Ever bought a car, jewelry, or even booked an expensive overseas tour and wondered why an extra tax was collected at the time of purchase? That’s Tax Collection at Source (TCS) in action!
TCS is a system where sellers collect tax from buyers on specified transactions and deposit it with the government. But why does this exist?
Simply put, it ensures tax compliance, prevents evasion, and brings high-value transactions under the tax net.
In this blog, we’ll break down Section 206C of the Income Tax Act, 1961, explaining what TCS is, which transactions attract it, the latest amendments, and what both buyers and sellers need to do to stay compliant.
What is TCS and Why Does It Matter?
TCS stands for Tax Collection at Source, which means that when a buyer purchases specific goods or services, the seller collects an additional percentage of tax and deposits it with the government. The buyer can later claim this tax while filing their income tax return.
This system benefits the government by ensuring that taxes are collected upfront and discouraging tax evasion. For sellers, it’s an additional compliance responsibility, while buyers must ensure they claim the tax credit properly.
It’s important to differentiate TCS from TDS (Tax Deducted at Source):
- TDS is deducted by the payer on income paid to another person (like salary or rent).
- TCS is collected by the seller from the buyer at the point of sale of certain goods or services.
Goods and Services on Which TCS is Applicable
Below is a list of transactions where TCS applies:
| Goods and Services | TCS Rate | Threshold Limit |
|---|---|---|
| Alcoholic liquor for human consumption | 1% | No limit |
| Tendu leaves | 5% | No limit |
| Timber obtained under a forest lease | 2.50% | No limit |
| Timber obtained by any mode other than under a forest lease | 2.50% | No limit |
| Any other forest produce not being timber or tendu leaves | 2.50% | No limit |
| Scrap | 1% | No limit |
| Minerals, being coal or lignite or iron ore | 1% | No limit |
| Bullion or jewelry (if the sale consideration is paid in cash exceeding two lakh rupees) | 1% | Two lakh rupees |
| Parking lot, toll plaza, mining and quarrying | 2% | No limit |
| Motor vehicle (if the sale consideration is paid in cash exceeding ten lakh rupees) | 1% | Ten lakh rupees |
| Remittance under the Liberalised Remittance Scheme of RBI (if the amount remitted exceeds seven lakh rupees in a financial year) | 0.5% (0.375% for the period from 14th May 2020 to 31st March 2021) | Seven lakh rupees |
| Overseas tour program package (if the amount paid exceeds seven lakh rupees in a financial year) | 5% (0.375% for the period from 14th May 2020 to 31st March 2021) | Seven lakh rupees |
| Sale of goods (if the receipt of sale consideration exceeds fifty lakh rupees in a financial year from a buyer) | 0.1% (0.075% for the period from 14th May 2020 to 31st March 2021) | Fifty lakh rupees |
Exemptions and Exceptions from TCS
Certain buyers and transactions are exempt from TCS under Section 206C. These include:
- Government Entities: TCS is not applicable if the buyer is the Central or State Government, an embassy, or a high commission.
- Buyers Deducting TDS: If the buyer deducts TDS under another section, TCS does not apply.
- Export of Goods: TCS is not levied on export transactions.
- Personal Use: If the buyer intends to use the purchased goods for personal consumption, TCS is not required.
- Manufacturing & Processing: If the goods are bought for manufacturing or production purposes, TCS does not apply.
- Non-Resident Buyers: If a non-resident buyer is covered under a tax treaty and follows banking regulations, TCS may not be applicable.
Compliance Requirements for Sellers and Buyers
Sellers’ Responsibilities:
- Obtain a Tax Deduction and Collection Account Number (TAN).
- Collect TCS at the time of sale or payment receipt.
- Deposit the collected tax with the government within seven days of the next month.
- File quarterly TCS returns (Form 27EQ).
- Issue TCS certificates (Form 27D) to buyers within 15 days of filing returns.
- Maintain proper records of transactions and report them in Form 61A (Annual SFT Statement).
Buyers’ Responsibilities:
- Provide their PAN/Aadhaar to sellers to avoid higher TCS rates.
- Verify TCS certificates received from sellers.
- Claim TCS credit while filing their Income Tax Return (ITR).
- Report TCS transactions in Form 61B (Annual Information Return - AIR) if applicable.
Recent Changes and Amendments (Finance Act, 2023 & 2024)
Several modifications have been introduced in recent Finance Acts to expand the scope of TCS:
TCS on Sale of Goods:
- The threshold was reduced from Rs. 1 crore to Rs. 50 lakh.
- The rate was revised to 0.1% (0.075% for a limited period).
TCS on Overseas Remittances & Tour Packages:
- Transactions exceeding Rs. 7 lakh now attract TCS.
- The rate varies from 0.5% to 5% based on the transaction type.
TCS is applicable on the entire sale amount if the threshold is crossed, regardless of individual transaction values.
Declaration Forms:
- Buyers must file Form 15CA & 15CB for remittances exceeding Rs. 7 lakh.
- For overseas tours, Form 15CC is required.
FAQs:
What is TCS under Section 206C?
TCS is a tax collected by sellers from buyers on specific goods and services. The collected amount is deposited with the government, and buyers can claim credit while filing ITR.
What’s the difference between TCS and TDS?
TCS is collected by the seller from the buyer at the point of sale, while TDS is deducted by the payer before making a payment (e.g., salary, rent, commission).
What happens if a seller fails to collect TCS?
Non-compliance can lead to penalties, interest charges, and even prosecution in severe cases.
Can buyers get a refund for TCS paid?
Yes, buyers can claim credit for the TCS amount when filing their Income Tax Returns (ITR).
Is TCS applicable on digital transactions?
Yes, TCS applies regardless of the mode of payment if the transaction meets the threshold criteria.
TCS under Section 206C
TCS under Section 206C plays a crucial role in preventing tax evasion and ensuring that high-value transactions are properly recorded.
Whether you’re a seller responsible for collecting it or a buyer wondering why you’re paying extra tax, understanding the rules can help you navigate the process smoothly.
By staying updated on the latest amendments and compliance requirements, businesses and individuals can avoid penalties and optimize their tax filings. So, keep an eye on the thresholds, maintain proper records, and claim your TCS credit without hassle!
For more tax-related insights, stay tuned to our blog!
