Tax Collected at Source (TCS)

TCS Calculation

The calculation of TCS involves applying specific rates to the product value. This depends on the product type and the rate assigned in that particular financial year.

Given below is a pre-calculated example value of an asset:

Applicability of Tax Collected at Source

The TCS is a tax collected by the seller or the service provider when the goods or services are sold. This is highly applicable in the Indian economy, which thrives on various online and offline transactions involving a wide range of goods and services and where a significant portion of economic activity still operates within the informal sector.

Under the Income Tax Act, the government ensures taxes are collected at the source to improve compliance and simplify the process.

Seller Classification of TCS

Various sale entities are liable for TCS, such as:

• Central and state governments
• Local authorities
• Statutory corporations or authorities
• Companies registered under the Companies Act
• Partnership firms
• Individuals or Hindu Undivided Families (HUFs) subjected to tax audits in the preceding financial year

Classification of Buyer for TCS

Generally, TCS is collected from buyers who purchase specified goods in quantities exceeding the prescribed threshold. However, certain buyers are exempt, including:

• Public sector companies
• Central and state governments
• Embassies and consulates
• Clubs such as sports clubs and social clubs

TCS on Gold & Jewelry Purchase

As per Section 206C of the Income Tax Act, the seller is required to collect TCS at the rate of 1% for purchases of gold if the jewellery is worth more than ₹5 lakhs in a single transaction, given the payment is in cash. For gold bullion purchases, TCS is applicable for transaction values exceeding 2 lakhs.

However, TCS is not applicable in cases where the payment is made via non-cash modes such as bank transfers, debit/credit cards, or digital payments.

Buyers who have an updated PAN card can claim the collected TDS as credit when filing an ITR. This was a strategic movement by the government to monitor and collect tax on the unaccounted luxury goods market.

TCS Allocations for Online Sales Under GST

Under the Goods and Services Tax (GST) framework, Tax Collected at Source (TCS) for online sales applies primarily to e-commerce operators.

According to Section 52 of the CGST Act, 2017, e-commerce operators need to collect 1% as TCS (0.5% CGST + 0.5% SGST or 1% IGST) on the net taxable value of goods and services supplied through their platform.

That is, when a seller lists and sells products or services on an e-commerce website, the platform must deduct TCS from the amount payable to the seller and deposit it with the government.

TCS on Foreign Remittance

The Indian government has introduced the TCS provisions on various foreign outward remittances under a specific scheme called the Liberalised Remittance Scheme (LRS) to ensure and regulate foreign remittances and prevent tax evasion.

If the remittance is funded through a loan for education, the TCS rate is reduced to 0.5%.

This provision aims to track high-value remittances made by individuals and ensure better tax compliance. The collected TCS can be claimed as a credit against income tax liability while filing returns.

Please note that the rates are dynamic and are subject to changes when authorities update the guidelines.

TCS Payments & Returns Process

As discussed, the TCS is paid by the seller to the income tax after collecting it from the buyer. Entities liable to collect TCS must deposit the collected tax with the government by the 7th of the month, using Form 27EQ.

The collector has to file it quarterly and include details such as seller transactions, collected tax, and deposits. The quarters are as follows:

• Q1 (April to June): 15th July
• Q2 (July to September): 15th October
• Q3 (October to December): 15th January
• Q4 (January to March): 15th May

This ensures that collected tax is accounted for on time and helps maintain a smooth tax compliance process. After filing, the collected TCS appears in the seller's Form 26AS, which they can use as a tax credit when computing their tax liability.

Late payment or failure to collect TCS is considered non-compliance and can lead to interest penalties and legal consequences. Therefore, businesses must stick to proper record-keeping and timely submission of returns to avoid penalties.

TCS Penalty

Non-compliance with TCS provisions can lead to penalties under Section 271H for the seller. This penalty is for Incorrectly Filing a TCS Return. It is as follows:

Form 24G for TCS

Form 24G is a report that government departments must file when they collect Tax Collected at Source (TCS) or Tax Deducted at Source (TDS) but don’t make the payment using a bank challan. Instead, they adjust the collected tax directly against their accounts before depositing it with the government.

This form is mandatory for government offices and bodies that collect TCS and directly adjust it against tax liabilities instead of making payments through a bank challan.

Government deductors who deposit TCS/TDS without using Challan 281. Drawing and Disbursing Officers (DDOs) are responsible for tax collection. After submission, a Book Identification Number (BIN) is generated, which must be used while filing TCS returns in Form 27EQ.

TCS Certificate

The TCS certificate is proof of tax collection, issued in Form 27D. It is an official document issued by the tax collector (seller or e-commerce operator) to the deductee (buyer or service recipient) as proof of TCS deduction.

The TCS certificate includes essential details such as

• Name and PAN of both the collector and deductee
• Total transaction amount on which TCS was collected
• Rate and amount of TCS deducted
• Challan details of the deposited tax
• Date of collection and deposit

The TCS certificate must be furnished to the buyer within 15 days from the due date of filing the TCS return.

TCS Exemptions

Certain transactions and entities are exempt from TCS provisions, such as

Buyers:

• Public sector companies
• Central and state governments
• Embassies and consulates
• Clubs such as sports clubs and social clubs

Sellers:

• Individuals and HUFs not subjected to tax audits in the preceding financial year

Additionally, goods purchased for personal consumption are generally exempt from TCS.

e-TCS

e-TCS stands for electronic filing of TCS returns through the income tax portal. Collectors can submit returns online using the prescribed formats and digital signatures, ensuring a streamlined and efficient process.

Under this system, entities liable to collect TCS must electronically file their quarterly TCS returns using Form 27EQ through the official Income Tax e-filing portal or authorized TIN facilitation centers.

Things to keep in mind:

• Online Filing: Businesses must upload TCS returns in the prescribed format using Return Preparation Utility (RPU) and validate them with a File Validation Utility (FVU) before submission.
• Mandatory PAN & TAN: The Tax Deduction and Collection Account Number (TAN) of the collector and the PAN of the deductee are essential for successful e-TCS filing.
• Digital Payment: The collected amount must be deposited electronically via Challan 281 through the NSDL portal or designated banks by the 7th of the following month.
• Form 27D Generation: Once TCS is successfully filed, Form 27D (TCS Certificate) can be generated online for buyers to claim a tax credit.

The e-TCS system strengthens tax compliance by improving the reporting and collection process, reducing paperwork, and ensuring transparency in high-value transactions. This system also allows for easy correction of errors and tracking of submitted returns.

Difference Between TCS & TDS

Although both TCS and TDS are two key mechanisms introduced by the Income Tax Department to ensure timely tax collection, there are key differences in how, where, and when they are collected.

Below is a comprehensive table on the key differences: