Tax Collected at Source (TCS) – Meaning, Classification and Exemptions

The Income Tax Act of India has various provisions about the TCS or tax collection at source. According to these provisions, certain people need to collect a specified tax percentage from their buyers on exceptional transactions. A common man is unaffected by most of these transactions as they are related to trade or business. In this article, we will learn about the tax collected at source meaning and other important details.

Meaning of Tax Collected at Source (TCS)

A tax collected at source or TCS is the tax collected by the seller from the lessee or buyer at the time of sale. The governing of goods on which the tax has to be collected by the seller from purchasers is done under Section 206C of the Income Tax Act of India, 1961. The sellers and buyers under tax collected at source come under various categories. Let’s have a look at the classification of sellers and buyers for tax collected at source.

Classification of Sellers and Buyers for TCS

Sellers

The sellers for tax collected at source, TCS are some specific people or organisations that can collect the tax at source from buyers. No one apart from these classified sellers of goods can collect the TCS. Here is a look at the list of classified sellers:

Company registered under the Companies Act
Partnership firms
Co-operative society
Central government
State government
Local authority
Statutory corporation or authority
A person or HUF who is subjected to an audit of accounts under the IT act for a particular financial year

Buyers

A buyer is someone who obtains goods of any specified nature in a sale or has the right to receive such goods through auction, tender or any other mode. However, the buyers mentioned below are exempted from tax collected at source:

Embassy of high commission
Consulate and other trade representation of a foreign nation
Public sector companies
Central government
State government
Clubs like sports clubs and social clubs

TCS Payments & Returns

All amounts collected by government agencies must be deposited on the same day of collection
The tax collected at source amount in Challan 281 is deposited by the seller within 7 days of the last day of the month where the tax was collected
If a tax collector who is responsible for collecting taxes and paying them to the government does not collect taxes or, after collecting taxes, fails to pay them to the government by the due dates mentioned above, then he or she will be charged 1% interest per month or a part of the month
Each collector must file a quarterly TCS return, i.e. Form 27EQ. This is for the tax they collected in a particular quarter. Interest on late payment of TCS to the government has to be paid before Income Tax Return filin g

Certificate of TCS

When a tax collector submits a quarterly TCS return, i.e. Form 27EQ, he/she is required to provide a TCS certificate to the purchaser of the goods. Form 27D is the tax collected at source certificate. It consists of the below-mentioned details:

Total tax collected by the seller
Name of the seller and buyer
Date of collection
The rate of tax applied
TAN of the seller, i.e. one who is filing the quarterly TCS return
PAN of both the seller and buyer

The said certificate has to be issued within 15 days from the quarterly TCS return filing. The due dates for the same are as follows:

Quarter ending on June 30 – July 30
Quarter ending on September 30 – October 30
Quarter ending on December 31 – January 30
Quarter ending on March 31 – May 30

TCS Exemptions

The tax collected at source is exempt in the below-mentioned cases:

When the goods eligible have been used for personal consumption
When the goods have been bought by the purchaser for processing, manufacturing or production and not for trading purpose

TCS Under GST

Any dealer or trader that sells goods online will be getting the payment from the said online platform after a 1% deduction on the amount under IGST Act. The 1% GST is 0.5% CGST and 0.5% SGST

For example, Mr Shyam(seller) is a trader and sells clothes on Myntra (buyer). He received an order of ₹15,000 that is inclusive of commission. Myntra would then deduct a tax at 1%, i.e. ₹150.

The tax has to be paid to the government by the 10th of next month
Every dealer or trader is compulsorily required to be registered under GST
All these provisions have come to effect from October 1, 2018

Submission of Form 24G

In the case of government offices, where taxes are paid to the central government credit without production of challan that is related to a tax payment at a bank, here’s how the rule changes when it comes to Form 24G submission:

When TDS is deposited without challan (changes to Rule 30)

If the TDS is filed without a challan, the person to whom the TDS has been reported must submit a Form 24G to an agency authorised by the Principal Director of income tax (systems). [Rule 30(4)]
The said Form 24G has to be submitted within 15 days from the end of the relevant month. The Form should be submitted by April 30, 2019, for the month of March
Form 24G has to be filed either electronically through digital signature or verification in Form 27A(c) or should be verified through an electronic process as mentioned
A person referred to in the first point is required to inform the Book Identification Number generated to every deductor for whom the deducted amount has been deposited
The procedure for furnishing and verification of statement Form 24G would be specified by the Principal Director General of Income Tax (Systems)

Where TCS under Section 206C is deposited without a challan (changes to Rule 37CA)

If the TCS is filed without a challan, the person to whom the collector reports the TCS for depositing with the government will have to submit Form 24G to the agency authorised by the Principal Director of income tax (systems)
The said Form 24G has to be filed within 15 days from the relevant month’s end
If Form 24G pertains to March, it has to be submitted on or before April 30. It should be issued either using digital signature electronically or electronically along with verification in Form 27A or it should be verified through the prescribed electronic process
A person mentioned in the first point is required to inform the Book Identification Number generated to every deductor for whom the deducted amount has been deposited
The procedure for furnishing and verification of statement Form 24G would be specified by the Principal Director General of Income Tax (Systems)

What is TCS?

TCS or tax collected at source is a tax payable by the seller which he/she has to collect from the buyer while making a sale.

What is the difference between TDS and TCS?

Tax Deducted at Source, TDS is generally deducted by a company while making payment to an individual. On the other hand, tax collected at source, TCS is collected by sellers while selling their goods to buyers.

What is an example of TCS?

If a buyer purchases a car that costs ₹10,50,000. An amount of ₹10,500 would be payable as TCS at 1%.

What is the certificate of TCS?

Form 27D is the TCS certificate. It is issued for the tax collected at source returns.

Does TCS come under GST?

Yes, tax collected at source comes under GST which is at 1% (0.5% in CGST & 0.5% in SGST).

Which section governs the goods on which the seller has to collect tax from the purchasers?

The section responsible for governing the goods on which the seller has to collect the tax from purchasers is Section 206C of the Income Tax Act, 1961.