Tax collected at source (TCS) on sale of goods: Rates, due date, and more
Tax Collected at Source (TCS) is a type of tax levied on certain transactions. This guide provides a comprehensive understanding of TCS
The Indian taxation system is vast and multifaceted, with various taxes applicable to different transactions. The Tax Collected at Source (TCS) is one such tax that holds significant importance. TCS is usually the tax a seller collects from the buyer when certain goods or services are sold. The primary purpose of TCS is to track the actual sale transactions and ensure compliance with the tax regime.
What is Tax Collected at Source (TCS)?
Tax Collected at Source (TCS) is an indirect tax sellers collect from buyers when selling specific goods or services. The collected tax is then remitted to the government. The rate of TCS is determined by the Central Board of Direct Taxes (CBDT) and varies depending on the type of goods or services being sold. It's a key component of the Indian taxation system, designed to ensure that taxes are collected efficiently and effectively at the point of transaction.
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Classification of buyers and sellers in TCS
In the context of TCS, a buyer is any person who obtains goods or services from a seller in any sale, exchange, or transfer. On the other hand, a seller is a person who is responsible for collecting tax at the source. The seller could be a central or state government, a local authority, a company, an individual, or a Hindu Undivided Family (HUF).
List of goods and corresponding TCS rates
The TCS rates are different for various goods and services. Here is a brief list of some common goods and services, along with their corresponding rates for Tax Collected at Source:
| Goods | TCS Rates |
|---|---|
| Alcoholic Liquor for human consumption | 1% |
| Tendu leaves | 5% |
| Timber obtained under a forest lease | 2.5% |
| Timber obtained from any other mode | 2.5% |
| Any other forest produce (not being timber/ tendu leaves) | 2.5% |
| Sale of scrap | 1% |
| Minerals (coal/ lignite/ iron ore) | 1% |
| Lease/ Licence of the parking lot | 2% |
| Lease/ Licence of the toll plaza | 2% |
| Lease/ Licence of Mining and Quarrying | 2% |
| Sale of a motor vehicle of value exceeding Rs10 Lakh | 1% |
Please note: These TCS rates are applicable for the Financial Year 2023-2024 (Assessment Year 2024-2025). The TCS rates are subject to change per the Income Tax Department guidelines.
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How to calculate TCS
The calculation of TCS is straightforward. It is computed as a percentage of the buyer's payment to the seller. If a buyer purchases a car worth Rs10,00,000 and the TCS rate is 1 percent, the TCS collected by the seller would be Rs10,000. This is remitted to the government.
TCS under the Liberalised Remittance Scheme (LRS)
The Reserve Bank of India's Liberalised Remittance Scheme (LRS) also involves TCS. If an individual remits more than Rs7 lakh in a financial year, they will have to pay TCS on the amount exceeding Rs7 lakh. This is done to ensure that the government can track the outflow of money from the country and maintain tax compliance. Individuals should be aware of this important aspect of the LRS when making remittances.
How to claim a TCS refund
Suppose the TCS collected from a buyer exceeds their actual tax liability. In that case, the buyer can claim a refund of the excess amount. To claim a TCS refund, the buyer must file their income tax return and show the amount of TCS collected from them as a tax credit. The TCS will be adjusted against the total tax liability of the buyer. The excess amount will be refunded if the TCS is more than the tax liability.
When claiming a TCS refund, it's important to remember that the refund can only be claimed once the seller has deposited the TCS with the government. The buyer should obtain a TCS certificate confirming the TCS has been collected and submitted to the government. This certificate validates the refund claim and ensures transparency.
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When filing quarterly TCS returns through Form 27EQ, a tax collector needs to provide a TCS certificate to the buyer. Form 27D is the certificate issued for the TCS returns filed, containing details such as the names of the counterparties, TAN of the seller, PAN of both parties, total tax collected and the rate applied, and the date of tax collection.
This certificate must be issued within 15 days from the filing of TCS quarterly returns. Here are the general TCS due dates:
| Quarter | Due date to file TCS return with Form 27EQ | Date for the generation of Form 27D |
|---|---|---|
| Quarter ending on June 30 | July 15 | July 30 |
| Quarter ending on September 30 | October 15 | October 30 |
| Quarter ending on December 31 | January 15 | January 30 |
| Quarter ending on March 31 | May 15 | May 30 |
FAQs
1. What is the difference between TDS and TCS?
TDS (Tax Deducted at Source) and TCS are methods of collecting tax at the source. The primary difference is that in TDS, the payer deducts the tax and pays the balance to the payee. In TCS, the seller collects the tax from the buyer at the point of sale.
2. Is TCS applicable to all sales?
No, TCS does not apply to all sales. It only applies to certain goods or services specified by the government.
3. Is TCS collected under GST? Who collects it?
Yes, under GST, TCS is collected by e-commerce operators while making payments to vendors. The payment is considered to be collected on the vendor's behalf for their supplies to the buyer.
4. What happens if TCS is not collected or paid?
The seller may face penalties per the Income Tax Act, 1961 provisions if TCS is not collected or paid. The penalties could include interest on the amount not collected or paid and a fine.
5. Can TCS be adjusted against future tax liabilities?
Yes, the amount of TCS collected can be adjusted against the future tax liabilities of the buyer. If the TCS collected is more than the actual tax liability of the buyer, the excess amount can be claimed as a refund.