Tax collection at source (TCS) is a mechanism to collect tax from the buyers of certain goods or services at the time of sale. The seller who collects the tax has to deposit it with the government and file quarterly returns. When submitting his income tax return, the buyer who has paid the tax may claim credit for it.
Section 206C of the Income Tax Act, 1961, specifies the goods and services on which TCS is applicable, the rates of TCS, the exemptions and exceptions, and the compliance requirements for the sellers and buyers.
In this blog post, we will explain the key provisions of section 206C and how they affect you as a seller or a buyer. We will also discuss the recent changes and amendments introduced by the Finance Act, 2023, and the Finance Act, 2024, about TCS.
What is TCS and Why is it Important?
TCS stands for tax collection at source. It is a way of collecting tax from the source of income, i.e., the buyer of certain goods or services. TCS wants to make sure that the government receives its money as soon as possible and that high-value transactions are tracked. TCS also helps in preventing tax evasion and widening the tax base.
TCS is different from TDS (tax deducted at source), which is a way of collecting tax from the recipient of income, i.e., the seller of certain goods or services. TDS is applicable on payments such as salary, interest, commission, rent, etc. TCS is applicable on receipts such as the sale of scrap, liquor, forest produce, minerals, etc.
TCS is important for both the sellers and the buyers. The sellers have to collect the tax from the buyers and deposit it with the government within the prescribed time limit. They also have to file quarterly returns and issue TCS certificates to the buyers.
The buyers have to provide their PAN or Aadhaar number to the sellers and claim credit for the tax paid while filing their income tax return. If the sellers or the buyers fail to comply with the TCS provisions, they may face penalties and interest charges.
Also Read: Section 194C TDS on Payment to Contractor
What are the Goods and Services on Which TCS is Applicable?
| 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
Section 206C provides some exemptions and exceptions from TCS for certain cases.
These are:
Government Entities and Notified Persons
TCS is not applicable if the buyer is a State Government, the Central Government, an embassy, a high commission, a consulate, or any other person that the Central Government notifies.
Buyers Who Deduct TDS
If the buyer is liable to deduct tax at source under any other provision of the Income Tax Act and has deducted such tax, TCS is not applicable.
Export of Goods
If the goods are exported out of India, TCS is not applicable.
Personal Consumption
If the goods are used for personal consumption, TCS is not applicable.
Manufacturing, Processing, or Producing Purposes
TCS does not apply if the buyer specifies that the products are to be used in the manufacturing, processing, or production of goods.
Non-Resident Buyers with Tax Treaty
If the buyer is a non-resident and the remittance is made through a banking channel and is covered under a tax treaty, TCS is not applicable.
Exclusive Exporters
If the sale of goods is made by a person exclusively engaged in the business of exporting goods or providing services or both to a non-resident, TCS is not applicable.
Registered Importers
If the sale of goods is made by a person to an importer who is registered under the Customs Act, 1962, TCS is not applicable.
What are the Compliance Requirements for the Sellers and Buyers?
The sellers who collect TCS have to comply with the following requirements:
- Obtain a tax deduction and collection account number (TAN)
- Collect the tax from the buyer at the time of sale or at the time of receipt of sale consideration, whichever is earlier
- Deposit the tax collected with the government within seven days from the end of the month in which the tax is collected
- File quarterly TCS returns in Form 27EQ within the due dates
- Issue TCS certificates in Form 27D to the buyers within fifteen days from the due date of filing the TCS return
- Maintain a register of TCS transactions in Form 27E
- Report the TCS transactions in the annual statement of financial transactions (SFT) in Form 61A
The buyers who pay TCS have to comply with the following requirements:
- Provide their PAN or Aadhaar number to the sellers
- Verify the TCS certificates issued by the sellers
- Claim credit for the tax paid while filing their income tax return
- Report the TCS transactions in the annual information return (AIR) in Form 61B
Also Read: How Section 194N and 194NF Affect Your Cash Withdrawals and Income Distribution
What are the Recent Changes and Amendments Concerning TCS?
The Finance Act, 2023, and the Finance Act, 2024, have introduced some changes and amendments about TCS.
These are:
- The scope of TCS has been expanded to include remittance under the Liberalised Remittance Scheme of RBI, overseas tour program package, and sale of goods
- The threshold limit for TCS on sale of goods has been reduced from one crore rupees to fifty lakh rupees in a financial year
- The rate of TCS on sale of goods has been reduced from 1% to 0.1% (0.075% for the period from 14th May 2020 to 31st March 2021)
- The rate of TCS on remittance under the Liberalised Remittance Scheme of RBI has been reduced from 5% to 0.5% (0.375% for the period from 14th May 2020 to 31st March 2021)
- The rate of TCS on overseas tour program packages has been reduced from 5% to 0.5% (0.375% for the period from 14th May 2020 to 31st March 2021)
- The seller has to collect TCS on the entire amount of sale consideration, irrespective of whether any part of it is received before 1st October 2020 or not
- The seller has to collect TCS on the amount exceeding fifty lakh rupees in a financial year from a buyer, irrespective of whether the sale is a single transaction or multiple transactions
- The seller has to collect TCS on the amount exceeding seven lakh rupees in a financial year remitted by a buyer under the Liberalised Remittance Scheme of RBI, irrespective of the purpose of remittance
- The seller has to collect TCS on the amount exceeding seven lakh rupees in a financial year paid by a buyer for an overseas tour program package, irrespective of the mode of payment
- The buyer has to furnish a declaration in Form 15CB to the authorized dealer for remittance under the Liberalised Remittance Scheme of RBI if the amount remitted exceeds seven lakh rupees in a financial year and TCS is not applicable
- The buyer has to furnish a declaration in Form 15CA to the income tax authority for remittance under the Liberalised Remittance Scheme of RBI if the amount remitted exceeds seven lakh rupees in a financial year and TCS is applicable
- The buyer has to furnish a declaration in Form 15CC to the income tax authority for payment for an overseas tour program package if the amount paid exceeds seven lakh rupees in a financial year and TCS is applicable
FAQs:
Q: What is Section 206C tax collection at source (TCS)?
A: Section 206C TCS means when sellers collect tax from buyers when they buy certain things. Sellers give this tax to the government and report it every three months. Buyers can use this tax they paid when they file their tax returns.
Q: On which goods and services is TCS applicable?
A: TCS applies when you buy things like alcohol, timber, minerals, or services like parking, tolls, or tours. The amount of tax and when it's needed depends on what's being bought.
Q: What are the exemptions and exceptions from TCS?
A: Some people or situations don't need to pay this tax. For example, if the buyer is the government, if tax is already deducted, or if the goods are being exported, then TCS might not apply.
Q: What are the compliance requirements for sellers and buyers under TCS?
A: Sellers need to get a special number, collect the tax, give it to the government, and tell them about it every three months. Buyers need to give their ID number, check the tax certificate, and report it when they file their taxes.
