Tax Collected At Source (TCS)

9 Mins

What is TCS Tax?

TCS is the tax that is collected by the seller from the buyer. The goods are specified under section 206C of the Income Tax Act, 1961.

Let us take an example- Mr. Arun buys 10 kgs of scrap for Rs 1 lakh from Mr. Ajay. Here Mr. Arun is the buyer and Mr. Ajay is the seller. Mr Ajay is now liable to collect TCS at the rate of 1% (Rs 1 lakh @ 1% = Rs 1000). Here, TCS of Rs 1000 will be collected and paid to the government. Finally, Mr. Ajay will pay Mr. Arun Rs 99,000 (Rs 1,00,000 – Rs 1,000 of TCS). This is how the entire collection of TCS works between the buyer and seller.

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Classification of Sellers and Buyers for TCS

Classification of Sellers for TCS

For the purpose of collecting tax at source, the sellers are classified under provisions of TCs. Only these sellers are required to collect TCS. Below is a list of such sellers:

Central Government
State Government
Local Authority
Statutory Corporation or Authority
Company registered under the Companies Act
Partnership firms
Co-operative Society
Any person or HUF who is subjected to an audit of accounts under the Income tax act for a particular financial year.

Classification of Sellers for TCS

Similar to sellers, only a few categories of buyers must pay tax at source to the sellers:

Public sector companies
Central Government
State Government
Embassy of High commission
Consulate and other Trade Representation of a Foreign Nation
Clubs such as sports clubs and social clubs

Goods covered under Tax Collected At Source

The below-mentioned goods can be used for two purposes. The tax depends on the purpose of buying the goods.

Trading of Goods- When the goods are utilized for trading purposes TCS will be applicable since tax is applicable on these goods. Here, trading means simply buying the goods from someone and selling goods to another person.

Manufacturing, processing, or producing other goods- When the goods are used for the purpose of manufacturing, processing, or producing other goods, the below-mentioned goods are not subject to tax. Hence, no TCS is applicable

TCS Rates in India

The rate of TCS tax collected at source is different for each category of goods.

Type Of Good	Rate of TCS
Liquor of alcoholic nature, made for consumption by humans	1%
Scrap	1%
Minerals like lignite, coal, and iron ore	1%
Bullion that exceeds over Rs. 2 lakhs/ Jewellery that exceeds over Rs. 5 lakhs	1%
Purchase of Motor vehicle exceeding Rs. 10 Lakhs	1%
Parking lot, Toll Plaza and Mining and Quarrying	2%
Timber wood under a forest leased	2.5%
Timber wood by any other mode than forest leased	2.5%
A forest produce other than Tendu leaves and timber	2.5%
Tendu leaves	5%
Foreign remittances of more than Rs 7 lakhs for education and for medical treatment	5%
Foreign remittances of more than Rs 7 lakhs for the purpose of education through loan from financial institutions	0.50%
Foreign remittances for other purposes under LRS and purchase of overseas tour program (Inserted by Budget 2023)	20%
Taxpayer who is supposed to file IT but failed to file and aggregate TCS is more than Rs 50,000 (Inserted by Budget 2023)	Higher Rate

TCS Payment and Returns Due Date

Due date for payment of TCS to the government and filing of TCS return

TCS Collection Month	Quarter Ending	Due Date of Payment of TCS	Due Date of Filing TCS Return
April	30th June	7th May	15th July
May	7th June
June	7th July
July	30th September	7th August	15th October
August	7th September
September	7th October
October	31st December	7th November	15th January
November	7th December
December	7th January
January	31st March	7th February	15th May
February	7th March
March	7th April

Note: Any sum collected by any office of government must be deposited on the day of collection itself.

Every tax collector must file TCS return in Form 27EQ stating the details of the tax collection. In case of any delay in filing the TCS return the tax collector must also pay interest and penalty for the delay before filing Form 27EQ.
The seller must deposit TCS in Challan 281 with 7 days from the last day of the month in which the tax was collected.
In case of default by the tax collector in paying the tax to the government

The tax collector who is responsible for collecting the tax and depositing the same to the government does not collect the tax
After collecting the tax he/ she does not pay it to the government as per the above due dates
he/ she will be liable to pay interest of 1% per month or a part of the month

TCS Certificate

A tax collector collects the tax and deposits TCS to the government
The tax collector then files TCS return i.e. form 27EQ mentioning the details of the buyer and the amount of tax.
Once, he/ she files TCS return, then issues TCS certificate in the Form 27D
The TCS certificate contains the following information:

Name of the Seller and Buyer
TAN of the seller i.e who is filing the TCS return quarterly
PAN of both seller and buyer
Total tax collected by the seller
Date of collection
The rate of Tax applied

The TCS certificate must be issued to the buyer with 15 days of the filing of TCS returns
The due date of issuing the TCS certificate is as follows:

Quarter Ending	Date for generating Form 27D
For the quarter ending on 30th June	30th July
For the quarter ending on 30th September	30th October
For the quarter ending on 31st December	30th January
For the quarter ending on 31st March	30th May

TCS Exemption

Tax collected at source TCS is exempt in the following cases:

The eligible goods are used for personal consumption or use
The eligible goods are used by the purchases for manufacturing, processing, and production. These goods are not being used for trading of those goods.

Tax Collected At Source under GST

The following are the provisions related to TCS under GST effective from 1st October 2018:

A dealer or trader selling goods online would get the payment from the online platform. The payment would be after deducting an amount tax @ 1 % under IGST Act. (0.5% in CGST & 0.5% in SGST)
The tax must be deposited by the 10th of the next month to the government
All dealers and traders must be registered under GST mandatorily

Let us take an example:

Mr. Akash is a trader who sells his goods online on Amazon, buyer. Mr. Akash received an order of Rs 50,000 from Amazon. Here, Amazon will deduct TCS at a rate of 1% i.e. Rs 500 (Rs 50,000 * 1%)

Difference between TDS and TCS

Below are the differences between TDS and TCS:

TDS is the tax deducted on payment done by a company to an individual. Here TDS is deducted under the Income Tax Act 1961. While TCS is collected by the seller while selling the goods to the buyer
TCS is applicable on the sale of goods such as scrap, timber wood, tendu leaves or minerals and so on. While TDS is deducted on payments such as salaries, interest, royalties, rent, professional fees, brokerage and commission and so on.
TDS is deducted when the payment exceeds a certain threshold whereas TCS is applicable without such limits. TCS is collected based on the specified category of goods at a flat rate.

Form 24G under TCS

Form 24G is applicable to the office of the government. This is the case where tax is paid to the credit of the Central Government without the production of a challan. Here, the challan is not associated with the deposit of tax in a bank. The below-mentioned changes to the rules apply in this case:

Rules where TDS is deposited without challan (changes to Rule 30)

If TDS has been deposited without a challan, the person to whom TDS has been reported for depositing to the government – such a person has to submit a statement in Form 24G to the agency authorized by the Principal Director of income tax (systems). [Rule 30(4)].
Form 24G must compulsorily be submitted within 15 days from the end of the relevant month. Here, Form 24G must be submitted by 30th April 2019 for the month of March.
Form 24G must be submitted in this manner. These are (a) electronically under digital signature (b) electronically along with verification in Form 27A (c) or verified through an electronic process as prescribed.
The book identification number must be informed to each of the deductors for whom the tax has been deposited
The Principal Director General of Income Tax (Systems) shall specify the procedure for furnishing and verification of statement Form 24G.

Rules where TCS under section 206C is deposited without challan (changes to Rule 37CA)

If TCS has been deposited without a challan, the person to whom the collector has reported the TCS for depositing to the government – such a person will submit Form 24G to the agency authorized by the Principal Director of income tax (systems)
Form 24G must be submitted within 15 days from the end of the relevant month. Here, Form 24G must be submitted by 30th April 2019 for the month of March.
Form 24G must be submitted in this manner. These are (a) electronically under digital signature (b) electronically along with verification in Form 27A (c) or verified through an electronic process as prescribed.
The book identification number must be informed to each of the deductors for whom the tax has been deposited
The Principal Director General of Income Tax (Systems) shall specify the procedure for furnishing and verification of statement Form 24G.

Frequently Asked Questions

Is TCS refundable?

It is not about a refund. Let us first understand that TDS is not an additional tax. It is in the nature of an advance tax that you pay as you earn and claim the credit while paying your output tax. If the output tax liability is higher than the TCS amount then only the net tax is to be paid.

Is TCS collected on the GST amount?

Yes, TCS is collected on the sale consideration inclusive of GST. It has been clarified by the CBDT that since the tax is on the total sales consideration GST must not be adjusted. For example, if the sale consideration is Rs 10 lakh inclusive of GST, the TCS must be collected on Rs 10 lakh without adjustment of GST.

Is TCS collected on the sale of service as well?

No, TCS is applicable on the consideration of ‘sale of goods’. The term ‘goods’ is not defined under the Income Tax Act, 1961. The term ‘goods’ is of wide definition. However, the sale of services is not subject to TCS. But surely they are subject to TDS under respective sections of the Income Tax Act, 1961.