Introduction: Tax Collection at Source (TCS) is a mechanism in India where sellers of specified goods collect an additional amount as tax from buyers at the time of sale. This additional tax, over and above the sale amount, is then remitted to the government. The Income-tax Act of 1961 governs TCS and prescribes rates for various goods and transactions.
Tax collection at source
1. Tax collection at source (TCS) is an additional amount collected as tax by a seller of specified goods from the buyer at the time of sale, over and above the sale amount and is remitted to the Government As per Income-tax Act 1961 certain persons, being the sellers of specified goods must collect a specified percentage of tax (as given in para 8 below) at the time of receipt of amount from their buyers or at the time of debiting of the account of the buyer whichever is earlier. Section 206C of the Income-tax Act, 1961 mentions the particulars of goods, on sale of which tax needs to be collected from the buyers.
2. However, no collection of tax (TCS) shall be made in the case of a buyer, who is resident of India, if such buyer furnishes to the collector (seller) the declaration in writing in prescribed Form (Form 27C) to the effect that the goods are to be utilized for the purpose of manufacturing, processing or producing article or things or for the purpose of generation of power and not for trading purpose. One copy of such declaration is required to be submitted to the Chief Commissioner of Income-tax or Commissioner of Income-tax on or before expiry of 7 days from the end of the month in which the sale is effected.
3. Besides sale of goods, every person who enters into an agreement of lease, license or contract or transfers any right wholly or partially in any parking lot, toll plaza or mine or quarry to any other person (other than a Public Sector Company) for the purpose of business will collect an amount @ 2% of the licence fee from such parties (licensees) as TCS.
4. The person collecting tax, has to obtain Tax Collection Account Number (TAN) and quote the same in all challans, certificates and returns and all other documents pertaining to the TCS The buyer shall (i) furnish his Permanent Account Number (PAN) to the seller and (ii) In case the aggregate of TCS amount collected is more than Rupees fifty thousand in the said previous year, he shall file Income Tax Return for the previous year immediately preceding the financial year in which tax is required to be collected and for which the due date of filing of return u/s 139(1) of the I. T. Act, 1961 has expired; failing which the tax shall be collected by the seller at the higher rate (i.e. twice the specified rate or @5 percent, whichever is higher).
5. If the person responsible for collection of TCS fails to collect or after collecting fails to remit the tax so collected, he shall be deemed to be an assessee in default in respect of such tax and the collector shall be liable for payment of interest, penalty and prosecution as the case may be.
6. Classification of Sellers and Buyers for TCS:
Under TCS mechanism, a Seller is defined as any of the following:
(a) For the purpose of TCS, a ‘Seller’ means a person whose total sales, gross receipts or turnover from the business carried on by him exceed 10 crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out.
(b) A ‘Buyer’ is classified as a person who obtains goods or the right to receive goods in any sale, auction, tender or any other mode.
7. TCS is not necessary for the following buyers:
a. Central Government, State Government, Embassy or High commission.
b. Consulate and other Trade Representative of a Foreign Nation.
c. Local authority (as defined in section 10(20) of the I. T. Act, 1961).
d. Person importing goods into India.
8. Goods and transactions covered under TCS provisions and rates applicable to them:
The rate of TCS is different for goods specified under different categories:
| Sl. No. | Nature of Goods | Rate applicable from 01.04.2022 |
| 1 | Alcoholic Liquor for human consumption | 1% |
| 2 | Tendu leaves | 5% |
| 3 | Timber obtained under a forest lease or any other than mode than forest lease | 2.5% |
| 4 | A forest produce other than Tendu leaves and timber | 2.5% |
| 5 | Scrap | 1% |
| 6 | Minerals like lignite, coal and iron ore | 1% |
| 7 | Sale of Motor vehicle exceeding Rs. 10 Lakhs | 1% |
| 8 | Parking lot, Toll Plaza, Mining and Quarrying | 2% |
| 9 | Sale of Overseas Tour Program Package more than Rs.7 lakhs and other remittances | 5% |
| 10 | Foreign Remittance under Liberalised Remittance Scheme (LRS) for education loan taken from financial institution exceeding Rs.7 Lakh, if the amount being remitted out of education loan taken from a financial institution as defined in section 80E | 0.5% |
| 11 | Sale of Goods (other than those being exported) exceeding Rs.50 lakh other than exported goods by seller whose total sales, gross receipts or turnover is more than Rs.10 crore | 0.1% |
| Note: (1) If the payer does not furnish PAN/ Aadhar to TCS collector then rate of TCS would be double the specified rate or @5% whichever is higher for Sl. Nos. 1 to 10 and for Sl. No. 11, it is @5%.
(2) With effect from 01.07.2021 if the buyer (other than Non‑resident, who does not have Permanent Establishment in India) has not filed the Income Tax Return for the assessment year in relation to the previous year immediately preceding the financial year in which tax is required to be collected and for which the due date of filing of return u/ s 139(1) of the I. T. Act, 1961 has expired and the amount of TCS is more than Rs. 50,000/ -, TCS would be collected at double the specified rate or @5% whichever is higher. |
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9. Health & Education Cess & Surcharge on TCS Rates:
| Payee Status | Payment Exceeds | Surcharge Rates |
| Non Resident Individuals/HUF | Payment more than Rs. 50 lakh to Rs. 1 crore | 10% |
| Payment Rs. 1 crore to Rs. 2 crore | 15% | |
| Payment Rs. 2 crore to Rs. 5 crore | 25% | |
| Payment exceeding Rs. 5 crore | 37% | |
| Non Resident- Co-operative society/ firm | Payment more than Rs.1 crore | 12% |
| Non-domestic company | Payment more than Rs. 1 crore to Rs. 10 crore | 2% |
| Non-domestic company | Payment more than Rs. 10 crore | 5% |
Health & Education Cess @4% on TCS + Surcharge as applicable.
10. TCS Payments:
a) The seller shall deposit the TCS amount in Challan 281 on or before 7th day of the subsequent month in which the tax was This remittance can be made in any branch of RBI, SBI or any other authorized bank or the same can also be remitted electronically.
b) All sums collected by any Government office should be deposited on the same day of collection.
11. Failure to remit the TCS to Government Account shall attract following consequences:
a) If the tax collector responsible for collecting the tax and depositing the same to the Government does not collect the tax or after collecting the TCS, does not remit the same to the Government within due dates, then it is liable to pay interest at the rate of 1% per month or part of the month for the period of delay, in addition to the amount of TCS which he fails to collect.
b) The person would also be liable for penalty u/s 271CA of the Act (in case of non-collection of TCS), which would be equal to amount of tax liable to be collected.
c) The person will also be liable for prosecution u/s 276BB of the Act, the term of which is upto 7 years of imprisonment (if TCS is collected and not deposited or short deposited in Govt. Account).
12. TCS Returns & Certificate of TCS:
It is mandatory for all collectors of tax at source to furnish Quarterly TCS returns (Form 27EQ) to CPCTDS in electronic mode within the prescribed time. The collector can also file correction statement for rectification of any mistake, add/delete or update the information already furnished.
Note: The Late Filing Fee of Rs.200/- per day is chargeable for delay in filing of TCS returns. Such failure may also attract penalty u/s 271H, if the delay is beyond one year.
The Collector of TCS has to provide a TCS certificate in Form 27D to the purchaser of the goods. The due dates for filing TCS quarterly returns and issue of TCS certificates is as under:
| Quarter Ending | Due Date of filing return | Date for generating Form 27D |
| 30th June, 2022 | 15th July, 2022 | 30th July, 2022 |
| 30th September, 2022 | 15th October, 2022 | 30th October, 2022 |
| 3st December, 2022 | 15th January, 2023 | 30th January, 2023 |
| 31st March, 2023 | 15th May, 2023 | 30th May, 2023 |
Note: Failure to furnish certificate may attract penalty of Rs.100/ – for every day of delay.
13. TCS Exemptions: Tax collection at source is exempt in the following cases:
a. When the eligible goods are used for personal consumption
b. The purchaser buys the goods for manufacturing, processing or production and not for the purpose of trading of those goods.
14. Lower Rate of TCS :
The buyer/licensee can apply to the Assessing Officer (TDS) for a lower deduction rate Certificate (LDC) by filing Form No.13. Subject to the provisions of the Act, if the AO is convinced that the total income of the buyer/licensee justifies the lower rate, the AO may issue a certificate specifying the rate of collection u/ s 206C. This Certificate will be issued by the AO online through the TRACES portal.
Conclusion: Tax Collection at Source (TCS) is an important tax collection mechanism in India that extends beyond goods sales and covers various transactions. Understanding TCS rates, exemptions, and the consequences of non-remittance is crucial for both sellers and buyers. This mechanism ensures that the government collects revenue effectively and promotes tax compliance.
