What Is TCS Tax?

What is Tax Collected at Source (TCS)?

Definition of TCS

Tax Collected at Source (TCS) is a direct tax collected by the seller from the buyer at the time of selling specific goods and services. The seller, also referred to as the collector, is responsible for depositing the tax amount with the government within a stipulated period.

The purpose of TCS is to ensure that tax is collected at the origin of a transaction before it reaches the buyer, thus improving compliance and reducing tax evasion. The collected amount is adjusted against the buyer's tax liability at the time of filing their income tax return.

How Does TCS Work?

To understand the working of TCS, consider the following example:

Example:
A car dealership sells a vehicle worth ₹12 lakh. Since motor vehicles costing above ₹10 lakh fall under TCS provisions, the dealer must collect 1% TCS from the buyer at the time of sale.

Car Price: ₹12,00,000
TCS @ 1%: ₹12,000
Total Payable by Buyer: ₹12,12,000

Here, ₹12,000 is collected as TCS, which the dealer must deposit with the government using Challan 281 before the due date.
 

Applicability of TCS

Who is Required to Collect TCS?

TCS is applicable to certain categories of sellers who are mandated to collect tax at the source. These sellers include:

1. Central Government
2. State Governments
3. Local Authorities
4. Statutory Corporations or Authorities
5. Companies Registered Under the Companies Act
6. Partnership Firms
7. Cooperative Societies
8. Individuals or Hindu Undivided Families (HUFs) subjected to a tax audit under Section 44AB of the Income Tax Act.
    

Who is Required to Pay TCS?

The buyer is responsible for paying TCS at the time of purchasing the goods or availing of services covered under TCS. However, some buyers are exempted from paying TCS, including:

• Public Sector Companies
• Central & State Government Entities
• Embassies & Foreign Trade Representatives
• Recognised Clubs (e.g., sports clubs, social clubs, etc.)

Additionally, if a buyer purchases goods for manufacturing, processing, or production purposes (not for trading), they can claim TCS exemption by submitting Form 27C to the seller.
 

TCS Rates for Financial Year 2024-25

The TCS rate depends on the type of goods or services involved in the transaction. Below is the latest TCS rate chart for FY 2024-25:
 

Under Section 206CCA, a higher TCS rate applies if:

1. The buyer has not filed ITRs for the previous two financial years.
2. The total TCS & TDS in each year exceeded ₹50,000.
3. The ITR filing deadline for those years has lapsed.

In such cases, the higher applicable TCS rate will be:

• Twice the specified TCS rate or
• 5% TCS, whichever is higher.
   

TCS Payment & Return Filing

TCS Payment Process

The seller collecting TCS must deposit the collected tax to the government within 7 days from the end of the month in which the tax was collected. Payment is made using Challan 281 through online banking or at authorised bank branches.

TCS Return Filing (Form 27EQ)

TCS returns must be filed quarterly using Form 27EQ. Below are the due dates for TCS return filing:

TCS Certificate (Form 27D)

After filing TCS returns, the seller must issue a TCS certificate (Form 27D) to the buyer within 15 days. This certificate serves as proof of tax collection, helping buyers claim TCS credit while filing their income tax return.
 

Penalties & Interest for Non-Compliance

Failure to collect, deposit, or file TCS returns within the stipulated timeframe leads to penalties and interest:

• Interest on Late Payment: 1% per month or part thereof until TCS is deposited.
• Penalty under Section 271H: A minimum penalty of ₹10,000 and up to ₹1,00,000 for incorrect or delayed TCS return filing.
• Prosecution for Wilful Default: In severe cases, non-compliance can lead to prosecution with imprisonment.
   

TCS Exemptions

TCS is not applicable in the following scenarios:

• When goods are purchased for personal consumption.
• When goods are used for manufacturing, processing, or production purposes (not trading), provided the buyer submits Form 27C to the seller.
   

Key Differences Between TDS & TCS

Conclusion

TCS is an important tax collection mechanism ensuring the government receives taxes at the point of sale, minimising tax evasion. Businesses must comply with TCS regulations, deposit collected tax on time, file accurate returns, and issue TCS certificates to buyers.

By understanding the applicability, compliance requirements, and penalties associated with TCS, businesses can ensure smooth tax filing and avoid legal repercussions. Staying updated with TCS provisions and changes in tax laws is crucial for financial planning and regulatory compliance.