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.
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:
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:
|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%|
In line with section 206CC, when the PAN isn't available, the applicable TCS rate is the higher of the following:
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:
Note: The instructions under section 206CC take precedence over those under section 206CCA.
There are certain situations where TCS is exempted:
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.
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:
Note: It's paramount for tax collectors to adhere to these deadlines to ensure proper compliance and avoid penalties.
Depositing the collected tax to the central government can be conducted through two channels:
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.
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.
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.
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.