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Indian Income Tax act has the 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:

  1. Tax collected at source (TCS)
  2. Goods covered under TCS provisions and rates applicable to them
  3. Classification of Sellers and Buyers for TCS
  4. TCS Payments & Returns
  5. Certificate of TCS
  6. TCS Exemptions
  7. TCS under GST

1.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.

2. 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 leased2.5%
Tendu leaves5%
Timber wood by any other mode than forest leased2.5%
A forest produce other than Tendu leaves and timber2.5%
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%

3. Classification of Sellers and Buyers for TCS

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 :

1. Central Government

2. State Government

3. Local Authority

4. Statutory Corporation or Authority

5. Company registered under Companies Act

6. Partnership firms

7. Co-operative Society

8. Any person or HUF who is subjected to an audit of accounts under Income tax act for a particular financial year.

Similarly, only a few buyers are liable to pay the tax at source to the sellers.

Let us know who are those buyers:

1. Public sector companies

2. Central Government

3. State Government

4. Embassy of High commision

5. Consulate and other Trade Representation of a Foreign Nation

6. Clubs such as sports clubs and social clubs

4. TCS Payments & Returns

a. The dates for paying TCS to the government are :

Collection Month

Quarter Ending Due date of Payment

Due Date of filing 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 March
February 7th March
March 7th April

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

b. 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.

c. Note: 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

d. 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.

5. 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:

a. Name of the Seller and Buyer

b. TAN of the seller i.e who is filing the TCS return quarterly

c. PAN of both seller and buyer

d. Total tax collected by the seller

e. Date of collection

f. The rate of Tax applied

3. This certificate has to be issued within 15 days from the date of filing TCS quarterly returns. The due dates are:

Quarter Ending Date for generating Form 27D
For the quarter ending on 30th June 15th August
For the quarter ending on 30th September 15th November
For the quarter ending on 31st December 15th February
For the quarter ending on 31st March 15th June

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

6. TCS Exemptions

Tax collection at source is exempted in the following cases :

1. When the eligible goods are used for personal consumption

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

7. TCS under GST

a. 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)

b. The tax would have to be deposited to the government by 10th of the next month.

c. All the dealers/traders are required to get registered under GST compulsorily.

d. 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).

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