206C of Income Tax Act specifies the detailed list of goods that are liable for TCS tax.
Let’s take an example to understand the concept of TCS:
Shreya purchases jewelry from Yash for INR 7 lakh. Here, as per the provisions of TCS tax, Shreya would be liable to pay INR 7,07,000 to Yash (INR 7 lakh for jewelry and INR 7,000 as TCS at the rate of 1%).
Who needs to collect TCS (Tax Collected at Source)?
Every seller of specified goods shall collect TCS from the buyer of the goods. TCS will be collected:
- At the time of debiting the amount payable by the buyer or
- At the time of receipt of such amount from the buyer, whichever is earlier.
Tax Collected at Source (TCS) Rates
TCS tax is collected under Section 206C of Income Tax Act. Below is the list of specific goods on which TCS is applicable along with TCS Rates:
|Collection Code||Nature of Payment||Threshold (INR)||TCS Rate|
|A||Alcoholic Liquor for Human Consumption||NA||1%|
|B||Timber obtained under a forest lease||NA||2.5%|
|C||Timber obtained by any mode other than under a forest lease||NA||2.5%|
|D||Any other forest produce not being timber or tendu leaves||NA||2.5%|
|F, G||Grant of a license, lease, etc of the Parking lot and Toll Plaza respectively||NA||2%|
|H||Grant of Mining and Quarrying||NA||2%|
|J||Minerals, being coal or lignite, or iron ore||NA||1%|
|K||Sale of Bullion||> 2 lakh||1%|
|L||Sale of the motor vehicle whether payment is received by cheque or by any other mode||> 10 lakh||1%|
|M||Sale in cash of any other goods except bullion & Jewelry||> 2 lakh||1%|
|N||Providing of any service (other than Ch-XVII-B)||> 2 lakh||1%|
|O||TCS for sale of overseas tour program package||NA||20%|
|P||TCS on remittance under LRS for an educational loan taken from a financial institution as mentioned in Section 80E||NA||0.5%|
|Q||Foreign remittance under LRS||-7 lakh in case of remittances for education and medical purpose|
-No limit in the case of other foreign remittance
|-5% in case of education and medical remittance|
-20 %in case of other foreign remittances
|R||TCS on sale of goods||NA||0.1% (1% in case of non-availability of PAN/Aadhar)|
- TCS has to be collected if the seller is an individual or HUF having turnover > INR 1 Cr for business or turnover > INR 50L for the profession.
- In case of unavailability of PAN or a resident who has not filed ITR in the last 2 AYs, the rate shall be higher of- Twice the rate in force or at the rate of 5%.
- TCS has to be collected if the seller is an individual or HUF is having a turnover of more than INR 10 crores in PY. And, the buyer must deposit TCS if the purchasing value of the goods is greater than INR 50L in a year
Tax credit in Form 26AS would be available to the buyer. The buyer can claim this TCS at the time of filing ITR. The tax credit is only available once the seller deposits the tax to the IT Department and files the TCS Return.
Who is the seller under Tax Collected at Source (TCS)?
Below is the list of sellers as per the provisions of TCS in Income Tax:
- The Central and State Governments
- Local authority
- Statutory corporation or Authority
- Partnership Firm
- Co-operative society
- Individual or Hindu undivided family(HUF) if covered under Section 44AB (mandatory Audit)
The seller/collector of TCS is responsible to file TCS Return/Statement. The seller needs to file Form 27EQ within the prescribed due dates.
Who is the Buyer under Tax Collected at Source (TCS)?
According to the act, the buyer means a person or entity who obtains goods or possesses the right to receive the specified goods via sale, auction, tender or any other mode.
However, as per the provisions of TCS in Income Tax, the buyer does not include:
- Public sector companies
- Central/State Government
- Embassy, a High Commission, a legation, a consulate, and the trade representation of a foreign state
- A Club such as a social club, sports club, etc.
- A buyer in the retail sale of such goods purchased for personal consumption.
Penalty of TCS
If the seller fails to collect the TCS and deposit the same to the Government, the seller will suffer a penalty of 1% of the total due amount.
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. The Assessing Officer (AO) will issue a lower-rate certificate. The certificate is valid until the time it is not canceled by the AO.
Who is Exempt from TCS?
- TCS is not applicable if the buyer uses it for the purpose of manufacturing, processing, or production of goods/article or thing.
- In this case, buyer gives a declaration for the above use in duplicate in Form 27C to the seller.
- And the seller should deliver one copy of from 27C collected from the buyer to the Chief Commissioner/Commissioner of Income Tax.
TCS meaning tax collected at source is a tax levied by government on specified transactions. To collect tax at source itself, a seller selling a certain item is required to collect tax from the buyer at a set rate and deposit it with the government.
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 the seller within a week from the last day of the month in which the tax was collected.
The seller/Collector is required to file a quarterly return in form 27EQ on or before the due date. The seller can file a TCS return in the following two ways:
1. Using Return Preparation Utility (RPU) provided by TIN NSDL,
2. Using online platforms like Quicko.
In case of the purchase of jewelry, tax is collected by the seller if the purchase amount exceeds INR 5 lakh or when any amount is paid in cash to the jeweler.
TCS is applicable on the purchase of a second-hand car if its value is above INR 10 lakh. TCS is applicable @ 1% on the total value.
TDS and TCS both come under Income Tax.
TDS: Tax Deducted at Source
TDS is a taxation method, where a person making a payment of specific nature is liable to deduct tax and deposit it with the government.
The rate at which TDS is deducted and paid is based on the specified based on nature of the payment.
The person making the payment is required to make deduct and deposit the TDS.
TCS: Tax Collected at Source
TCS is collected by the seller from the buyer at the time of sale made. Sellers selling any specified item are liable to collect tax at a predefined rate from the buyer the time of making a sale. This TCS collected has to be deposited by the seller with the government.
Hope this helps!
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