Tax Collected at Source (TCS): Payment, Exemption & Rates

Written by : Knowledge Centre Team

2024-08-02

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In certain payments, the person making the payment must deduct tax at the source at a specific rate. Tax is collected at source by a seller from buyers when selling some prescribed goods. The seller is called the collector, and the buyer the collectee. Commission, rent and brokerage are liable for TCS.

What is TCS?

Tax Collected at Source (TCS) is a tax, seller collects from the buyer at the time of sale. The goods are specified under section 206C of the Income Tax Act, 1961. The rate of TCS will vary based on the type of product or service under exchange. The service provider or seller only collects the tax from the buyer and deposits to the government.

For example, if a cake is available at a shop at Rs 100 inclusive of taxes, the seller will receive only Rs 90 (TCS rate of 10%). Rs 10 will be the tax collected at the source. The seller must deposit the TCS amount at a designated bank branch that has the authorization to receive such payments. The seller only collects tax from the buyer and does not actually have to pay himself.

Who can Collect TCS?

There are specific goods for which TCS is collected. A buyer is a person who obtains goods of specified nature in any sale or right to receive goods by tender, auction, etc. And a seller can only collect tax from the buyer.

Seller (Collects Tax)

Local Authority

State Government

Central Government

Statutory Corporation or Authority

Company registered under the Companies Act

Partnership firms

Co-operative Society

Any person or HUF who is subjected to an audit of accounts under the Income-tax act for a particular financial year.

What is Covered Under TCS?

There are specific goods covered under TCS. They are taxed only when utilized for trading purposes. The taxes are not payable if the same goods are used for manufacturing, producing things, processing. The rate is different for different categories. The table below shows goods type and the corresponding rate:

Type of Goods	Rate
Liquor of alcoholic nature, made for consumption by humans	1%
Scrap	1%
Purchase of Motor vehicle exceeding Rs. 10 Lakhs	1%
Minerals like lignite, coal and iron ore	1%
Bullion that exceeds over Rs. 2 lakhs/ Jewellery that exceeds over Rs. 5 lakhs	1%
Parking lot, Toll Plaza and Mining and Quarrying	2%
Timber wood under a forest leased	2.5%
Timber wood by any other mode than forest leased	2.5%
A forest produce other than Tendu leaves and timber	2.5%
Tendu leaves	5%

Important Facts about TCS Payments & Returns

Below are important points related to TCS Payments:

1. Deposit TCS Amount Within one Week:

The seller has to deposit the TCS amount in Challan 281 within one week of the last day of the month. In other words, the amount needs to be deposited by 7th of next month.

2. Make Payment at an Authorized Branch:

The seller can make the payment in any authorized bank. Also, they can make the payment electronically.

3. Deposit Amount on the Same Day:

All the amount collected by an office of the government should be deposited on the same day.

4. Tax Collector Responsible for Submitting TCS:

There could be two cases:

The tax collector does not collect tax.
He collects taxes but does not pay the taxes to the government before the due dates.

In either case, he is liable to pay interest at 1% per month or a part of the month.

Tax Collector Furnishes Return Form:

The tax collector must furnish Form 27EQ online to CPC-TDS in electronic mode within the prescribed time.

Correction Allowed:

The collector can file a correction statement for rectification of any mistake, add/delete or update the information already furnished.

Exemptions from TCS

In certain circumstances, Tax Collected at Source (TCS) is exempted. Below are the following two cases:

The buyer buys the goods for manufacturing for processing, manufacturing, or production but not for trading.
When the buyer purchases goods for personal consumption.

TCS Under GST

Dealers and traders have to get the business registered under GST. It is mandatory for them.
Dealers selling goods online would get the payment from the online platform after deducting an amount tax at 1% under IGST Act.
Dealer has to deposit the tax by the 10th of the next month to the government.

Tax Saving Investment for Businesses

Businesses can save taxes by investing in tax-saving investments. The best tax savings investments for a business is the one that improves business performance. And what better investment than employee benefit schemes. Some of these important plans are:

Group Health Insurance
Group Gratuity Insurance
Group Term Life Insurance

The premium your organisation pays for these plans you can claim as a business expense. At the same time, you also offer employee benefits at par with the best employers in the country.

Through a group insurance plan, you can cover all employees and their family members. Other than tax benefits, group plans offer additional benefits as below:

a) Offer Adequate Health Cover:

During the times of pandemic, widespread fault lines had appeared in the emergency financial support for a large section of the employed class. You can offer an inexpensive way out of such emergencies using group health schemes.

b) Benefit Family Members:

When you offer life cover to your employees you are not only providing a benefit but also ensuring financial safety for their families.

c) Meet Your Legal Obligations:

Providing gratuity and group health benefits are mandatory if you have more than 10 employees at your organisation. Group insurance plans let you offer much better benefits while complying with legal obligations.

d) Become a Preferred Employer:

Type, quantity and quality of employee benefit schemes define the position you enjoy as an employer. More benefits mean you can attract better talent and command higher performance.

e) Leave Salary Option:

You can offer a leave encashment facility for employees with a leave balance at the end of the financial year.

As a seller, you have to collect TCS from the buyer when debiting the amount payable to the buyer's account. The rate is different for different categories, and you should accordingly collect TCS.

Deposit the collected TCS to the concerned authority, failing which you will have to pay penalties. Businesses should also explore options to save taxes by investing in group insurance plans.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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