What is TCS (Tax collected at source)?
TCS or Tax Collected at Source, is an Indian tax mechanism where sellers are required to collect tax from buyers during certain transactions. This collected tax forms a part of the buyer’s income tax, which can be reclaimed when filing their annual tax returns. The rule applies to various sellers, including individuals, companies, and governmental entities, while certain buyers, such as public sector companies, are exempt. Understanding TCS is crucial for compliance and making the most of its benefits in tax filings.
What is tax collected at source:
TCS is a legal provision that compels the seller to collect tax from the payer on the sale of certain goods and services. TCS is not an additional or separate tax but is a part of the income tax payments, which the buyer can later claim credit for when filing their annual income tax returns. To understand how TCS works, let’s consider the example
Imagine you are indulging in the ultimate getaway, booking an overseas tour package that comes to a lavish INR 20 lakh, plus TCS, which is calculated on the excess amount. Since your spending is beyond the INR 7 lakh threshold, TCS will be charged at 5% on the first INR 7 lakh and 20% on the remaining INR 13 lakh. That adds up to INR 2,60,000 as TCS (INR 35,000 for the first INR 7 lakh and INR 2,25,000 for the remaining INR 13 lakh). Therefore, the total payment is INR 22,60,000.
Defining the Seller
In the context of TCS, the ‘seller’ is not just limited to a person or entity that engages in the sale of goods or services in the conventional sense. The definition is expansive and includes:
- Central and State Governments
- Public Sector Companies
- local Authority
- Companies registered under the Companies Act
- Statutory corporation or Authority
- Partnership firms
- Cooperative society
- Individuals or a Hindu Undivided Family (HUF) selling goods or services specified under Section 206C.
Understanding the Buyer
The term ‘buyer’ refers to any person who pays to obtain goods or rights in goods from the seller. Only a few must pay tax such as Individual consumers, businesses, manufacturers, traders. TCS is not necessary for the following buyers:
- Public sector companies
- Central government
- State Government
- Embassy or High commission
- Consulate & Trade representative foreign nation
- Social and Sports Clubss
|Sl. No.||Nature of Goods||Rate|
|1.||Alcoholic Liquor for Human Consumption||1 %|
|3.||Timber obtained under a forest lease or any other mode than forest lease||2.5%|
|4.||A forest produce other than Tendu leaves and timber||2.5%|
|6.||Minerals like Lignite, Coal and Iron ore||1%|
|7.||Purchase of Motor Vehicle Exceeding Rs. 10 Lakh||1%|
|8.||Parking Lot, Toll Plaza, Mining and Quarrying||2%|
|9.||Overseas Tour Program Package more than Rs. 7 Lakh||5%|
|10.||Remittance under (Liberalised Remittance Scheme) LRS for education loan taken from financial institution||0.5 %|
TCS Return Due Dates
|Quarter||Period||Due Date for TCS Return Filing|
|Q1||1st April – 30th June||15th July|
|Q2||1st July – 30th September||15th October|
|Q3||1st October – 31st December||15th January|
|Q4||1st January – 31st March||15th May|
The penalty provisions related to Tax Collected at Source (TCS) under the Indian Income Tax Act, Here’s a breakdown of the consequences for not adhering to the TCS regulations:
- Failure to Collect TCS
- Interest for Delayed Payment (under Section 220(2) of the Income Tax Act)
- Penalty for Late Filing of TCS Return
- Penalty for Incorrect Information in TCS Return
- Prosecution for Failure to Collect or Pay TCS (Section 276B of the Income Tax Act )
Certificates for Tax Collected at Source
The TCS (Tax Collected at Source) certificate is a crucial document that sellers are required to provide to buyers under the Indian Income Tax Act. Issued in Form 27D,
- Engage in a TCS-Applicable Transaction: Participate in a transaction such as purchasing a car or jewelry that is subject to TCS.
- Make Payment Including TCS: Complete the payment for the purchase, which includes the applicable TCS amount.
- Receive TCS Certificate: Obtain the TCS certificate, Form 27D, from the seller within the prescribed time after the TCS is collected.
- Securely Store TCS Certificate: Keep the TCS certificate safe as it will be required for claiming TCS credit when filing income tax returns.
- Claim TCS Credit:While filing your income tax returns, claim the credit for the TCS paid.
- Claim Refund if Applicable: If the TCS paid exceeds your tax liability, file for a refund of the excess amount.
- Verify Form 26AS: Ensure that the TCS amount collected is accurately reflected in your Form 26AS.
- Seek Rectification if Necessary: If there are any discrepancies, contact the seller for rectification or to address the issue.
key exemptions from TCS
- Transactions Below Threshold
- Specified Buyers
- Personal Consumption
- Lower TCS for Certain Categories – For remittances under the Liberalised Remittance Scheme (LRS)
- Nil TCS – If the buyer obtains a certificate for collection at a lower or nil rate
- Export Transactions
TCS, or Tax Collected at Source, is an integral tax mechanism in India that ensures taxes are collected upfront on certain transactions. Understanding the specifics of TCS, from identifying when it’s applicable to knowing the exemptions and compliance requirements, is essential for taxpayers to manage their duties effectively. By staying informed and adhering to the TCS regulations, taxpayers can avoid penalties, smoothly file their returns, and rightfully claim any tax credits.
Frequently Asked Questions
TCS, or Tax Collected at Source, is governed by Section 206C of the Indian Income Tax Act. It requires sellers to collect tax from buyers on certain transactions and remit it to the government.
The payer deducts TDS (Tax Deducted at Source) from the payee’s earnings, while TCS (Tax Collected at Source) is collected by the seller from the buyer at the time of sale, as per sections 192-194 of the Income Tax Act for TDS and section 206C for TCS.