TCS calculation
TCS Calculation: A Complete Guide to Understanding Tax Collected at Source
In this post, we will discuss Tax Collected at Source (TCS), including what it is, how it’s calculated, who can collect it, and important compliance details. Understanding TCS is essential for both sellers and buyers to ensure smooth transactions.
Let’s look at each section:
- What is Tax Collected at Source (TCS)?
- Who Can Collect TCS?
- When should TCS be Collected?
- TCS Rates for Specific Goods
- When will the Higher TCS Rate Apply
- Classification of Seller for TCS
- Classification of Buyers for TCS
- Example of TCS calculation
- TCS Payments & Returns
- TCS Certificate
- TCS Exemptions
- Due date of depositing TCS
- Submission of Form 24G
- Rules where TCS is deposited without a challan under section 206C
- Rules where TDS is Deposited without Challan
- Interest and Penalties
- Differences between TCS and TDS
- FAQs
What is Tax Collected at Source (TCS)?
Tax Collected at Source (TCS) is the tax that a seller collects from the buyer when selling certain goods. It is deposited with the tax authorities. This process is governed by Section 206C of the Income Tax Act. Sellers who collect TCS must have a Tax Collection Account Number (TAN).
For example:- if a bag of rice costs Rs.100, the buyer will pay Rs.20 as TCS at the time of purchase. The collected tax is then deposited in a bank authorised to accept tax payments. The seller’s role is only to collect this tax from the buyer—it’s not their responsibility to pay the tax themselves. TCS is collected when goods are sold, transactions are made, or when payment is received through cash, cheque, or other methods, whichever comes first.
Who Can Collect TCS?
Certain goods are subject to TCS (Tax Collected at Source), where the seller collects tax from the buyer along with the price of the goods or services. A buyer refers to anyone purchasing these specific goods or gaining the right to receive them through methods like tenders or auctions.
When should TCS be Collected?
The seller is required to collect Tax Collected at Source (TCS) at the earlier of the following two instances:
- When they record the amount the buyer owes in their accounting records.
- When they actually receive the payment from the buyer, whether in cash, by cheque, or via draft.
For motor vehicle sales, TCS must be collected when the seller receives payment for the vehicle from the buyer.
TCS Rates for Specific Goods
Taxes are only applicable when goods are used for trading, not when they are used for manufacturing or production. Sellers collect the tax at the point of sale. The TCS rates vary based on the type of goods or transactions:
Type of Goods or Transactions | TCS Rate |
Liquor for human consumption | 1% |
Timber wood from a leased forest | 2.5% |
Tendu leaves | 5% |
Timber wood from sources other than leased forests | 2.5% |
Forest products (excluding Tendu leaves and timber) | 2.5% |
Scrap | 1% |
Minerals (like lignite, coal, and iron ore) | 1% |
Motor vehicles costing over Rs. 10 lakh | 1% |
Services from parking lots, toll plazas, mining, and quarrying | 2% |
If a seller had a turnover exceeding Rs. 10 crore in the previous financial year and receives over Rs. 50 lakh from a buyer, they must collect TCS on the amount exceeding Rs. 50 lakh, according to Section 206C(IH).
Note: If the buyer does not provide a PAN, the TCS rate is 1%, but a reduced rate of 0.1% applies in certain circumstances.
When will the Higher TCS Rate Apply
Under Section 206CCA, if a buyer hasn’t filed their ITR for the last two financial years before the relevant year when TCS is due, a higher TCS rate will apply if:
- The time limit to file the ITR has passed.
- TCS and TDS together exceeded Rs. 50,000 in each of these two years.
A higher TCS rate will be the highest of the two rates shown below:
- Twice the standard TCS rate specified in the Income Tax Act.
- 5%.
For exceptional cases under Section 206C(1G), a 5% TCS applies when an authorised dealer arranges foreign currency remittance exceeding Rs. 7 lakh in a financial year under the Liberalised Remittance Scheme (LRS), excluding overseas tour packages. If the buyer doesn’t provide their PAN or Aadhaar, the TCS rate increases to 10%. The TCS is collected either when the account is debited or payment is received.
Classification of Seller for TCS
Only certain people or organisations are allowed to collect tax at source. No other seller can do this, except for those listed below:
- Central and State Governments
- Local Authorities
- Statutory Corporations or Authorities
- Companies registered under the Companies Act
- Partnership firms
- Co-operative Societies
- Individuals or HUFs whose accounts are audited under the Income-tax Act for a specific financial year
Classification of Buyers for TCS
Only certain people or organisations are allowed to collect tax at source. No other seller can do this except for those listed below:
- Public sector companies
- Central or State Government
- Embassies, High Commissions, and Consulates of foreign nations
- Trade representatives of foreign countries
- Clubs, such as sports or social clubs
- Residents who use the goods for manufacturing, processing, producing items, or generating power (not for resale) and provide a written declaration in duplicate for this purpose.
Example of TCS calculation
If a buyer purchases a car worth Rs. 11 lakh from a showroom, the showroom will collect Rs. 11,000 as TCS (Tax Collected at Source). This brings the total amount payable to Rs. 11,11,000 (Rs. 11,00,000 + Rs. 11,000).
In another scenario, if a customer receives an invoice for Rs. 12,000, a 1% TCS of Rs. 120 is added, making the total amount due Rs. 12,120 (Rs. 12,000 + Rs. 120).
TCS Payments & Returns
- All sums collected by a government office must be deposited on the same day they are received.
- Sellers need to deposit TCS (Tax Collected at Source) using Challan 281 within 7 days after the end of the month in which the tax was collected.
- If the tax collector fails to collect or deposit the tax by the due dates, they will incur interest at 1% per month or part of a month on the unpaid amount.
- Tax collectors are required to file a quarterly TCS return using
- Form 27EQ, and any interest due for late TCS payments must be cleared before submitting the return.
TCS Certificate
When a tax collector files their quarterly TCS return using Form 27EQ, they must issue a TCS certificate (Form 27D) to the buyer. This certificate includes the following details:>
- Name of the buyer and seller
- TAN of the seller (who files the TCS return)
- PAN of both the buyer and seller
- Total tax collected
- Date of tax collection
- The tax rate applied
The TCS certificate must be issued within 15 days of filing the quarterly TCS return. Below is a summary of the key dates:
Quarter Ending | TCS Return Filing Due Date (Form 27EQ) | Deadline to Issue TCS Certificate (Form 27D) |
30th June | 15th July | 30th July |
30th September | 15th October | 30th October |
31st December | 15th January | 30th January |
31st March | 15th May | 30th May |
If you are unsure about filing TCS returns, feel free to consult tax experts for guidance.
TCS Exemptions
TCS (Tax Collected at Source) is not applicable in these cases:
- When the goods are for personal use.
- When the buyer purchases the goods for manufacturing, processing, or production, rather than for trading.
Due date of depositing TCS
The due date for depositing Tax Collected at Source (TCS) usually depends on the transaction type and tax rate. In general, TCS collected during a quarter must be deposited by the 7th of the following month.
For example, if TCS was collected between April 1st and June 30th, it should be deposited by July 7th.
Submission of Form 24G
If TCS or TDS is deposited without a challan, Form 24G must be submitted to the agency authorised by the Principal Director of Income Tax (Systems) within 15 days after the end of the month. For March, the deadline is 30 April.
Rules where TCS is deposited without a challan under section 206C (modifications to Rule 37CA)
- Suppose TCS (Tax Collected at Source) is deposited without a challan. In that case, the person responsible for depositing it to the government must submit Form 24G to the authorised agency as per the Principal Director of Income Tax (Systems).
- Form 24G should be submitted within 15 days after the end of the relevant month.
- For March, Form 24G must be submitted by 30th April.
- Form 24G can be submitted electronically in the following ways:
- With a digital signature
- Along with Form 27A for verification
- Through an approved electronic verification process
- The person submitting Form 24G must inform each deductor of the Book Identification Number (BIN) generated for their deposited TCS.
- The Principal Director General of Income Tax (Systems) will outline the procedure for submitting and verifying Form 24G.
Rules where TDS is Deposited without Challan (changes to Rule 30)
- If TDS is deposited without a challan, the person responsible for reporting and depositing it to the government must submit Form 24G to an agency authorised by the Principal Director of Income Tax (Systems), as per Rule 30(4).
- Form 24G must be submitted within 15 days from the end of the relevant month, except for March, when the deadline is April 30th.
- The form can be submitted in one of the following ways:
- Electronically under a digital signature.
- Electronically with verification in Form 27A.
- It was verified through an electronic process as prescribed.
- The person responsible must also provide the Book Identification Number (BIN) generated for each deductor to whom the TDS has been deposited.
- The Principal Director General of Income Tax (Systems) will specify the procedure for submitting and verifying Form 24G.
Interest and Penalties
If a tax collector doesn’t collect or remit TCS on time, they will be charged 1% interest per month or part of the month. Filing incorrect TCS returns can also lead to a penalty between INR 10,000 and INR 1,00,000 under Section 271H.
Differences between TCS and TDS
The differences between TCS and TDS are as follows:
- TDS (Tax Deducted at Source): This is the tax deducted by a company from payments made to an employee or service provider. It covers things like salaries, interest, rent, professional fees, and more. TDS is deducted when payments exceed a specific limit.
- TCS (Tax Collected at Source): This is the tax a seller collects from the buyer when selling specific goods like scrap, minerals, tendu leaves, and timber. TCS applies to these goods no matter the payment amount, and it is collected at fixed rates based on the product.
TDS is deducted from income, while TCS is added to the sale of specified goods.
We have reached the end of this post. Please leave your questions in the comments area below.
FAQs
1.Is tax collected at the source refundable?
Ans: Yes, the TCS collected on a buyer’s PAN can be adjusted just like the TCS.
2.Is TCS included on the GSTR-1 return?
Ans: Yes, the TCS amount is automatically included in the GSTR-1 return because it is part of the invoice value.
3.When should TCS be collected for advances?
Ans: TCS should be collected on receipt, including advance payments from buyers.
4.What is the TCS rate if PAN and Aadhaar cards are not linked?
Ans: If your PAN and Aadhaar card are not linked, the TCS rate will be higher. Specifically, the TCS rate will be 5% rather than the customary rate.
