What Is Tax Collected at Source (TCS): Rates, How to Pay, Due Date And Exemptions

Income Tax

To streamline the taxation system in India and make it more efficient, the Income Tax Department has various provisions for collecting taxes. In most of these provisions, certain appointed people collect a percentage of tax from a group of specified individuals and deposit it with the IT department. 

Tax Collected at Source or TCS is one such mechanism in which a seller collects taxes on behalf of buyers at the time of sale. 

What is Tax Collected at Source (TCS)?

Tax Collected at Source or TCS is an additional amount that a seller needs to collect from buyers during the generation of invoice/bill. This amount collected is over and above the selling price of goods.  Under this mechanism, one refers to the seller as a collector and the buyer as collected. Collectors are liable to deposit the collected tax amount with the government before or on the due date. 

However, only certain transactions fall under the purview of TCS. Section 206C provides an exhaustive list of goods and the rate of TCS applicable on their sale. This section also specifies the category of buyers and sellers who fall under or outside the purview of TCS. 

Goods Covered under TCS and TCS Rates in India

When the below-mentioned goods are utilised for trading purposes, their sale attracts TCS. Note that if persons use these goods for manufacturing, processing, or producing things, they do not have to pay TCS. 

Who is a Seller under TCS Mechanism?

As per Section 206C of the Income Tax Act, there are only a few people or organisations that qualify as sellers. The following are liable to collect TCS and deposit it with the government:

• Central Government
• State governments
• Local authority
• Co-operative society
• Partnership firms
• Company registered under Companies Act
• Statutory corporation or authority
• HUFs or individuals are liable to an audit of accounts if their total sales exceed the specified monetary restrictions under Section 44AB in the preceding year.  

Who is a Buyer under TCS Mechanism?

According to Section 206C of the Income Tax Act, a buyer is an entity who purchases specified goods through sale, tender, auction, etc. The buyer then has the right to receive such goods and use them. However, the following list of individuals and entities do not qualify as buyers for Tax Collected at Source. 

• Central Government
• State governments
• Consulate
• Embassy or High Commission
• Clubs like a sports club or social club
• Public sector entities
• Representative of a foreign nation’s trade committee 

Payment of Tax Payment at Source

Sellers, liable to collect taxes, have to file quarterly TCS returns by filling out and submitting Form 27EQ. Tax collectors need to deposit the tax amount with the government within 7 days from the last day of the month in which they collected TCS. This deposition needs to take place through Challan 281. 

However, if tax collectors delay collecting TCS or depositing it with the government, they face a penalty of 1% interest per month. 

Also Read: Tax Deduction At Source Vs Tax Collected At Source: Meaning, Rates And More

Certificate of Tax Collected at Source (TCS)

A seller, who collects taxes, has to provide Form 27D, commonly known as TCS certificate, to the buyers within 15 days from the date of ​​filing quarterly TCS returns. It is given to buyers to allow them to file TCS returns for every financial year. 

If one loses the TCS certificate, the entity in charge of collecting taxes can issue a duplicate certificate. This can be done by printing out Form 27 on plain paper and getting it attested.

A TCS certificate (Form 27D) consists of the following details:

• Name of the seller and buyer
• Date of collection
• PAN of the seller and buyer
• TAN of the seller who collects taxes
• Applied tax rate 
• Total tax collected by the seller 

Due Date for Generating Form 27D

As mentioned above, a seller needs to issue TCS certificate within 15 days of filing quarterly TCS returns. The due dates for each quarter are as follows:

Exemptions from Tax Collected at Source (TCS)

There are two circumstances under which TCS gets exempted. These are given below:

• TCS at a lower rate

Using Form 13, a taxpayer can make an application to the Assessing Officer or AO for the collection of TCS at a lower rate. If officers are convinced with the case put forward, then they will issue a certificate for the lower rate. 

• Total tax exemption

By filing Form 27C, a buyer declares that the goods purchased are for manufacturing, processing or production. Thus, by declaring that the goods are not for trading, one is able to claim non-applicability of TCS.  

Also Read: Understanding Section 206(1H): TCS On Sale Of Goods Under Finance Act, 2020

Final Word

The introduction of Tax Collected at Source has been successful in simplifying and organising the Indian taxation system. Moreover, it has also helped the government reduce cases of tax evasion. That said, buyers should be aware of the applicability of TCS and the tax rates on various goods to avoid paying higher taxes. 

FAQs on Tax Collected at Source (TCS)

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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.