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Tax Collected At Source

The Indian Income Tax Act has various provisions through which tax can be collected from a person. Tax deducted at source, advance tax, tax on income, and tax at source are some of the provisions, as mentioned. The tax collected at source deals with collecting tax from the buyer. However, not all, but specific transactions are covered under the provision of tax collected at source.

What is Tax Collected at Source (TCS)?

TCS stands for Tax Collected at source. The tax is collected by the seller from the buyer at the time of settlement of the bill/invoice. Here, the seller shall be the collector and buyer shall be the collectee. Section 206C (1) specifies tax to be collected at source by every person, being a seller from the buyer of goods.

What are the rates of tax under TCS?

The rates mentioned under TCS are:

  • 1%
  • 2%
  • 2.5%
  • 5%

Which goods are covered under TCS?

The goods covered under TCS are:

  • Alcoholic Liquor for consumption by humans
  • Timber wood , obtained from lease or otherwise
  • Any other Forest produce
  • Scrap
  • Mineral like coal, lignite or iron ore
  • Motor vehicle costing more than 10 lakhs
  • Parking lot, toll plaza, mining and quarrying but does not include mineral oil, petroleum, natural gas.
  • Tendu leaves/ Tobacco leaves.

It is pertinent to note that goods, as mentioned above, should not be used for manufacturing, processing or production of any other article as the same shall not attract tax collected at source. Also, transactions relating to the sale of jewellery or bullion will not attract TCS as the same shall now be covered under 269ST. Care must also be taken with regards to a transaction relating to motor vehicles, as TCS shall not be collected if the sale is made to Government, embassies, consulate, high commissions, legations, local authority or public sector company engaged in the business of carrying passengers.

What are the rates applicable for goods liable under TCS?

Nature of goodsTax rates (%)
Alcoholic Liquor for consumption by humans1%
Timber wood , obtained from lease or otherwise2.5%
Parking lot, toll plaza, mining and quarrying but does not include mineral oil, petroleum, natural gas. 2%
Scrap1%
Any other Forest produce2.5%
Motor vehicle where sale consideration is more than 10 lakhs1%
Tendu leaves/ Tobacco leaves5%
Mineral being coal, lignite or iron ore1%

Classification of Seller for TCS

The collector/seller of TCS shall include only the following persons; no other person is allowed to collect TCS. The list as mentioned is:

  • The Central Government
  • The State Government
  • Local Authority
  • Partnership firms
  • Company registered under Companies Act
  • Statutory Corporation or Authority
  • Co-operative Society
  • Individuals or HUF liable to an audit of accounts under Income tax act during financial year preceding the financial year in which such services are provided.

Classification of Buyer for TCS

A buyer is a person, who gets, in any sale, by way of auction, tender or any other mode, specified goods or right to receive any goods. However, the following shall not be included in the buyers’ category:

  • Public sector companies
  • Central Government
  • State Government
  • Embassy of High commission
  • Consulate
  • Other Trade Representation of a Foreign Nation
  • A Club such as sports clubs and social clubs

How to get the certificate of TCS?

The person collecting tax at source, i.e. the sellers, shall provide the buyers with TCS certificate in Form27D. It shall be provided within 15 days from the date of filing TCS quarterly returns.

Where a TCS certificate is lost, a duplicate certificate shall be issued. This can be done by taking a print out on plain paper and getting it attested. Details, as required in Form 27D, shall be mentioned.

Exemptions of TCS

TCS shall be exempted under the following two cases:

TCS at lower rate

Under the case as mentioned, an application shall be made to the Assessing Officer for collection of tax at lower rate. Application shall be made under Form 13 and this exemption shall be granted only if the officer is satisfied that the buyer’s total income justifies for lower rate. The officer shall issue a certificate for lower rate of collection.

Total tax exemption

A declaration shall be given by the buyer regarding non applicability of the provisions relating to TCS. Such declaration shall be made in Form 27C. It is the onus of the buyer to prove that goods are used for the purpose of manufacturing, processing or production.

TCS Payments & Returns

Provisions relating to payment of taxes and filing of returns for TCS are similar to that of TDS. The due dates for payment of taxes to the credit of Government and filing of return is as follows: Payment of tax to the Government account shall be made by 7th of the month succeeding the month in which tax is collected. The seller shall deposit the TCS with Government in Challan 281.

For Example: If tax is collected in the month of January 2019, then the same shall be paid by 7th February, 2019. Persons liable to file TCS return shall file the same in Form 27EQ. The following are the due dates for filing of return under TCS

Quarter endingDue date for filing return
30th June15th July
30th September15th October
31st December15th January
31st March15th May

Tax collected at source under goods and Service Tax (TCS under GST)

In recent times, online businesses have seen a huge growth. In order to keep a tab on these businesses or businesses conducted through online platforms, the government has introduced the concept of TCS under Goods and Service tax. However, only those transactions in which consideration is received to e-commerce operator are covered.

Under this, the following steps shall incur:

  1. Supply shall be made by a supplier
  2. Supply shall be done through Electronic commerce operator’s platform
  3. Consideration shall be received by the Electronic commerce operator.
  4. He shall collect tax at source from this consideration and then pay the balance amount to the supplier.
  • Rate applicable for collection of tax is 1%. Tax rate under CGST & SGST shall be 0.5% each and IGST shall be 1%.
  • E-commerce operators collecting tax at source shall be liable for compulsory registration under GST Act. No threshold limit is available for such operators.
  • Due date for depositing tax collected at source under GST shall be ten days from the end of the month in which such supply is made.
  • E-commerce operators have to file GSTR-8 monthly, by 10th of the next month in which tax is collected.
  • TCS shall be calculated on net value. Any returns made to supplier through e-commerce operator shall be reduced from total supplies made through such e-commerce operator.

Filing of TCS Returns

Every person collecting tax at source shall file TCS returns under form 27EQ.

Form 27EQ shall be filed quarterly. The due dates of filing the returns are:

Quarter endingDue date for filing return
30th June15th July
30th September15th October
31st December15th January
31st March 15th May

Form 27EQ shall contain the following:

  • Section 1: Basic information to be filled in by the collector
  • Section 2: Details relating to collector
  • Section 3: Details regarding person collecting the tax
  • Section 4: Details of mode of payment, tax collected, CIN etc
  • Section 5: Signature of authorized signatories.

Non-filing of TCS returns shall attract penalty of Rs. 100 per day of default during which the failure continues. However, such penalty shall not exceed amount of tax that was to be deducted. Quantum of penalty is same, if TDS certificates have not been issued or tax has not been deducted and paid as required u/s 226(2).

Frequently Asked Questions

Is it mandatory to furnish PAN by collectee?

Yes, it is mandatory for the collectee to furnish his PAN.

Whether surcharge and cess are to be added to the rates as mentioned above?

Surcharge and cess shall be added only if the purchaser, licensee or lessor is a non- resident. In the case of residents, the above-mentioned rates are flat rates.

Whether TCS is on sale of the motor car at the retail level or on sale of motor cars by manufacturers to dealers/ distributors?

TCS is only on the sale of the motor car at the retail level and not on the sale of motor cars by manufacturers to dealers/ distributors.

Whether TCS, in case of the motor car, is applicable on each sale made or on aggregate sales?

TCS in case of the motor car is applicable on each sale made and not on aggregate sales.

Whether TCS shall be collected if a taxpayer buys an elephant from the forest department in an auction sale?

Yes, TCS shall be collected in case of the auction sale of an elephant by the forest department as as defined under Central Forest Act & State Forest Act.

What is the interest liability for delay in payment of TCS?

As per Section 206C(7), if TCS is not deposited within 7 days from the end of the month in which it is collected, then interest shall be levied @ 1% per month or part of the month on amount of tax from the date on which it was collectible to the date on which such tax was actually paid.

When shall the interest be paid?

Interest for default shall be paid before furnishing the quarterly return statements of TCS.

Can TCS credit be claimed by the buyer?

TCS credit can be claimed by the buyer against his tax payable while filing his or her income tax return. If there is no tax payable, then he/she can apply for a refund of the same.

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