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Tax Collected at Source (TCS) in GST: Overview, Rates, Exemption, Payment

Understanding TCS in Detail

TCS or Tax Collected at Source, is a tax levied by the seller on specified goods and services. This tax is paid by the buyer at the point of payment. The amount collected is then turned over to the government by the seller themselves. The rates applied to various transactions, as well as other pertinent details for both buyers and sellers, are outlined in the Income Tax Act of 1961

Let's delve deeper into understanding these provisions.

Understanding the Buyers and Sellers in TCS

Defining the Buyers 

As stipulated by the Act, a buyer is defined as an individual or entity who procures goods via a sale. This definition also extends to those who are liable to receive goods through auctions, tenders, and other similar methods. These individuals or entities are obligated to deduct TCS. However, certain categories of buyers are exempt from this requirement. They include public sector companies, central and state governments, embassies, high commissions, foreign consulates, and clubs. 

Identifying the Sellers 

Only a select group of sellers are legally permitted to collect tax at source. Others are strictly prohibited from doing so. The categories of sellers authorised to collect TCS are as follows: 

  1. Central and state governments as well as local authorities
  2. Statutory corporations
  3. Companies registered under the Companies Act
  4. Partnership firms
  5. HUFs and individuals subject to tax audit
  6. Co-operative societies

 

TCS Rates for Fiscal Year 2021-2022

The Income Tax Act, 1961, specifically under Section 206C, sets out the legal framework and rates for Tax Collected at Source (TCS). This section illustrates the various rates applied to specific goods and services. See the following table for a comprehensive breakdown: 

Particulars Rate
Alcoholic liquor for human consumption and Indian made foreign liquor 1%
Sale of scrap 1%
Sale of tendu leaves 5%
Sale of timber obtained under a forest lease, or any other mode 2.5%
Sale of any other forest produce not being timber, or tendu leaves 2.5%
Sale of minerals – coal, lignite, or iron ore 1%
Lease or license of parking lot, toll plaza, mining and quarrying (excluding mineral oil, petroleum, and natural gas) 2%
Sale of motor vehicle (irrespective of payment mode) valued over Rs. 10 lakh 1%
Foreign remittance exceeding Rs. 7 lakh in a fiscal year under the Liberalized Remittance Scheme of the RBI 5%
Foreign remittance over Rs. 7 lakh in a financial year under the RBI's Liberalized Remittance Scheme, where the remittance is funded by an educational loan from a financial institution 0.5%
Sale of overseas tour package 5%
Sale of goods valued over Rs. 50 lakh (excluding above-mentioned goods) where the business's gross receipts or total sales or turnover exceeds Rs. 10 cr. in the preceding financial year 0.1%

TCS Rates when PAN isn't Available

In line with section 206CC, when the PAN isn't available, the applicable TCS rate is the higher of the following: 

  • Double the standard rate, as stipulated by relevant provisions
  • 5%, or 1% if the sold goods' value exceeds Rs. 50 lakh (as noted in the final point)

 

TCS Rates for Those Who Haven't Filed ITR

The Union Budget 2021 introduced section 206CCA of the Income Tax Act. According to these provisions, the TCS for specified individuals—those who haven't filed an ITR—will be applied at the higher of the following rates: 

  • Double the standard rate, as stipulated by relevant provisions
  • 5%

 

Note: The instructions under section 206CC take precedence over those under section 206CCA. 

TCS Exemptions

There are certain situations where TCS is exempted: 

  • When goods are bought for personal usage.
  • When goods are bought for purposes such as manufacturing, processing, or production, and not for trade.

 

Understanding TCS in the Context of GST

Those conducting business through e-commerce platforms are subject to TCS under the CGST Act. In other words, e-commerce operators are charged with the responsibility of collecting TCS on behalf of the suppliers who use their platform. This stipulates that all suppliers on these platforms must be registered under GST. 

The rate of TCS is set at 1% under the IGST Act, which is made up of 0.5% CGST and 0.5% SGST. The e-commerce platform is responsible for deducting this amount and remitting the balance to the supplier. 

To illustrate, let's consider X Ltd., a company registered on Amazon as a seller of lamps. If a customer purchases a lamp priced at Rs. 1,000, Amazon is required to deduct Rs. 10 (1% of Rs. 1,000) as TCS before paying the remainder to X Ltd.

 

Understanding the Process of TCS Deposit and Return Filing

Payment of Tax Collected at Source (TCS) is a duty that falls on the tax collector. This duty involves collecting the tax and depositing it with the Government. Two predominant situations can arise in this process: 

  1. Depositing TCS collected by a Government Office: When a government office collects the tax, the deposit timing depends on the presence of an income tax challan. In cases where no income tax challan is generated, the deposit must be made on the same day. However, if there is an income tax challan, the deposit can be made on or before seven days from the end of the month in which the tax is collected.
  2. Depositing TCS collected by an Ordinary Individual: In instances where an ordinary individual is the tax collector, the deadline for depositing the collected tax is within seven days from the last day of the month in which the tax was collected.

 

Note: It's paramount for tax collectors to adhere to these deadlines to ensure proper compliance and avoid penalties.

Deposition Methods

Depositing the collected tax to the central government can be conducted through two channels: 

  • Firstly, e-payment has been made compulsory for all corporate taxpayers and others to whom the stipulations of section 44AB apply. This method involves filing the tax electronically. 
  • Alternatively, taxpayers can opt for physical deposits where they visit any authorised bank branch and provide challan no. 281. 

 

When a government office collects the amount, the deposit is remitted through a book adjustment and an income-tax challan is generated. For this, Form 24G is submitted to the National Securities Depository Limited (NSDL) by the respective office. 

Filing TCS Returns

Tax collectors are required to file TCS returns on a quarterly basis. In order to do so, Form 27EQ is completed and submitted. It is important to note that any delay in depositing the tax with the government necessitates payment of interest before the return can be filed.  

Issuing TCS Certificates

Upon filing the return, the tax collector must provide a TCS Certificate to the buyer of the goods. This is accomplished through Form 27D. It is required to be issued within 15 days following the return filing.

 

Wrapping Up

Although TCS might not have a direct impact on the ordinary consumer, staying updated with its provisions is of utmost importance. It is essential for the respective buyers and sellers to thoroughly understand the regulations to ensure lawful compliance. 

The Indian government consistently revises and fine-tunes these rules and regulations. Therefore, it is advisable to regularly monitor Government policies. 

For expert advice on tax matters, don't hesitate to consult your Chartered Accountant or tax advisor.

author

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

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