Tax Collected at Source

(TCS) – Rates, Payment,

and Exemption
 

Indian Income Tax Act has provisions for tax collection at source or
TCS. In these provisions, certain persons are required to collect a
specified percentage of tax from their buyers on exceptional
transactions. Most of these transactions are trading or business in
nature. It does not affect the common man. Read on to know more!

Meaning of Tax collected at source

(TCS)
Tax collected at source (TCS) is the tax collected by the seller from
the buyer on sale so that it can be deposited with the tax authorities.
Section 206C of the Income-tax act governs the goods on which the
seller has to collect tax from the buyers. Such persons must have
the Tax Collection Account Number to be able to collect TCS.
Goods covered under TCS
provisions and rates applicable to
them
When the below-mentioned goods are utilised for the purpose of
manufacturing, processing, or producing things, the taxes are not
payable. If the same goods are utilised for trading purposes, then
tax is payable. The tax payable is collected by the seller at the point
of sale. The rate of TCS is different for goods specified under
different categories :

Type of Goods or transactions Rate

Liquor of alcoholic nature, made for consumption by humans 1%

Timber wood under a forest leased 2.5

%

Tendu leaves 5%

Timber wood by any other mode than forest leased 2.5

 %

Forest produce other than Tendu leaves and timber 2.5

%

Scrap 1%

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%

Where total turnover is more than Rs.10 crores in the previous 0.1
financial year and receives sale consideration of any products of %
more than Rs. 50 lakhs, such seller must collect TCS upon
receiving consideration from the buyer on such amount over and
above Rs.50 lakhs, , as per Section 206C(IH).
(Without PAN, then 1% is TCS)
 When will a higher TCS rate
apply?
Note that as per Section 206CCA, tax at a higher rate (other
than rates in the above table) will be collected from the buyer if
such buyer has-

 Not filed ITR for the last two financial years before the relevant
financial year in which TCS had to be collected, and

 The time limit to file ITR has expired, and

 The total of TCS and TDS was more than Rs.50,000 in each of
these two financial years.

Such a higher TCS rate will be the highest of the following two
rates-

 Two times the TCS rate mentioned in the Income Tax Act ( in the
above table)

 5%


 In special cases given under Section 206C(IG), 5% TCS applies
where the authorised dealer arranges remittance out of India of
Rs.7 lakhs or more in a financial year from a buyer of foreign
currency remitting under Liberalized Remittance Scheme
(LRS), not being the overseas tour program package. If Aadhaar or
PAN is unavailable, then TCS is 10%. Such TCS is collected while
debiting the buyer’s account or on receipt of money.

Classification of Sellers and Buyers

for TCS
1. There are some specific people or organisations who have been
classified as sellers for tax collected at the source. No other seller
of goods can collect tax at source from the buyers apart from the
following list :

 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.

2. A buyer is a person who obtains goods of specified nature in any

sale or right to receive any such goods, by way of auction, tender
or any other mode. However, the below buyers are exempted from
the collection of tax at the source. In other words, TCS need not be
collected from the following persons.

 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

 Where resident buyer utilises such purchase for the purposes

of manufacturing, processing or producing articles or things or
for the purposes of generation of power (not for trading) and
gives this declaration in writing in duplicate.
 When should TCS be collected?
The seller must collect TCS at the earlier of the following two
dates:

 When debiting the money payable by the buyer to their account in

the books of accounts.

 Upon receipt of such money from the buyer in any mode such as
cash issue of a cheque or draft.

In the case of the motor vehicle sale, the TCS is collected upon
receipt of money or consideration for the motor vehicle from the
buyer.

Example of TCS calculation

If a buyer purchases a car from a showroom that is valued at Rs. 11
lakhs then an amount of Rs. 11,000 is the TCS deposited by the
showroom. So, the total amount to be collected from the buyer is
Rs.11,11,000.
 An invoice was issued to the customer for Rs. 12,000 on which 1%
TCS was charged and collected at Rs. 120. So, the total payable by
the customer is Rs. 12,120.

TCS Payments & Returns

 All sums collected by an office of the Government should
be deposited on the same day of collection.

 The seller deposits the TCS amount in Challan 281  within 7 days

from the last day of the month in which the tax was
collected (monthly).

 If the tax collector responsible for collecting the tax and depositing
the same to the government does not collect the tax or after
collecting doesn’t pay it to the government as per the above due
dates, then he will be liable to pay interest of 1% per month or a
part of the month.

 Every tax collector has to submit a quarterly TCS return i.e

in Form 27EQ in respect of the tax collected by him in a particular
quarter. The interest on delay in payment of TCS to the
government should be paid before filing of the return.
 TCS Certificate
1. When a tax collector files his quarterly TCS return i.e  Form 27EQ,
he has to provide a TCS certificate to the purchaser of the goods.

2. Form 27D is the certificate issued for TCS returns filed. This
certificate contains the following details:

 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

3. This certificate has to be issued within 15 days from the date of

filing TCS quarterly returns. All the TCS due dates are summarised
in the below table:

Quarter Ending Due date to file TCS Date for

return in Form 27EQ generating Form
27D
 For the quarter ending 15th July 30th July
on 30th June

For the quarter ending 15th October 30th October

on 30th September

For the quarter ending 15th January 30th January

on 31st December

For the quarter ending 15th May 30th May

on 31st March

In case you are still confused about filing TCS returns, feel free to
consult the tax experts at ClearTax.

TCS Exemptions
Tax collection at the source is exempted in the following cases:

 When the eligible goods are used for personal consumption

 The purchaser buys the goods for manufacturing, processing or
production and not for the purpose of trading those goods.

TCS provision under GST for e-

commerce sales
 Any dealer or trader selling goods online on the e-commerce
platform would get the payment from the online platform after
deducting an amount tax @ 1 % under IGST Act. (0.5% in CGST &
0.5% in SGST)

 The tax would have to be deposited to the government by the 10th

of the next month.

 All the dealers/traders are required to get registered under GST

compulsorily.

 These provisions are effective from 1st Oct 2018. Example: Mr

Raj (seller) is a trader who sells clothes online on Flipkart (e-
commerce operator). He receives an order for Rs.10,000 inclusive
of commission. Flipkart would thus be deducting tax for Rs. 100
(1% of Rs.10,000).
 Submission of Form 24G
In the case of an office of the Government, where tax has been paid
to the credit of Central Government without the production of a
challan associated with the deposit of the tax in a bank, below are
the changes to the rules, Form 24G has to be submitted:

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
authorised by the Principal Director of income tax (systems). [Rule
30(4)]

 Such Form 24G must be submitted issued within 15 days from the
end of the relevant month. For the month of March, the form
should be submitted by 30 April 2019

 Form 24G must be submitted (a) electronically under digital

signature (b) electronically along with verification in Form 27A (c)
or verified through an electronic process as prescribed
 A person referred to in bullet 1 shall inform the Book Identification
number generated to each of the deductors for whom the sum
deducted 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
authorised by the Principal Director of income tax (systems).

 Such Form 24G must be submitted within 15 days from the end of
the relevant month.

 If Form 24G pertains to the month of March, it must be submitted

on or before 30th April.d. Form 24G must be issued :

 electronically under digital signature

 electronically along with verification in Form 27A or

  verified through an electronic process as prescribed

 A person referred to in bullet 1 shall inform the Book Identification

number generated to each of the deductors for whom the sum
deducted has been deposited.

 The Principal Director General of Income Tax (Systems) shall

specify the procedure for furnishing and verification of statement
Form 24G.