Similar to the Tax Deducted at Source (TDS), The Income Tax Act in India has certain provisions for tax collection at source. This is generally referred to as the Tax Collected at Source or TCS. Under these provisions, certain individuals/sellers are liable to collect a tax from their buyers. Also, transactions for which TCS is collected are mostly for business or trading activities.
Here, we will explore various sides of Tax Collected at Source.
Tax Collected at Source: meaning & definition
TCS refers to the tax collected by the sellers from their buyers on the sale of certain goods on which it is applicable. This tax, once collected, is then deposited with the tax authorities. In other words, Tax Collected at Source is the tax payable to the government by sellers who in turn, are liable to collect it from the lessee/buyer. The list of goods the sellers have to collect TCS is defined under Section 206C of the ITA.
Here, the sellers also need a Tax Collection Account Number to proceed with the collection of TCS.
List of goods covered under TCS provisions and applicable rates
The rate of TCS is different for different categories of goods, as defined below (Source: Income Tax Deptt.):
| Type of goods/transactions | Rate of TCS |
| Liquor of alcoholic nature made for human consumption | 1% |
| Leaves of Tendu | 5% |
| Timber obtained from a leased forest | 2.5% |
| Timber obtained from any other mode than a leased forest | 2.5% |
| Forest produce other than timber or tendu leaves | 2.5% |
| Scrap | 1% |
| Minerals (coal, lignite, and iron ore) | 1% |
| Motor vehicle purchases exceeding Rs. 10 lakhs | 1% |
| Mining, Quarrying, Toll Plaza, and Parking lot | 2% |
You should also know the following pointers related to the Tax Collected at Source:
- Taxes are not payable when the above-mentioned goods are used for manufacturing or processing things. However, if these goods are used for trading purposes, then they attract tax.
- The TCS on sale of goods is to be collected by the seller at the point of sale.
- Sellers having a total turnover of more than Rs. 10 crores in the previous financial year and sale consideration of any products of more than Rs. 50 lakhs, must collect TCS tax on receiving consideration from the buyer at the rate of 0.1% as per Section 206C(IH).
Applicability of higher TCS tax rate
The rate of TCS tax will be higher than the rate mentioned above as defined under Section 206CCA when:
- The buyer has not filed ITR for the last two financial years before the current one when TCS is charges are to be collected, and
- The time limit for ITR filing has expired, and
- The total amount of TDS and TCS tax was more than Rs. 50,000 in each of the previous two financial years
This higher rate of TCS tax will be the highest of the two rates mentioned below:
- 5%
- Two times the TCS rate as given in the table above
How are sellers and buyers classified under TCS charges?
Some specific organizations or people are classified as sellers for the Tax Collected at Source. No one except the following sellers can collect TCS tax from the buyers:
- State government
- Central government
- Local authority
- Company registered under the Companies Act
- Statutory corporation of authority
- Partnership firms
- Co-operative societies
- An individual/HUF subject to an audit of accounts under the Income Tax Act in a specific financial year
Similarly, a buyer is an individual who obtains goods of nature specified above in any sale or by way of auction or tender. However, the following buyers are not liable/exempted from paying the Tax Collected at Source:
- Central government
- State government
- Public sector companies
- Embassy of High commission
- Sports and social clubs, etc.
Recommended Read: All About Corporate Tax in India
When is tax collected at source?
The eligible sellers must collect TCS tax at the earlier of the following dates:
- At the time of debiting the money payable by the buyers to their accounts in the books of accounts
- On receiving such money from buyers in any mode, including cash issue of a cheque or draft
** For the sale of motor vehicles, TCS charges are collected on receiving money or consideration from the buyer for a motor vehicle.
Tax Collected at Source Example
Mr. Sharma purchases a car worth Rs. 12 lakh from an authorized dealer. As per the TCS rules mentioned above, he has to pay the TCS tax at the rate of 1%, i.e., Rs. 12,000. So, the total amount payable to the dealer with TCS applicability becomes Rs. 12.12 lakh.
More about TCS tax payments and returns
- The amount collected by a Government office should be deposited on the same day.
- The seller needs to deposit the TCS on sale of goods in Challan 281 within seven days from the last day of the month during which the tax was collected.
- In case the tax collector who is responsible for collecting TCS charges and depositing to the govt. does not collect the TCS or does not pay them to the govt. after collecting it, he will be liable to pay interest at the rate of 1% per month or a part of the month.
- Tax collectors also need to submit a quarterly TCS tax return via Form 27EQ. Also, any interest related to the delay in payment of the tax as per TCS rules should be paid before filing the return.
What is a TCS certificate?
TCS certificate refers to the certificate provided by the tax collector to the buyer on filing his quarterly return for the tax collected at source. Form 27D refers to the certificate issued for the TCS tax returns and it contains the following information:
- Buyer and seller names
- PAN of both buyer and seller
- TAN of seller filing the quarterly returns
- Total tax collected at source by the seller\
- Tax collection date
- Rate of TCS applied
This certificate must be issued within 15 days from the date when TCS tax quarterly returns are filed.
TCS due dates for different quarters
| For the quarter ending on | TCS return due date | Date to generate Form 27D |
| 30 June | 15 July | 30 July |
| 30 September | 15 October | 30 October |
| 31 December | 15 January | 30 January |
| 31 March | 15 May | 30 May |
TCS rules for tax exemptions
The tax collected at source is exempted when:
- When the eligible goods are purchased for personal use
- When the buyer purchases the goods for processing, manufacturing, and production, and not for trading
FAQs
What will happen if I file the return for tax collected at source later than the due date?
If the seller fails to file the TCS tax return on or before the due date mentioned above, a late fee of Rs. 200 per day must be paid. However, the amount of late fee should not exceed the TCS charges payable.
What will happen on filing an incorrect TCS return?
A penalty can also be imposed under Section 271H if the tax collector files an incorrect return for TCS on sale of goods. This penalty can range from Rs. 1,000 to Rs. 1,00,000.
Is TCS refundable?
TCS collected using a buyer’s PAN is available for adjustment.
What is TCS tax used for?
The tax collected at source is the same as income tax revenue in a financial year. It is used for the country’s infrastructural development, education, etc.
