What Is TCS Tax?

What is TCS?

The TCS full form in tax is the tax collected at the source. The Indian government has based the responsibility to collect and deposit the tax collected at source on the seller when selling goods and services to customers. Once collected, the seller has to deposit the tax with the government on behalf of the payee. The amount of TCS deducted depends on the nature of the payment, the amount of payment, and the applicable tax rate.

What is Tax Collected At Source?

The Indian government has set numerous mechanisms for Indian citizens and other legal entities to collect and deposit tax through various means. One such means is the tax collected at source, which entails the seller of goods and services collecting a certain percentage of tax from the buyer and depositing it with the government. The goods and services for which the seller has to collect and deposit the TCS are mentioned under Section 206C of the Income Tax Act 1961. 

The tax collected at source meaning example

If the purchase value of a box of chocolates is Rs 200, the customer has to pay Rs 40 in all, with Rs 40 depicting the tax received at the source. The seller will collect this tax from the customer and deposit it with an authorised bank, which will deposit it with the government. 

Under the TCS mechanism, the customer is not liable to deposit the tax with the government. The seller is responsible for collecting the tax from the buyer and depositing it with the government. Some of the goods on which TCS is applicable are; Alcoholic liquor for human consumption, tendu leaves, timber obtained from a forest, etc. 
 

TCS Applicability

The Indian government, with the Income Tax Department, has created a list of vendors who can collect and deposit tax collected at source to the government. However, as these vendors or sellers collect TCS for customers at the time of the sale, the Indian government has also specified a list of buyers from whom the sellers can collect the TCS. The list of sellers and buyers is included in the seller classification and buyer classification of the TCS. Collecting or paying TCS will be applicable if the seller or buyer belongs to any category mentioned in the classifications. 

Seller Classifications of TCS

These vendors, also known as TCs, must be sellers and belong to the following categories. However, to collect TCS, the seller must obtain a Tax Collection Account Number (TAN) from the Income Tax Department to collect TCS. The TCS collected by the seller must be deposited with the government within the prescribed time limit, failing which they may be subject to penalties and interest. Here is the seller classification for the TCS section: 

●    Central Government 
●    State Government 
●    Local Authority 
●    Statutory Corporation or Authority
●    Company registered under the Companies Act
●    Partnership firms
●    Co-operative Society
●    Any individual or HUF having their accounts audited for a specific financial year
 

Buyer Classification of TCS

When a buyer purchases certain goods or services subject to the TCS section, the seller must collect TCS based on the tax collected at the source limit from the buyer and deposit it with the government on behalf of the buyer. The buyer is not required to do anything additional besides paying the TCS and the seller's sale price. However, buyers need to be aware of the TCS tax rate provisions that may apply to their purchases, as they may impact the overall cost of the goods or services. Here is the buyer classification for the TCS section: 

●    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
 

Penalty Of TCS

Failure to collect and deposit Tax Collected at Source (TCS) within the prescribed time limit can attract penalties and interest under Income Tax Act, 1961 in India. The penalty may include a fine for non-collection of the TCS up to the TCS amount the seller failed to collect. Furthermore, the government can levy a penalty for non-deposit of TCS at 1% per month of the amount of TCS that the seller should have deposited. 

The Goods Covered Under TCS

Tax Collected at Source (TCS) applies to a wide range of goods and services in India. 

The goods coming under the TCS section are: 

●    Alcoholic liquor for human consumption 
●    Tendu leaves 
●    Timber obtained under a forest lease 
●    Timber obtained by any mode other than under a forest lease 
●    Any other forest produce not being timber or tendu leaves 
●    Scrap 
●    Minerals, being coal or lignite or iron ore

Type of Good and Rate of TCS?

Here is a detailed tabular representation of the types of goods and the tax collected at the source limit as a percentage. 

TCS Return Due Dates

Here are the due dates for filing tax collected at source return for FY 2023-24: 

Certificate of Tax Collected at Source

The Indian government issues a certificate of tax collected at the source to the seller/recipient of goods or services. However, the collector of the tax collected at the source must submit the certificate in Form 27D within a week of the last day of the month in which the tax was paid. Any individual or organisation, including in the seller classification of the TCS is liable to use the certificate to deposit the TCS with the government. 

The certificate for TCS contains details such as the collector's name and address, the seller's name and address, the amount of TCS collected, and the date on which the entity collected the TCS. The certificate is usually issued quarterly. The TCS certificate is important for the seller/recipient of goods or services as it serves as proof of TCS payment. The certificate can be used to claim credit for TCS against the total tax liability of the seller/recipient.
 

TCS Exemption

The buyer can claim a lower tax rate in the TCS section by submitting Form 13 to an assessing officer. However, it is up to the assessing officer to assess the buyer's income and provide a lower rate for TCS if the officer is satisfied that the income fulfils the conditions for a lower tax rate. The officer may also provide a certificate to the buyer specifying the applicable lower tax rate for the buyer. 

Total Tax Exemption

A buyer who uses the collected amount for purposes such as processing, manufacturing and production of goods/articles of things is exempted from paying TCS to the government. However, the buyer has to declare the same by submitting Form 27C to the seller in duplicate. In such a case, the seller is responsible for further submitting the duplicate form collected from the buyer to the Chief Commissioner/Commissioner of Income Tax.

Electronic TCS (e-TCS)?

Electronic TCS (e-TCS) is a system introduced by the Income Tax Department in India to facilitate the filing of TCS returns in an electronic format. Under this system, collectors of TCS are required to file their TCS returns in an electronic format using the e-TCS return preparation utility provided by the Income Tax Department.

TCS on Gold

TCS on gold is applicable when a seller, who is in the business of selling gold, sells gold exceeding Rs. 2 lakhs to a buyer. The seller must collect TCS at 1% of the sale consideration from the buyer and deposit the same with the government. The seller must issue a TCS certificate to the buyer in Form 27D.

Difference Between TDS and TCS?

While both TDS and TCS are forms of tax collection at the source, there are some key differences between the two: 

●    TDS is applicable on payments made to residents, while TCS is applicable on the sale of certain specified goods or services.

●    The deductor is the person who makes a payment and deducts TDS, while the collector is the person who collects TCS from the buyer.

●    TDS is deducted at the time of payment, while TCS is collected at the time of sale.