The income tax Act has many provisions for tax collection, Tax Collected at Source (TCS) is one of them. Sellers are responsible for collecting TCS from the buyer at the time of sale for certain goods and services. TCS can be credited back to the buyer when filing ITR; therefore, the Seller is not liable to credit it back to the buyer by himself.
In Budget 2023, TCS for foreign remittances under LRS was raised from 5% to 20%
Section 206C of Income Tax Act 1961 deals with the provisions of tax collection at source (TCS) by certain sellers from certain buyers. TCS is a mechanism to collect tax at the source from the buyers of specified goods or services. The objective of TCS is to ensure that the government gets its revenue at the earliest point of time and also to track transactions of high value. The seller who collects the tax must deposit it with the government and file quarterly returns. The buyer who pays the tax can claim credit for it while filing his income tax return.
Some specified organizations and people are classified as a seller for collecting tax at the source; any other sellers are not allowed to collect tax at the source.
A buyer is classified as a person or organization that purchases any goods and services from the seller or through the online platform, retailers, or wholesalers. Buyers may purchase goods or services by bidding on them. There are a few specified buyers who are exempted from TCS collection.
List of exempted buyers:
According to section 206CCA, the tax will be collected at a higher rate from the buyer if:
The rate of TCS varies depending on the type and value of goods sold. Here is a Chart of some common goods and the rate of tax applied to such goods:
| Sections | Types of Goods Transactions | Tax Rate |
|---|---|---|
| 206C(1) | Sale of the following goods: | |
| Alcoholic liquor for human consumption | 1% | |
| Tendu leaves | 5% | |
| Timber obtained under a forest lease | 2.5% | |
| Timber obtained by any mode other than under a forest lease | 2.5% | |
| Any other forest produce not being timber or tendu leaves | 2.5% | |
| Scrap | 1% | |
| Minerals like lignite, coal, and iron ore | 1% | |
| 206C(1C) | Permit of lease or license of the following: | |
| Toll Plaza | 2% | |
| Parking Lot | 2% | |
| Mining and Quarrying | 2% | |
| 206C(1F) | Motor vehicle (if the sale consideration exceeds ten lakh rupees) | 1% |
| 206C(1G)(a) | Remittance out of India under the Liberalised Remittance Scheme of RBI | 5% |
| 206C(1G)(b) | TCS on selling of overseas tour package | 5% |
| 206C(1H) | TCS on sale of any goods excluding goods on which TCS is applicable as per Section 206C (1), 206C (1F), and 206C (1G)] | 0.10% |
When the TCS collector files a quarterly TCS return (Form 27EQ), he must provide a TCS certificate to the buyer of goods.
Form 27D is the TCS certificate issued by the seller to the buyer. TCS certificate includes the following information:
TCS is exempted if:
People often need clarification on TDS and TCS, but these two tax provisions are completely different according to The Income Tax Act. The main difference between TDS and TCS is that the payer deducts TDS before paying the payee, while the seller collects TCS from the buyer at the time of sale. TDS is a tax deducted from Salary, professional fees, interest, etc. TCS is a tax the seller collects at the time of sale for specified goods and services described in the Income TAX Act.
If the TCS has not been paid on or before the due date, the seller will be charged 1% of the total collected amount.
TCS can be credited back to the buyer while filing ITR if eligible.
The seller has to submit challan 281 within 7 days after the month ends. (Monthly basis)
The seller is liable to collect TCS at the time of sale for specified goods and services and deposit it to the government on and before the due date.