Tax Collected at Source (TCS)

For you, as a taxpayer or business owner, understanding Tax Collected at Source (TCS) is not just a legal requirement but a strategic necessity. It can help you streamline your financial processes, plan your taxes effectively, and avoid costly penalties. TCS compliance encourages trust in business transactions and strengthens your professional reputation.

What is Tax Collected at Source (TCS)?

TCS full form in tax is Tax Collected at Source. If you wonder, what is TCS tax, it is a tax mechanism governed by Section 206C of the Income Tax Act. It ensures tax compliance by collecting tax at the point of transaction. In simple terms, TCS refers to the tax collected by a seller from the buyer at the time of sale of specified goods or services. This proactive approach facilitates timely tax collection and reporting, benefiting both taxpayers and the government.

Applicability of TCS

TCS applies to specific transactions involving certain goods, services, or payments. Sellers and buyers falling under defined categories are required to comply with TCS regulations.

Classification of Sellers for TCS

• Sellers include government bodies, local authorities, statutory corporations, or entities involved in the sale of specified goods or services.
• Private entities or individuals engaged in business or trade exceeding prescribed turnover thresholds are also classified as sellers under TCS provisions.

Classification of Buyers for TCS

• Buyers include individuals, companies, or entities purchasing specified goods for trading or commercial purposes.
• Exemptions may apply to buyers using goods for personal consumption or if specified thresholds are not met.

Goods and Transactions Covered Under TCS

TCS is applicable to transactions involving:

• Liquor, scrap, minerals, and motor vehicles above-specified value limits.
• Foreign remittances and e-commerce sales.
• Overseas tour packages.

TCS Rates and Applicability

Different transactions attract varying TCS rates, with adjustments for specific scenarios or exemptions.

Higher TCS Rate Applicability Scenarios

• Non-furnishing of PAN or Aadhaar by the buyer can lead to higher TCS rates.
• Foreign remittance transactions exceeding threshold limits attract higher rates.

Examples of TCS Calculation

• Sale of Scrap: For a transaction worth ₹5,00,000 at a TCS rate of 1%, the TCS collected is ₹5,000.
• Sale of Motor Vehicle: For a car worth ₹12,00,000, the TCS collected at 1% is ₹12,000.
• Foreign Remittance: For ₹10,00,000 remitted abroad at a rate of 5%, the TCS amount is ₹50,000.

TCS Payment Process and Deadlines

• Sellers must collect TCS at the time of payment or delivery, whichever is earlier.
• Depositing TCS to the government must be done by the 7th of the following month. Delays may result in penalties and interest.

Filing TCS Returns

Sellers must file quarterly TCS returns (Form 27EQ) detailing collections, deposits, and buyer information. Accurate reporting ensures smooth compliance and prevents discrepancies, as it is crucial for entities filing ITR to adjust TCS income tax collected.

TCS Certificate – Issuance and Verification

After depositing TCS, sellers issue a TCS certificate (Form 27D) to buyers. This document is essential for buyers to claim TCS credits in their tax filings. The TCS certificate (Form 27D) includes the following details:

• Seller’s and buyer’s PANs.
• Names of the seller and buyer.
• Amount of TCS collected.
• Date of tax collection.

Buyers should cross-check the certificate thoroughly to ensure all details are accurate and address any discrepancies promptly to avoid delays in adjusting TCS credits.

Exemptions Under TCS Provisions

Certain transactions and entities are exempt from TCS, including:

• Government organizations.
• Individuals purchasing goods for personal use.
• Transactions below specified thresholds.

TCS Provisions Under GST for E-Commerce Transactions

E-commerce operators are mandated to collect Tax Collected at Source (TCS) under GST provisions. The process works as follows:

• Applicability: TCS applies to the net value of taxable supplies made through e-commerce platforms, excluding exempt supplies and goods returned.
• Collection and Deposit: Operators must collect TCS at a rate of 1% on the net taxable value of sales and deposit it with the government by the 10th of the following month.
• Credit to Sellers: The amount collected as TCS is credited to the seller’s electronic cash ledger. Sellers can utilize this amount to offset their GST liabilities.
• Compliance: Operators must also file GSTR-8, a monthly return detailing TCS collections and supplies made through the platform.

TCS on Foreign Remittance Transactions

Foreign remittances exceeding ₹7 lakhs attract a TCS rate of 5%. For educational or medical remittances up to ₹7 lakhs, a reduced rate of 0.5% applies.

Examples:

• If an individual remit ₹10,00,000 abroad for a general purpose, the TCS collected would amount to ₹50,000.
• Suppose ₹9,00,000 is remitted for educational purposes, the TCS on the first ₹7,00,000 would be ₹3,500 (0.5%), and on the remaining ₹2,00,000, it would be ₹10,000 (5%), totaling ₹13,500. This ensures compliance without undue burden for genuine expenses.

Interest and Penalties

Failure to comply with TCS provisions results in financial consequences for sellers.

Interest Chargeable for Non-payment of TCS

Interest is charged at 1% per month for delays in depositing TCS to ensure timely compliance and discourage lapses.

Penalty for Incorrect Filing of TCS Returns

Incorrect or delayed filing of TCS returns can lead to penalties of up to ₹10,000. Accuracy in reporting is important to avoid such charges.

Differences Between TDS and TCS

Conclusion

Tax Collected at Source ensures efficient tax compliance, contributing to India’s fiscal health. Looking forward, businesses should focus on building automated systems for TCS compliance to minimize errors and delays. Implementing regular training for staff on TCS processes and staying updated on regulatory changes are crucial steps. Leveraging technology for accurate record-keeping and timely submissions can further ensure seamless compliance and promote trust in business dealings.

Common FAQs on TCS