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Understanding TCS: When and How to Collect in India

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Jun 15, 2024
7 Minutes

Tax Collected at Source (TCS) plays a vital role in India's tax system, requiring sellers to collect taxes from buyers during transactions and remit them to the government. Knowing the precise times for TCS collection is critical to comply with tax rules and avoid facing penalties.

Collection Timing: Sellers must collect TCS in one of two scenarios:

  • When the amount owed by the buyer is recorded in the seller's accounts.
  • Upon receiving payment from the buyer by cash, cheque, draft, or other means.

Motor Vehicle Sales: TCS is applicable upon receiving payment or consideration, with rates based on the type of goods or transaction:

  • Alcoholic liquor for human consumption: 1%
  • Timber from forest lease: 2.5%
  • Tendu leaves: 5%
  • Timber from non-forest: 2.5%
  • Other forest produce: 2.5%
  • Scrap: 1%
  • Minerals (lignite, coal, iron ore): 1%
  • Purchase of motor vehicles over Rs.10 lakh: 1%
  • Parking lots, toll plazas, mining & quarrying: 2%

Conditions for Higher TCS Rate: Section 206CCA stipulates higher rates if:

  • The buyer has not filed Income Tax Returns (ITR) for the last two years before the applicable year.
  • The ITR filing deadline has passed.
  • Total TCS and Tax Deducted at Source (TDS) exceeded Rs.50,000 in the prior two years.

The elevated TCS rate is either twice the specified rate or 5% of the transaction amount. Foreign remittances surpassing Rs.7 lakh annually under the Liberalized Remittance Scheme (LRS) face a 5% TCS rate, rising to 10% without Aadhaar/PAN details. This applies during account debits or when payments are received.

Authorized Collectors: TCS collection can be conducted by:

  • Central/State Governments
  • Local Authorities
  • Statutory Corporations
  • Companies, Partnership Firms, Cooperative Societies
  • Individuals/HUFs audited under the Income-tax Act

Eligible Buyers: Buyers subject to TCS include those purchasing specific goods or participating in auctions, excluding public sector companies, government bodies, embassies, clubs, or those buying for manufacturing purposes (with a written declaration).

TCS Calculation Examples:

  • Car Purchase: For a car priced at Rs.11 lakh, an additional Rs.11,000 TCS is included, making the total Rs.11,11,000.
  • Invoice: For an invoice of Rs.12,000 at 1% TCS, Rs.120 is the TCS, totaling Rs.12,120.

TCS Payment and Certification:

  • TCS should be deposited within seven days after the month's end using Challan 281.
  • Delay in payment incurs a 1% interest per month.
  • Quarterly returns must be filed via Form 27EQ detailing TCS specifics.
  • A TCS certificate (Form 27D) should be issued within 15 days of return filing, containing information on the seller/buyer, PAN numbers, total tax, collection dates, and applicable rates.

Exemptions and GST Impact: TCS isn't required for purchases meant for personal consumption or manufacturing with a written declaration. Under GST regulations, e-commerce platforms must deduct 1% TCS, payable in the subsequent month.

Example: For Mr. Raj's Rs.10,000 purchase on Flipkart, Rs.100 TCS is levied.

Foreign Remittance TCS: Effective October 2023, the Union Budget increased TCS rates from 5% to 20% under LRS, except for medical/education remittances surpassing Rs.7 lakh, maintaining a 5% rate. TCS can be claimed during income tax returns filing.

Example: On a Rs.5 lakh investment in US stocks, Rs.1 lakh TCS is levied, reducing a Rs.3 lakh tax liability to Rs.2 lakh.

Form 24G Submission: Government entities without challans must electronically file Form 24G within 15 days post-month-end, featuring a digital signature. For March, the due date is April 30th.

Non-Compliance Penalties: Late TCS deposits result in a 1% interest charge per month, while incorrect returns attract penalties ranging from Rs.10,000 to Rs.1 lakh.

This in-depth guide explores TCS collection scenarios, related rates, exemptions, and compliance measures. For further assistance, do not hesitate to ask!

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