Tax Collected at Source (TCS) – Rates, Payment and Exemption

The Indian Income Tax Act has provisions for tax collection at source or TCS. According to these provisions, certain persons are required to collect a specified percentage of tax from their buyers on specified transactions. In this article, we will discuss the different transactions on which TCS has to be collected.

Latest Update

Under Section 206C(1F) of the Income Tax Act 1961 the following items will be included. Thus, attracting TCS @ 1% if the value of the mentioned goods exceeds Rs. 10 lakhs.

Sl No.	Types of Goods
1	Wrist Watch
2	Art pieces like antiques, paintings and sculptures
3	Collectables such as coins and stamps
4	Yacht, rowing boats, canoe, and helicopter
5	Pair of sunglasses
6	Handbags and Purses
7	A pair of shoes
8	Sportswear and equipment
9	Home theatre system
10	Horse for racing and polo games

 

What is Tax Collected at Source (TCS)?

• Tax collected at source (TCS) is the tax payable by the seller which he collected from the buyer on sale.
•  It should be deposited with the tax authorities within the applicable due dates. 
• 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 (TAN) to be able to collect TCS.
• It is to be noted that the seller is responsible only for collecting the tax and depositing it to the government. He is not responsible for paying the TCS money out of his pocket.   

Example: 

• Mr. A sold goods worth Rs.100 to Mr. B on which TCS is applicable. 
• Mr. A will collect the TCS at 1% from the buyer
•  So, he will be collecting Rs.101 from Mr. B (Rs.100 + 1%of 100)
• The money so collected as TCS should be deposited to the government within the specified due dates.
• Mr. A is responsible only for collecting the tax and depositing it to the government.

The TCS rates for different goods is specified below:

Who Can Collect TCS?

TCS is collected on specific goods. The seller collects tax from the buyer in addition to the value of the goods/services. A buyer is a person who obtains specific goods in any sale or right to receive goods by tender, auction, etc. 

TDS and TCS - An Illustration

Confused Between TDS and TCS? Let's get it sorted now through this illustration!

Consider yourself as a customer who has made a purchase and needs to pay the bill amount to the seller.

If TDS Needs to be Deducted

The person who pays the bill (you) needs to deduct the TDS amount and pay only the rest of the amount to the seller. You are also responsible for remitting the TDS deducted to the government within the applicable due dates.

If TCS Needs to be Collected

• The seller - the person who receives the money, needs to collect the TCS amount plus the bill amount. The seller is responsible for remitting the TCS amount to the government within the applicable due dates. 
• Broadly speaking, the whole process of collecting TCS and remitting it to the government can be compared to the system of the seller collecting GST from the customer and paying it to the government. 

When Should TCS be Collected?

The seller must collect TCS at the earlier of the following two dates:

• When the seller passes the entry in the books of accounts for credit sales.
• When the seller receives the money from the buyer in any mode. (cash issue of a cheque or draft)

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

TCS Rates for Specific Goods

Taxes are paid only when the goods are utilized for trading purposes, and not when utilized for manufacturing, processing or producing things. 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 :

When will the 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 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% TCS

Note: This section has been omitted w.e.f. 1 April 2025.

Example of TCS Calculation

If a buyer purchases a car from a showroom valued at Rs.11 lakh, then the showroom must collect and deposit Rs. 11,000 as the TCS. So, the total amount to be collected from the buyer is Rs.11,11,000 (Rs. 11,00,000 + Rs. 11,000).

TCS Payments & Returns

• All sums collected by an office of the Government should be deposited on the same day of collection.
• The seller has to deposit the TCS amount through the e-filing portal 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 with 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 part of the month.
• Every tax collector must submit a quarterly TCS return, Form 27EQ, for the tax collected in a particular quarter. The interest on delay in payment of TCS to the government should be paid before filing the return.

TCS Certificate

• When a tax collector files his quarterly TCS return,  Form 27EQ, he has to provide a TCS certificate to the purchaser of the goods.
• 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
• This certificate has to be issued within 15 days from the date of filing TCS quarterly returns. All the TCS due dates are summarized in the below table:

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:

• If the resident buyer furnishes a declaration to the seller that “goods” are to be utilised in manufacturing or production of any article or for the purpose of generation of power.

TCS Provision in Foreign Remittance Transactions

• Foreign remittance related to educational purposes does not attract TCS as per recent amendments made in the section.
• Foreign remittances related to medical expenditure incurred - 
  • Up to Rs.10 Lakhs - No TCS needs to be collected.
  • Greater than Rs.10 Lakhs - TCS to be collected at the rate of 5%.
• Foreign remittances related to sale of overseas tour package program - 
  • Up to Rs.10 Lakhs - 5% TCS needs to be collected.
  • Greater than Rs.10 Lakhs - TCS to be collected at the rate of 20%.
• Other foreign remittances - 
  • Up to Rs.10 Lakhs - No TCS needs to be collected.
  • Greater than Rs.10 Lakhs - TCS to be collected at the rate of 20%.

Example: For instance, you decide to remit  5 Lakhs for US stock market investments. TCS on the remitted amount would be 1,00,000. Say, your total tax liability for the financial year or advance tax dues stand at 3,00,000. You can use the TCS amount to lower your outstanding tax liabilities. Thus, your net tax payable would now be 2,00,000.

Submission of Form 24G

In the case of a Government office, where tax has to be paid to the credit of the Central Government, Form 24G  can be filed without the production of a challan associated with the deposit of the tax in a bank.

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).
• Such Form 24G must be submitted within 15 days from the end of the relevant month.
• If Form 24G pertains to March, it must be submitted on or before 30 April. This date is applicable only for the month of March.
• 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.

Interest Chargeable on Non-Remittances of TCS to Government

If a tax collector fails to collect the tax or neglects to remit it to the government within the specified due dates, they will be subject to an interest charge of 1% per month or part thereof.

Penalty for Incorrect Filing of the TCS Return

According to Section 271H, a penalty may be imposed if the tax collector submits an erroneous TCS return. A minimum penalty of Rs.10,000 and a maximum penalty of Rs. 1,00,000 may be levied.