Tax collected at source – Meaning, Due Date & Penalty
Tax collected at source in income tax
In this post, we will look into Tax collected at source (TCS), Meaning, Due Date, Penalty and other TCS related concepts:
We will cover the following topics:
What is a tax collected at source?
Tax collection at source is a provision of the Indian Income Tax Act. A specified percentage of tax must be collected by certain persons on exceptional transactions under these provisions. Almost all of these transactions are of a business or trading nature. it does not affect an average person.
Meaning of tax collected at source
The TCS or Tax Collected at Source is a tax that is collected by the seller when the buyer purchases a particular good category. The rate of TCS varies depending on the category of product being sold, and the seller is required to remit this tax to the government. This tax is collected by the seller, who pays it to the government on behalf of the buyer or lessee. The items which come under this tax are mentioned under the Section 206 C Income Tax Act, 1961.
Let us see an example to understand it better. When you buy a box of chocolate with a purchase value of RS 100, you will pay additional RS 20 as the tax collected at the source. And that amount goes to the Income Tax Department through the designated branch of the bank which has been given the authorisation to receive it. It is only the seller’s responsibility to collect the tax from the buyer and not to pay it directly. The tax collected when goods are sold and on receipt for a sum in cash/credit from the buyer, whichever method is paid by the earliest.
Who is a “Seller” in TCS?
Listed below are people and organizations who are classified as sellers for tax collected at source:
- Central Government
- State Government
- Local Authority
- Statutory Corporation or Authority
- Company
- Partnership Firms
- Co-operative Society
- People or HUF that are subject to an audit of their accounts under the Income Tax Act during the preceding financial year.
Who is a “Buyer” in TCS?
In any sale, a buyer is someone who gets specified goods or the right to receive specified goods, whether at auction, tender or any other mode. The following are not in the buyer’s category for TCS purposes:
- Public sector companies
- Central Government
- State Government
- Embassy of High commission
- Consulate
- Other Trade Representation of a Foreign Nation
- A Club such as sports clubs and social clubs
Goods covered under TCS and their rates
Here we will look into the list of goods which are covered under TCS provisions and the Rates applicable for them:
The following goods fall under the scope of taxes if they are used for trading purposes. They are not taxable if they are not used for processing, manufacturing, or producing things. The seller collects the tax due at the time of sale.
The rate of TCS is different for goods mentioned under different categories:
| Type of goods | TCS Rates |
| Alcoholic Liquor for human use | 1% |
| Timber wood purchased under a forest lease | 2.5% |
| Tendu leaves | 5% |
| A forest produce ( apart from Tendu leaves & Timber) | 2.5% |
| Timber wood other than forest lease | 2.5% |
| Scrap | 1% |
| Bullion above Rs. 2 lakh/ Jewelry above Rs. 5 lakh (applicable from 1st July 2012) | 1% |
| Parking lot, toll plaza, mining and quarrying but does not include mineral oil, petroleum, natural gas. | 2% |
| Minerals such as coal, lignite, and iron ore (applicable from 1st July 2012) | 1% |
| Purchase of cars (both old/new) above Rs. 10 Lakh (applicable from 1st June 2016) | 1% |
| Cash purchases above Rs. 2 lakh | 1% |
Exemptions in TCS
TCS shall be exempt under the following two cases:
TCS at a Lower rate: The buyer can apply to the Assessing Officer (AO) for collecting the TCS at a lower rate with Form 13. If AO has been convinced that the buyer’s total income is justifiable for the lower rate. The AO can issue a certificate that has the TCS rate specified with the lower rate applied.Total Tax Exemption: The buyer has to declare in Form 27C that he is eligible for total exemption from paying TCS. The declaration has to specify and prove that the goods are only for processing and manufacturing and not trading. The person paying the tax has to give a duplicate copy, and then the collector will then submit this form to the authorities within a week of the following day.
Penalty for incorrect filing of TCS returns
There is a penalty under section 271H and will be levied if the tax collector files an incorrect TCS return. Otherwise, a minimum penalty of RS 10,000 and a maximum penalty of up to RS 1,00,000 can be levied if the collector files an incorrect TCS return.
What's the difference between TDS and TCS?
| TDS | TCS |
| Tax deducted at source | Tax Collected at Source |
| Under the Income Tax Department | Under the Income Tax Department |
| Deduct at the time of crediting the account of payee/ payment | The tax payable is collected by the seller at the point of sale. |
| Indirect collection of tax | Indirect collection of tax |
| TDS is collected by the person making the payment. | TCS is collected by the person receiving payment. |
| The tax rate is fixed by the government | The tax rate is fixed by the government |
| Specific payment is made above a certain limit of the amount | Collected on the sale of specified goods like tendu leaves, timber wood, scrap, minerals, etc. |
| TDS is a buyer end activity | TCS is a seller end activity |
| The deductor issues a TDS certificate(Form 16, 16A) to the deductee. | Tax collector issues a TCS certificate (Form No 27D) to the Buyer |
TCS Returns, TCS Certificate & Due dates
A tax collector must submit a TCS return in Form 27EQ for the tax collected in a particular quarter. Tax Collected at Source is deposited in Challan 281 by the seller at the end of the month in which the tax was collected. Within 7 days of the end of the tax collection month, one must make the payment.
Every Tax collectors are responsible to provide TCS certificate to buyers of goods when they file a quarterly TCS return.TCS provides you with a certificate titled the 27D as soon as you submit your TCS returns.
Note: The late filing fee for TCS returns is Rs.200/- per day for the period of delay from the due date.
Form 27D certificate includes the following details:
- Names of both Buyer and the Seller
- Permanent Account Number (PAN) of both Buyer and the Seller
- Seller’s Tax Deduction and Collection Account (TAN) i.e who is filing the TCS return quarterly
- Date of Collection
- Total tax collected by the seller
- The rate of Tax applied
Upon filing quarterly returns of Tax Collected at Source, this certificate will issue in 15 days. See the table below for the due dates:
| Quarter ending | Date for generating Form 27D |
| 31st March | June 15 |
| 30th June | August 15 |
| 30th September | November 15 |
| 31st December | February 15 |
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