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

Updated on:  

08 min read

Indian Income Tax act has provisions for tax collection at source. 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. In this article we will cover:

Latest Updates

Union Budget 2021 outcome-
New section 206CCA is inserted for collecting a higher rate of TCS for non-filers of the income tax return in the last two years.

Union budget 2020 outcome:
New section 206 (1H) was introduced in October 2020 for collecting TCS from the buyers of goods who makes a payment of more than Rs 50 lakhs towards sale consideration in the current FY. The TCS is to be collected only by the entities having more than Rs 10 crore of turnover in the previous FY.

Tax collected at source (TCS)

Tax collected at source (TCS) is the tax payable by a seller which he collects from the buyer at the time of sale. Section 206C of the Income-tax act governs the goods on which the seller has to collect tax from the purchasers.

Goods covered under TCS provisions and rates applicable to them

When the below-mentioned goods are utilized for the purpose of manufacturing, processing, or producing things, the taxes are not payable. If the same goods are utilized 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 GoodsRate
Liquor of alcoholic nature, made for consumption by humans1%
Timber wood under a forest leased2.50%
Tendu leaves5%
Timber wood by any other mode than forest leased2.50%
A forest produce other than Tendu leaves and timber2.50%
Scrap1%
Minerals like lignite, coal and iron ore1%
Bullion that exceeds over Rs. 2 lakhs/ Jewellery that exceeds over Rs. 5 lakhs1%
Purchase of Motor vehicle exceeding Rs. 10 Lakhs1%
Parking lot, Toll Plaza and Mining and Quarrying2%

Classification of Sellers and Buyers for TCS

  1. There are some specific people or organizations who have been classified as sellers for tax collected at 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 collection of tax at source.
    • 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

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.
  • 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 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 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.

Certificate of TCS

  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
  2. This certificate has to be issued within 15 days from the date of filing TCS quarterly returns. The due dates are:
Quarter EndingDate for generating Form 27D
For the quarter ending on 30th June30th July
For the quarter ending on 30th September30th October
For the quarter ending on 31st December30th January
For the quarter ending on 31st March30th May

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

TCS Exemptions

Tax collection at 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 under GST

  • Any dealer or traders selling goods online 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 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 (buyer). He receives an order for Rs 10, 000 inclusive of commission. Flipkart would thus be deducting tax for Rs 100 (1% of Rs. 10000).

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.

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