The tax collected at source (TCS), unlike tax deducted at source (TDS)—where the payer deducts the tax at the time of making the payment—is collected by a seller of specified goods from the buyer at the time of sale. However, TCS Tax is only collected on certain specific transactions falling in the trading or business categories. It typically does not affect ordinary people, except in a few instances. Just as all the other types of tax, TCS Tax has a lot of compliances that we must know to understand the concept of TCS Tax fully.
To collect TCS Tax, the seller needs to have a Tax Collection Account Number (TAN). The TAN has to be given in all the documents relating to the transactions. It also has to be furnished in challans, returns and certificates. This tax collected amount is deposited with the tax authorities.
TCS Tax regulations are covered under Section 206 C of the Income Tax Act,1961. This section has an extensive list of specific goods that fall under the ambit of TCS Tax.
Learn the basics
The TCS Tax is a form of indirect tax that is to be collected by the seller from the buyer. Indirect taxes are usually collected throughout the year, unlike direct taxes – eg, one must file the income tax returns in the subsequent financial year following the year in which they made the income.
These indirect taxes help the government have a steady inflow of funds. Even if your overall income tax liability is much lower than the amount of TCS tax you submitted to the tax authorities, you will have to continue to pay TCS tax as per the regulations. While filing the final returns during the year-end, you can apply for a refund if you have paid tax in excess of your final tax liability.
- TCS Tax is placed on specific goods where tax collection from the buyer becomes uncertain.
- A seller collects TCS Tax from the buyers. This tax is charged additionally on top of the sale value of the goods or services.
- TCS Tax can be claimed as a refund if the final tax liability of the seller is lesser than the amount of tax paid.
- TCS Tax is typically only applicable for business-to-business (B2B) transactions.
- Heavy penalties for a lapse in collection and imprisonment for non-payment of TCS Tax are also placed for strict compliance.
Words to remember
B2B transactions refer to transactions between two businesses. Retail trade is often carried out between a business and a customer, an individual. However, B2B transactions involve companies, partnership firms, including LLPs, sole proprietorships, and other registered entities.
Categories of sellers who might have to collect TCS Tax
- Central Government
- State governments
- Local Authority
- Statuary Corporation or Authority
- Co-Operative society
- Partnership firms
- Company registered under Companies Act
- Any person or Hindu Undivided Family (HUF) subjected to an audit of accounts under the Income Tax Act for a particular financial year.
Categories of buyers who might have to pay TCS Tax
Any organisation that obtains goods—that specifically attract TCS Tax—through sale or auction, under a tender, or other modes of sale, might have to pay the TCS Tax.
However, TCS is not applicable for some buyers, even for the sale of specific goods. Those exempted from the TCS are:
- Public sector companies
- Central Government
- State governments
- Embassy or a high commission
- Sports and social clubs
- Consulate and other trade representation of foreign nations
- Local authorities for the purchase of vehicle
What are the Specific Goods that attract TCS Tax?
The Specific Goods and Transactions that attract TCS Tax, as mentioned in the Income Tax Act, and the rates at which the TCS tax has to be collected are as follows:
|Type of Goods or transactions||Rate|
|Liquor of alcoholic nature, made for consumption by humans||1%|
|Timber wood from a leased forest||2.5%|
|Timber wood by any other mode than leased forests||2.5%|
|Forest produce other than tendu leaves and timber||2.5%|
|Minerals like lignite, coal and iron ore||1%|
|Purchase of motor vehicle exceeding Rs 10 Lakhs||1%|
|Parking lot, toll plaza and mining and quarrying||2%|
Did you know?
As per the recent provision in the Finance Act 2020, Section 206 C was introduced. According to this clause, any seller whose turnover is above Rs 10 crore must collect tax for every transaction above Rs 50 lakh from a single buyer.
However, this does not apply to transactions already covered under other TCS Tax provisions or for importing goods to India.
There are very strict implications for non-compliance with the TCS Tax regulations. If the seller fails to collect tax from the buyer, they will have to pay the penalty under section 271CA amounting to the entire TCS Tax that they were supposed to collect.
If the TCS has been collected but is not deposited with the tax authorities before the due date, the seller will have to pay an additional interest at 1% per month. This interest needs to be paid before filing the quarterly statement.
If the seller fails to deposit the TCS tax collected, they will be liable to rigorous imprisonment of three months which may be extended to seven years under Section 276BB and will also have to pay a fine.
Therefore, all businesses must be aware of the TCS tax regulations and adhere to the rules continuously.
Did you know?
In order to arrive at the final tax amount, surcharge and Health and Education Cess on TCS rates are added to TCS Tax rates.
Frequently Asked Questions
When TCS has to be collected for a financial year and the buyer has not filed ITR for the last two financial years.
In these two financial years, the total TCS and TDS were more than Rs 50,000.
ITR filing time has expired.
When Form 27EQ is filed by the tax collector (seller), they have to provide a certificate to the buyer. Form 27D is the certificate issued for TCS returns filed. This certificate contains:
Name of seller and buyer
Total tax collected by the seller
Date of collection
PAN of both seller and buyer
TAN of the seller(the one who collects the tax)
Rate of tax applied
Challan 281 has to be filled, and the TCS Tax amount collected has to be submitted by the seller within one week from the end of the month in which the sale took place. Payment can be made using the electronic mode of payment or at any RBI, SBI branch or in a bank authorised to collect the payment.
Yes, even customers (individuals) who purchase motor vehicles worth more than Rs 10 lakhs will have to pay TCS tax to the seller. This is one of the few instances where TCS tax applies to individuals.
What are the latest due dates to remember with TCS Taxes?
The due dates for TCS quarterly returns and issue of TCS certificates for financial year 2022-2023 are mentioned in the table below:
|Quarter ending||Month of deduction||Due dates for tax deduction (FY 2022-23)||Due date for filing TCS returns for (FY 2022-23) for all deductors|
|30th June 2022||April 2022May 2022June 2022||7th May 20227th June 20227th July 2022||31st July 2022|
|30th September 2022||July 2022August 2022September 2022||7th August 20227th September 20227th October 2022||31st October 2023|
|31st December 2022||October 2022November 2022December 2022||7th November 20227th December 20227th January 2023||31st January 2023|
|31st March2023||January 2023February 2023March 2023||7th February7th March7th April (for tax deducted by government office)30th April (for other deductors)||31st May 2023|
Did you know?
If the buyer, who is a resident of India, submits a written declaration stating that the goods will not be used for trading purposes and will be used for manufacturing, producing or to processors other goods, then they will not have to pay TCS Tax.
This declaration is made in form 27D to the Commissioner of Income Tax or the Chief Commissioner. It needs to be made within seven days from the end of the month in which the purchase was made.