Last Updated on Feb 23, 2022 by Gayathri Ravi

What is TCS?

TCS is the Tax Collected at Source by the seller of specified goods and services. The buyer pays this tax at the time of payment. The tax collected is submitted to the government by the seller. The Income Tax Act of 1961 defines the rates applicable to particular transactions and other related information for buyers and sellers. 

Let us understand these provisions in detail.

This article covers:

Who are the buyers and sellers with respect to TCS?

Buyers

According to the provisions of the Act, a buyer is someone who receives the goods in a sale. It can also be a person liable to receive the goods by way of auction, tender, or otherwise. They are required to deduct TCS. However, certain buyers are exempt from charging TCS. These include public sector companies, central and state governments, an embassy or high commission, foreign consulates, and any clubs.

Sellers

Only certain sellers are allowed to collect tax at source according to law. No other seller is allowed to do so. These include the following:

  • Central and state governments or any local authority
  • Any statutory corporation
  • A company registered under the Companies Act
  • Any partnership firm
  • Any HUF or individual subject to tax audit 
  • Any co-operative society

TCS rate chart for FY 2021-2022

Section 206C of the Income Tax Act, 1961 outlines the provisions for tax collected at source. It states the rates at which TCS is charged for certain goods and services. These are as follows:

ParticularsRate
Alcoholic liquor for human consumption and Indian made foreign liquor1%
Sale of scrap1%
Sale of tendu leaves5%
Sale of timber obtained under a forest lease, or any other mode2.5%
Sale of any other forest produce not being timber, or tendu leaves2.5%
Sale of minerals – coal, lignite, or iron ore1%
Lease or license of parking lot, toll plaza, mining and quarrying (other than that of mineral oil, petroleum, and natural gas)2%
Sale of motor vehicle (in cheque or any other mode) exceeding Rs. 10 lakh in value1%
Foreign remittance under the Liberalized Remittance Scheme of the RBI, with a value exceeding Rs. 7 lakh in a financial year5%
Foreign remittance under the Liberalized Remittance Scheme of the RBI, with a value exceeding Rs. 7 lakh in a financial year if the amount remitted is out of a loan taken from a financial institution for the purpose of education0.5%
Sale of overseas tour package5%
Sale of goods of value exceeding Rs. 50 lakh (other than goods mentioned above) whose gross receipts, or total sales, or turnover from business exceeds Rs. 10 cr. in immediately preceding financial year 0.1%

Rates in case of non-availability of PAN

As per section 206CC, in such a situation, higher of the following rates is considered:

  • Twice the normal rate as applicable by the given provisions
  • 5% (or 1% in case of sale of goods of value exceeding Rs. 50 lakh, as given in the last point)

Rates for non-filers of ITR

The Union Budget 2021 introduced section 206CCA under the Income Tax Act. As per the provisions, TCS for specified persons (non-filers of ITR) will be applicable at the higher of the following rates:

  • Twice the normal rate as applicable by the given provisions
  • At 5%

Note: The provisions under section 206CC override the provisions under section 206CCA.

Exemptions under TCS

TCS is exempted under the following circumstances:

  • When the goods are purchased for personal consumption.
  • When the goods are purchased for the purpose of manufacturing, processing, or production, and not for trading.

TCS in GST

Under the CGST Act, those who own, manage, and operate an e-commerce business are liable to collect TCS. The e-commerce operator collects the amount on behalf of the suppliers operating on the platform. This implies that all such vendors must register under GST.

TCS is charged at 1% under the IGST Act (0.5% CGST and 0.5% SGST). The e-commerce platform deducts the amount and pays the remaining amount to the supplier.

For instance, X Ltd. is registered with Amazon as a seller of lamps. A customer buys a lamp worth Rs. 1,000 via the platform. From this, Amazon shall deduct Rs. 10 (1% of Rs. 1,000) as TCS.

Depositing TCS and filing returns

The tax collector is responsible for depositing the amount collected with the Government. There may be two situations here:  

  • The first is when a government office collects the tax. If the tax is collected without an income tax challan, the deposit must be made on the same day. However, if an income tax challan is generated, the deposit can be made on or before seven days from the end of the month in which it is collected.
  • The second case is if an ordinary individual collects the tax. Here, the deadline to deposit the amount is within seven days from the last day of the month in which the tax was collected. 

Mode of deposit

There are two modes to deposit the amount to the central government:

  • The first is to file it electronically. The latest provisions have made e-payment of TCS mandatory for all corporate assessees and any other assessee for whom the provisions of section 44AB are valid. 
  • The other way is to do so in physical mode. Approach any authorised bank branch and furnish challan no. 281. 

In case the amount is collected by a government office, the deposit is remitted by making a book adjustment and generating an income-tax challan. For this purpose, the government office submits Form 24G to NSDL  – the National Securities Depository Limited.

TCS returns

Tax collectors must file TCS returns every quarter. For this, the collector fills out Form 27EQ. If there is any delay in depositing the amount with the government, the interest on it must be paid before filing the return. 

TCS certificate 

After filing the return, the collector submits a TCS Certificate to the person who purchased the goods. This is given in Form 27D. It must be issued within 15 days of filing the return.

Conclusion

While TCS may not directly affect the common consumer, it is important to keep up with the provisions. The concerned buyers and sellers must be well aware of the rules to comply with the law fairly. The government of India keeps updating and adjusting various rules and regulations regarding the same. Hence, keep a regular tab on the Government’s policies and reach out to your CA/tax advisor for professional guidance on all tax matters. 

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