Tax Collected At Source (TCS Tax)

Tax collected at source is a type of tax that a buyer has to pay to the seller while they are exchanging goods. The TCS tax is to be paid by the seller, so, they collect it from the buyer of the goods. The TCS rate on sale of goods varies from goods to goods and there are different types of buyers and sellers who are exposed to the TCS tax. There are certain exemptions in the case of TCS and there are a few guidelines that one needs to follow while TCS return filing. Continue reading to know all about it.  

What Is Tax Collected At Source? 

The meaning of tax collected at source is that it is a tax amount paid by the buyer to the seller, who then has to pay it to the tax authorities. The payable tax rate is determined based on the category of the respective good. However, the seller collecting taxes has to have a Tax Collection Account Number in order to be able to collect it. Section 206C of the Income Tax Act, 1961, mentions the items that come under TCS tax.  

Tax Collected At Source Example

When you purchase a car that is worth Rs.12 lakh, the TCS tax that you will have to pay to the seller will be 1% (rate applicable on selling of cars of a greater amount than Rs.10 lakh) of Rs.12 lakh. 

The seller of the car is liable to collect a tax of Rs.12,000 from you and deposit it in the government-authorized bank branch. So, the seller will be an intermediary between you and the government when they collect this tax and pay it to them. The seller does not have to pay any tax on his behalf. This tax is supposed to be collected during the time of the sale only through the receipt of cash or cheque, whatever the buyer prefers to make payment through. 

TCS Rate For Separate Goods

The Income Tax Act imposes different rates on different types of products. The following table will illustrate the products on which tax is collected at source:

Goods	TCS Rate Charged
Liquor used for human consumption	1%
Tendu Leaves	5%
Timber attained from a leased forest	2.5%
Timber attained through any other way except a leased forest	2.5%
Forest produce apart from tendu leaves and timber	2%
Scrap	1%
Toll plaza, parking lot, or mining	2%
Minerals (Iron Ore, Coal, Lignite)	1%
Bullion for an amount greater than Rs.2 lakh or jewelry for an amount greater than Rs.5 lakh	1%
Vehicles for an amount greater than Rs.10 lakh	1%
Sales of any item for which cash purchase is done and is more than Rs.2 lakh	1%
Any service for an amount greater than Rs.2 lakh except payments on which TDS is deducted	1%

Sellers And Buyers For TCS Tax 

The sellers for TCS tax are:

• The Central and the State Governments. 
• The Local Authorities.
• A Statutory Corporation or Authority. 
• A company, partnership, or cooperative society.

The buyers for TCS tax are: 

• Public Sector Enterprise or a company. 
• The Central and the State Governments. 
• Embassy of High Commission. 
• Consulate and Trade Representations of foreign nations.
• Different clubs such as sports clubs. 

When Should The Seller Collect TCS?

The right time for the seller to collect TCS tax is:

• When they are going to debit the money received from the buyer in their books of accounts. 
• When they receive payment in cash, cheque, or a draft from the buyer. 

TCS Certificate 

When filing quarterly returns, the seller needs to provide the buyer with a TCS certificate. The TCS certificate is also known as Form 27D. It contains the name of the buyer, the collection date, the PAN number of the buyer and the seller, the seller’s name, TAN, the tax rate, and the tax amount. Within 15 days from the filing of quarterly returns, the TCS certificate needs to be issued. In case the certificate is misplaced, the authorities in charge will issue a duplicate of it. 

TCS Filing 

The seller who is responsible for the collection of TCS will have to apply for a TAN number. It is a reference for the respective seller’s TCS returns during filing. The seller has to show the goods sold by him along with their price and TCS rate in his TCS return form. 

Here are certain things you can keep in mind when you are filing your TCS return:

• If you have generated TCS in a particular month, you have to fill up the TCS with the help of Challan 281. Make sure to complete it within 7 days from the month end in which the TCS was collected. If you are paying TCS without Challan 281, you need to fill up Form 24G and give it to the respective authorities. 
• If you do not pay the TCS on time, you will be charged 1% per month of the total amount due as a penalty. This penalty has to be paid by the seller only without concerning the buyer of the goods. 
• The TCS return for a particular quarter is supposed to be submitted by the seller under Form 27EQ. 
• Post TCS payment, the TCS certificate (Form 27D) is issued. 
• The money collected by a government office is supposed to be deposited on the day of collection only. 
• The interest that the seller has to pay as a penalty for the delay of TCS payment is to be paid to the government before filing the TCS return. 

Exemptions Of Tax Collected At Source 

The buyer is eligible to claim exemptions of TCS under certain cases. However, the buyer would require Form 27C for this. With this form, they have to claim that they are eligible to avail of the exemption under the following cases:

• If the buyer is using the goods as raw materials instead of trading, they have to declare that these goods will be used for the manufacture and processing of other goods. 
• If the goods are being bought for the personal use of the buyer. 

The buyer will have to submit Form 27C. He will then get a duplicate of this that he has to submit to the authorities within a week along with his declaration. 

When Does A Higher TCS Rate Apply? 

Under Section 206CCA, a buyer will have to pay TCS tax at a higher rate if:

• They have not filed their ITR for the last 2 financial years prior to the year in which TCS is collected. 
• Their time to file ITR has expired. 
• For the last two financial years, the total amount of TDS and TCS was more than Rs.50,000 for each year. 

The rate that such a buyer has to pay will be whichever is higher of the following:

• 5%.
• Two times the actual TCS rate that is mentioned in the Income Tax Act. 

The Bottom Line

Since it is compulsory for buyers to pay TCS for the goods they purchase every quarter, it is important to be well aware of all the jargon related to it. 

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