Understanding Tax Collected at Source (TCS): Rates, Payments, and Exemptions

Tax Collected at Source (TCS) represents an amount that sellers are legally required to gather from purchasers during the sale of specific goods. The stipulations governing TCS are detailed under Section 206C of the Income-Tax Act.

TCS is applied to various defined goods and services, such as alcoholic beverages (rates ranging from 1% to 5%), certain leasing activities (2%), the sale of high-value motor vehicles (1%), and specific remittances made under the Reserve Bank of India's Liberalized Remittance Scheme (LRS), which can be taxed between 5% and 20%. This article will detail the types of transactions subject to TCS, the relevant due dates for collection and remittance, and the penalties and interest charges associated with non-compliance.

Defining Tax Collected at Source (TCS)

TCS refers to the tax amount a seller collects from a buyer during a sale, which is then remitted to tax authorities by the specified deadlines. Section 206C of the Income-Tax Act regulates these provisions. Entities responsible for collecting TCS must possess a Tax Collection Account Number (TAN). The seller's role is limited to collecting and depositing the tax; they are not required to pay TCS from their own funds.

For instance, if Mr. A sells goods valued at Rs. 100 to Mr. B, and TCS applies at a 1% rate, Mr. A would collect Rs. 101 from Mr. B (Rs. 100 plus 1% of Rs. 100). This collected amount must then be deposited with the government by the designated due dates. Mr. A's responsibility solely involves collecting and forwarding the tax.

Parties Involved in TCS Collection

Sellers are obligated to collect tax from buyers, in addition to the actual price of the goods or services. A buyer is an individual or entity acquiring specific goods who is responsible for paying the TCS amount along with the total bill where applicable.

Differentiating Between TDS and TCS: An Example

To clarify the distinction between Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), consider a scenario where a customer makes a Rs. 100 purchase, and the applicable tax (TDS/TCS) is Rs. 10.

If TDS is Applicable

In a TDS scenario, the payer (customer) is required to deduct Rs. 10 as TDS and pay only Rs. 90 to the seller. The payer is also responsible for depositing the deducted TDS with the government by the relevant deadlines.

If TCS is Applicable

Conversely, when TCS applies, the seller (the recipient of payment) collects the Rs. 10 TCS in addition to the Rs. 100 bill amount, meaning the customer pays a total of Rs. 110. The seller then becomes responsible for remitting this collected TCS to the government within the stipulated due dates. This process can be generally likened to how a seller collects GST from a customer and subsequently remits it to the government.

Timing for TCS Collection

Sellers are obligated to collect TCS at the earlier of two specific points:

• When a credit sale entry is recorded in the seller's accounting books.
• When payment is received from the buyer, regardless of the method (e.g., cash, cheque, or draft).

For sales involving motor vehicles, TCS is specifically collected at the time the payment is received from the buyer.

TCS Rates for Designated Goods under Section 206C(1)

TCS applies only when goods are intended for trading purposes, not when they are used in manufacturing, processing, or production activities. The seller collects this tax at the point of sale. Section 206C(1) outlines varying TCS rates for specific categories of goods:

Section 206C(1C): TCS on Lease, License, and Mining Agreements

Any individual or entity that grants a lease or license for a parking lot, toll plaza, or a mine/quarry is required to collect TCS at a rate of 2%.

Section 206C(1F): TCS on Sales of Motor Vehicles and Certain High-Value Items

Section 206C(1F) mandates TCS collection on the sale of:

• Motor vehicles with a value exceeding Rs. 10 lakhs.
• Specified luxury goods that also surpass a value of Rs. 10 lakhs.

The term "motor vehicles" encompasses all types, not just cars, meaning even bikes exceeding Rs. 10 lakhs are subject to TCS.

The list of designated high-value items includes:

A 1% TCS rate applies to the sale consideration when the value of these specified goods exceeds Rs. 10 lakhs.

Section 206C(1G): TCS on Foreign Remittances and International Travel Packages

Under Section 206C(1G), TCS is applicable and must be collected by:

• Authorized dealers for remittances made under the Liberalized Remittance Scheme.
• Sellers of international tour packages when receiving payments from customers.

The specific TCS rates will apply as per the relevant regulations.

Exemptions from TCS

TCS is not applicable in the following circumstances:

• When a resident buyer provides a declaration to the seller stating that the goods purchased will be used for manufacturing, production of an article, or for power generation.

Illustrative TCS Calculation

Consider a scenario where a car is purchased from a showroom for Rs. 11 lakhs. The showroom is required to collect and deposit Rs. 11,000 as TCS (1% of Rs. 11,00,000). Therefore, the total payment due from the buyer would be Rs. 11,11,000 (Rs. 11,00,000 for the car plus Rs. 11,000 for TCS).

TCS Remittance and Reporting

Sellers must deposit the collected TCS amount within seven days following the end of the month in which the tax was gathered. Non-compliance with these collection and payment regulations will result in an interest charge of 1% per month, or part thereof. Additionally, every tax collector is required to file a quarterly TCS return, specifically Form 27EQ, for the tax collected during that quarter. Any interest incurred due to delayed TCS payment to the government must be settled prior to filing this return.

Understanding the TCS Certificate: Form 27D

Upon filing the quarterly TCS return, the tax collector is required to furnish a TCS certificate to the goods purchaser. After TCS has been reported for the collected amounts in Form 27EQ, a certificate is produced. This document, known as Form 27D, serves as official proof of TCS collection, issued by the seller to the buyer.

Key Information in Form 27D

Form 27D includes several important pieces of information:

• The names of both the seller and the buyer.
• The Tax Collection Account Number (TAN) of the seller, who files the quarterly TCS return.
• The Permanent Account Number (PAN) for both the seller and the buyer.
• The total tax amount collected by the seller.
• The specific date of tax collection.
• The rate of tax that was applied.

Form 27D Issuance Deadlines

Form 27D must be issued within 15 days following the date of filing the quarterly TCS return. The table below summarizes the key TCS deadlines:

You can access the format of Form 27D here.

Interest for Delayed TCS Remittance

Should a tax collector fail to collect tax or neglect to deposit it with the government by the prescribed deadlines, an interest charge of 1% per month, or a portion of a month, will be levied.

Penalties for Inaccurate TCS Return Filing

Under Section 271H, tax collectors who submit an incorrect TCS return may face penalties. These penalties range from a minimum of Rs. 10,000 to a maximum of Rs. 1,00,000.