What is Tax Collected at Source (TCS)

Written by : Knowledge Centre Team

2024-08-02

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What is Tax Collected at Source (TCS)?

Tax Collected at Source (TCS) is a tax payable by a seller which he collects from the buyer at the time of sale of goods. Section 206 of the Income Tax Act mentions the list of goods on which the seller should collect tax from buyers.

Who is a Seller for TCS?

A seller is categorized as any individual or organization authorized under Tax Collected at Source. The following are defined as Sellers –

1. Central Government
2. State Government
3. Statutory Corporation or Authority
4. Local Authority
5. Company
6. Co-operative Society
7. Partnership Firms
8. Any Individual or Hindu Undivided Family (HUF) defined under the Section 44AB, who has gross receipts or total sales that exceed the specified financial restricts based on the previous year

Who is a Buyer for TCS?

A buyer is categorsied as any individual, who receives the actual goods or the rights of receiving goods at a tender, auction, sale, or other modes. All individuals (except for the below – mentioned list of individuals and organizations) are classified as buyers for TCS –

1. Public Sector Entities
2. Central Government
3. State Government
4. Consulates and any other Trade Representations of a Foreign Nation
5. High Commission Embassies
6. Clubs such as social clubs or sports clubs

What Goods & Transactions Covered under TCS Provisions?

The following goods and/or transactions are considered for Tax Collected at Source –

1. Liquors of alcoholic nature including IMFL (Indian Made Foreign Liquor) that are deemed for human consumption
2. Timber wood obtained from a leased forest area
3. Tendu Leaves
4. Timber wood obtained from any mode other than leased
5. Forest produces (other than timber and Tendu leaves)
6. Scrap
7. Parking lot tickets, Toll Plaza, Mining and Quarrying
8. Minerals that include iron ore, lignite or coal
9. Bullion having valuation over Rs. 2 lakh
10. Jewellery whose value exceeds Rs. Five lakhs
11. Motor vehicle purchases over Rs. 10 Lakhs

What are the TCS Rates Applicable in India?

The rates of TCS for various goods and transactions are listed in the table below (source – Income Tax Department of India.)

Kindly note that the interest charges for any late payment of the TCS are 1% for every month delayed.

Type of Goods	Existing TCS Rate (in %)	Reduced TCS Rates (14/05/2020 to 31/03/2021
Liquors of alcoholic nature including IMFL (Indian Made Foreign Liquor) that are deemed for human consumption	1.00	NA
Timber wood obtained from a leased forest area	2.50	1.875%
Tendu Leaves	5.00	3.75%
Timber wood obtained from any mode other than leased	2.50	1.875%
Forest produces (other than timber and Tendu leaves	2.50	1.875%
Scrap	1.00	0.75%
Parking lot tickets, Toll Plaza, Mining and Quarrying	2.00	1.5%
Minerals that include iron ore, lignite or coal	1.00	0.75%
Bullion having valuation over Rs. 2 lakh or Jewelry whose value exceeds Rs. Five lakhs	1.00
Purchase of Motor vehicle exceeding Rs. 10 Lakhs	1.00	0.75%

FAQ

Income tax in India is based on incremental slab rates. The rate of tax is higher on higher income. You can also avail deductions from your taxable income if you invest in eligible instruments like PPF, NPS, ELSS, ULIPs, etc. Starting AY 2020-21 you have two tax regimes – old and new. The old tax regime has all the deductions from gross total income, while the new tax regime offers a lower rate of tax. So, if you are not investing in tax-saving instruments you can file your tax as per the new tax regime.

You can avail additional tax savings under the following sections other than section 80C:

a) Section 80D: Health insurance premium payments for family and parents up to Rs 75,000
b) Section 80CCD(1B): Self-contribution to NPS Tier-I account above 10% of salary or 20% of income if self-employed up to Rs 50,000
c) Section 80E: Education loan interest paid through the year
d) Section 80EE: Home loan interest paid up to Rs 50,000
e) Section 80G: Charitable contributions to non-profit organisations registered under section 12A up to 50% or 100% of the contribution
f) Section 24B: Interest paid on home loan

You have many tax-saving investment options. You can consider the following popular tax-saving schemes to save tax:

a) Term life insurance plan
b) Health and critical illness insurance plan
c) Life insurance plans such as endowment and moneyback plans
d) Pension plans from life insurance companies
e) Public Provident Fund (PPF)
f) National Pension System Tier-I account (NPS)
g) Employee Provident Fund (EPF)
h) Unit Linked Insurance Plans (ULIPs)
i) Equity Linked Savings Scheme (ELSS)
j) Senior Citizen Savings Scheme
k) Sukanya Samriddhi Yojana
l) 5-Year Tax Saving Fixed Deposits
m) National Savings Certificate (NSC)

Deduction of Rs 1.5 or 2 Lakhs under section 80C is available when you make investments or spend money under the heads mentioned in the Chapter VI A of the Income Tax Act, 1961. All tax-saving investments like PPF, NPS, ULIP, ELSS, etc. and all tax-saving expenses like children’s tuition fees, and registration expenses of a house property are part of Chapter VI A.

You will need to pay taxes on the incomes and gains from your investments. For example, your salary income is Rs 10 lakhs in a year, out of which Rs 7.5 lakhs becomes taxable after deducting exempt perquisites. Out of your income of Rs 10 lakhs, you invest Rs 3 lakhs in various options.

Even if none of your investments is eligible for tax saving under section 80C, your taxable income will remain Rs 7.5 lakhs. However, returns from some of these investments will become taxable in the next financial year when you receive them.

Since AY 2020-21 you have two ways to lower your income tax outflow on higher income – tax-saving investments and a new tax regime. You can stick to the old tax regime and invest your savings into eligible tax saving options. Tax-saving investments can give you a deduction of up to Rs 2 lakhs under sections 80C and 80CCD(1B), and additional deductions of up to Rs 2 lakhs under section 24.

Your deductions will be higher with other sections like 80E and 80G. But these are specific outflows which are not investments.

The best way to reduce your tax outflow legally is to use tax-saving investments and plan your future taxes carefully. Tax-saving investments will help you reduce your taxable income in the present financial year. If you invest in options which enjoy tax exemptions on maturity values, you can also reduce your future tax outflow. For example, Invest 4G ULIP from Canara HSBC Life Insurance allows you to stay invested up to the age of 99. This means that you can start investing at 30, build a corpus by 60 and have a tax-free lifetime pension.

Usually, a receipt is a convenient document to produce while claiming your deductions for expenses. However, the following alternatives are available if you lose the receipt:

a) Avail fuel or petrol expenses with number of kilometres
b) Credit card statement for computer items
c) Credit/debit card statement for stationery items
d) Membership documents to show running membership to claim the fees amount

You can claim HRA exemption with your employer and declare the amount in your ITR-1 form while filing your tax return. You will need to submit your house rent receipts with your employer to reduce your TDS. Use the online calculator to estimate your HRA exemption and claim the amount directly in your ITR.

If you are self-employed or do not receive HRA from your employer but have been paying rent for residence, you can claim a deduction of up to Rs 60,000 under section 80GG.

You can calculate your HRA exemption based on the following conditions. The amount of exempt HRA will be the lowest of the three:

a) HRA you have received
b) 50% of salary (basic + DA + Commission paid as % of turnover) if you are staying in a metro city otherwise 40%
c) Rent paid over 10% of your salary (as defined in step 2)

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Tax Savings - Top Selling Plans

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