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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!
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.
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%|
|Timber wood by any other mode than forest leased||2.5%|
|Forest produce other than Tendu leaves and timber||2.5%|
|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|| |
|Where total turnover is more than Rs.10 crores in the previous 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)
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-
Such a higher TCS rate will be the highest of the following two rates-
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.
The seller must collect TCS at the earlier of the following two dates:
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.
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.
|Quarter Ending||Due date to file TCS return in Form 27EQ||Date for generating Form 27D|
|For the quarter ending on 30th June||15th July||30th July|
|For the quarter ending on 30th September||15th October||30th October|
|For the quarter ending on 31st December||15th January||30th January|
|For the quarter ending on 31st March||15th May||30th May|
In case you are still confused about filing TCS returns, feel free to consult the tax experts at ClearTax.
Tax collection at the source is exempted in the following cases:
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:
As per income tax law, the seller shall collect TCS from the buyer at the time of debiting the amount payable to the buyer’s account or at the time of receipt of such amount from the said buyer by any mode, whichever is earlier. So the amount debited to the buyer’s account or payment received by the seller shall be inclusive of VAT/excise/GST. Hence, one should collect the TCS inclusive of GST.
If the person fails to file the TCS return on or before the due date prescribed in the income tax law, a fee of Rs.200 per day must be paid, during which the failure continues. However, the amount of late fees shall not exceed the amount of TCS. One should deposit the late filing fees before filing the TCS return. Note that Rs. 200 per day is a late filing fee, not a penalty.
As per the Income Tax Act, if any person does not file the TCS return on or before the due date prescribed in the Income Tax Act, a fee of Rs 200 per day must be paid, during which the failure continues. However, the amount of late fees shall not exceed the amount of TCS. One should deposit the late filing fees before filing the TCS return. Note that Rs. 200 per day is a late filing fee, not a penalty.
Penalty under Section 271H can also be levied if the tax collector files an incorrect TCS return. In other words, a minimum penalty of Rs 10,000 and a maximum penalty of up to Rs 1,00,000 can be levied if the collector files an incorrect TCS return.
Yes, Form 26AS displays details of Tax Collected at Source (TCS) by a seller of specified goods when such goods were sold to you. It will display the seller’s details along with the TCS amount and the transaction on which tax was collected at the source.
Yes, the buyer can adjust the TCS later on while making a payment towards self-assessed tax liability in later assessment years.
Yes, the TCS collected on a buyer’s PAN is available for adjustment just like the TCS.
These provisions were enacted on account of the difficulties faced by the tax department assessing the income of assesses who enters into contracts for the sale of liquor, scrap, forest products, etc. The legal entities such as firms or AOPs are set up for this, and after the signing of the contract, no trace is left. Hence, to combat large scale tax evasion by income tax assessees in such products, Section 206C of TCS was introduced.
The tax collected at the source is the same as the income tax revenue collected in advance by the tax department for a financial year. It is used for the upliftment of backward sections of the society, education, infrastructural development of the nation, etc.