Have you recently bought a bike, car, or necklace? You feel proud and joyous. But there is a catch. You need to pay an additional tax named TCS or Tax Collected at Source besides other taxes on your purchase. And you can’t simply postpone its payment or forget about it. You have to pay it as per the relevant TCS slab rates straight away to the seller.
This article encompasses everything you need to know about TCS, from TCS slab rates, exemptions, and payment procedures to TCS compliance penalties and everything in between.
Overview of Tax Collected at Source (TCS)
TCS, or Tax collected at source, is a mechanism for acquiring tax from the buyers of specific goods and services at the point of sale. TCS applies to different items, such as minerals, liquor, scrap, motor vehicles, Jewelry, forest produce, etc. The Tax Collected at Source rates differ based on the value and nature of the transaction.
The seller is accountable for administering and submitting the tax to the Government and granting a TCS certificate to the buyer. The buyer can utilize the TCS certificate to assert credit for the tax given, which covers their income tax liability. Each clause, from Tax Collected at Source rates to its compliance, exemptions, penalties, etc., is marked under Section 206 C of the IT Act, 1961.
The Tax Collected at Source charge depends on what you are purchasing and how much it amounts to. An example will make this concept clear. Suppose you purchase a car valued more than Rs. 12 lakhs; you need to pay 1% of the cost as TCS. So, if your car costs Rs. 16 lakhs, you need to pay Rs. 16,000 as TCS to the seller, who will then transfer it to the Government.
TCS (Tax Collected at Source) Rates for FY 2023-24 (AY 2024-25) in India
Taxes accrue only when the goods are used for trading purposes and not when used for processing, manufacturing or producing things. The seller gathers the tax due at the point of sale. The TCS rate is separate for goods specified under various categories:
| Type of Goods | Tax % |
| Timber wood, when gathered from a forest that has been leased | 2.50% |
| Scrap | 1.00% |
| Tendu Leaves | 5.00% |
| Minerals that include coal lignite or iron ore | 1.00% |
| Liquor of alcoholic type, made for consumption by humans | 1.00% |
| Timber wood, when not gathered from a forest that has been leased but any different mode | 2.50% |
| Parking lot, Toll Plaza, Mining and Quarrying | 2.00% |
| A forest product other than timber and tendu leaves | 2.00% |
| Bullion that surpasses over Rs. 2 lakhs/Jewelry that goes over Rs. 5 lakhs. | 1.00% |
Where total turnover is over Rs. 10 crore in the past financial year and the seller receives sale consideration for any items above Rs. 50 lakh, the seller must accept TCS upon receiving consideration from the buyer on such sum over and above Rs. 50 lakh, according to Section 206C (IH). (Without PAN, TCS is 1 %.)
Classification of Sellers for TCS
Specific entities qualify as sellers to collect tax at source (TCS). Only these particular types of organizations are sanctioned to gather TCS from buyers:
- Companies
- Partnership Firms
- Central Government
- Local Authorities
- Statutory Corporations or Authorities
- State Government
- Co-operative Societies
- Any individual or Hindu Undivided Family (HUF) is liable to account audits u/S 44AB of the Income Tax Act.
Classification of Buyers for TCS
For Tax Collected at Source (TCS), a buyer qualifies as any entity or individual that obtains goods or also the rights to receive goods through tender, auction, sale, or identical means. All buyers are bound to pay the seller for TCS. Nevertheless, specific entities are exempt from this taxation:
- State Government
- High Commissions and Embassies
- Social Clubs and Sports Clubs
- Central Government
- Public Sector Enterprises
- Buyers receive goods for power generation or manufacturing purposes instead of trading
- Consulates and different Trade Representatives of Foreign Nations.
When is TCS Collected?
The seller acquires TCS from the buyer at the former of these two events:
Upon receipt of compensation from the buyer, whether by draft, cash, or cheque.
When the amount owed by the buyer is debited to the seller’s books of accounts. For dealings concerning the purchase of motor vehicles, TCS accumulates when the seller obtains the payment. This basically means a tax charge on the total cost the buyer will pay at the point of purchase. It must be highlighted that TCS applies if the price of the motor vehicle exceeds Rs. 10 lakh. The seller will deposit TCS with the government on or before the end of the month after it has been collected.
Higher TCS Rates Application
Under certain circumstances, higher TCS rates are applied in terms of Section 206CCA. These conditions comprise:
- The buyer has not submitted income tax returns for the past two financial years prior to the appropriate financial year.
- The total TDS and TCS cross INR 50,000 in each of these two financial years.
- The time restriction for filing the ITR has expired.
In such instances, the elevated TCS rate will be greater than twice the fixed rate or 5%.
Exemptions in Tax Collected at Source
There are two kinds of exemptions in TCS, and they are as specified.
TCS at a Reduced Rate
Utilizing Form 13, the buyer can ask the Assessing Officer to levy a decreased rate to TCS. The officer will then evaluate the total income and verify if the buyer is eligible. The Assessing Officer may offer a certificate that sets out the lower rate of TCS.
Absolute Tax Exemption
The buyer has to announce in Form 27C that he is qualified for total exemption from paying TCS. The declaration has to stipulate and prove that the products that have been declared are meant for manufacturing and processing and not trading. The entity or person collecting the tax must be provided with a duplicate copy of the declaration form, after which the collector has to deposit the declaration form to the relevant authorities within 7 days of the following day.
TCS Payments and Returns
All sums acquired by an office of the Government should be delivered on the same day of collection.
The seller delivers the TCS amount in Challan 281 within seven days from the final day of the month on which the tax was obtained (monthly).
Every tax collection must file a quarterly TCS return, Form 27EQ, for the tax collected in a specific quarter. The interest on a lapse in payment of TCS to the government should be delivered before filing the return.
TCS Certificate
After submitting the quarterly TCS return, collectors must grant a TCS certificate to the buyer utilizing Form 27D, which contains the following particulars:
- Names of the seller and buyer
- The total tax collected
- Tax Deduction and Collection Account Number (TAN)
- The date of collection
- Permanent Account Number (PAN)
- The TCS rate applied
This certificate must be granted within 15 days of submitting the quarterly return.
Penalties and Interest
If a tax collector fails to collect or remit TCS timely, an interest rate of 1% or a portion thereof applies. Moreover, inaccurate filing of TCS returns can draw a penalty varying between INR 10,000 and INR 1 00,000 u/S 271H.
TCS Tax Filing Dates
The TCS return due dates are as specified.
- For the quarter finishing June 30th: July 15th.
- For the quarter finishing September 30th: October 15th.
- For the quarter finishing December 31st: January 15th.
- For the quarter finishing March 31st: May 15th.
TCS Provision in Foreign Remittance Exchanges
TCS applies to foreign payments under the Liberalized Remittance Scheme (LRS). The rate for most remittances, excepting those for medical purposes and education, grew from 5% to 20% in Budget 2023, applicable from 1 October 2023. Taxpayers can demand TCS rebates as credits or refunds against their tax liabilities.
Key Takeaways
TCS is among the crucial provisions under the Income Tax Act that intends to broaden the tax base and boost tax collection. TCS rates are the rate at which a vendor acquires tax from the buyer on specified transactions or goods and delivers it to the government. TCS is a means of gathering tax at the source of income and guaranteeing buyer tax compliance.
Understanding TCS implications is vital because it impacts the seller and buyer’s tax liability and cash flow. If TCS is not deposited or collected properly, the buyer and seller will have to pay interest and penalties on the owed amount. So, it is recommended to be knowledgeable of the TCS provisions and abide by them diligently.
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