Session – 4 Tax Collection at Source

TAX COLLECTION AT SOURCE

1. Tax collection at source (TCS) is an additional amount collected as
tax by a seller of specified goods from the buyer at the time of sale
over and above the sale amount and is remitted to the government
account. As per Income-tax Act, 1961 certain persons, being the
sellers must collect a specified percentage of tax (as given in para
8 below) at the time of receipt of amount from their buyers or at the
time of debiting of the account of the buyer whichever is earlier.
Section 206C of the Income-tax Act mentions the particulars of
goods, on sale of which tax needs to be collected from the
purchasers.
2. However, no collection of tax (TCS) shall be made in case of
buyer, who is resident of India, if such buyer furnishes to the
collector (seller) the declaration in writing to the effect that the
goods are to be utilized for the purpose of manufacturing,
processing or producing article or things (all for the purpose of
generation of power) and not for trading purpose. One copy of
such declaration is required to be submitted to the Chief
Commissioner of Income-tax or Commissioner of Income Tax
on or before expiry of 7 days from the end of the month in which
the sale is effected.
3. Besides sale of goods, every person who enters into an
agreement of lease, license or contract for parking lot, toll plaza
or mining or quarrying will collect an amount @ 2% from such
parties as TCS.
4. The person collecting tax has to obtain Tax Collection Account
Number (TAN) and quote it in all challans, certificates and
returns and all other documents pertaining to the transactions.
The buyer shall furnish his Permanent Account Number (PAN)
to the seller, failing which tax shall be collected at the higher
rate (twice or 5 percent whichever is higher.)
5. If the person responsible for collection of TCS fails to collect
or after collecting fails to remit, he shall be deemed to be an
assessee in default in respect of the tax and various
consequences will follow.
6. Classification of Sellers and Buyers for TCS
a. Under TCS mechanism a Seller is defined as any of the following:
i. Central Government
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ii.State Government
iii.Local Authority
iv. Statutory Corporation or Authority
v. Company registered under Companies Act
vi. Partnership firms
vii. Co-operative Society
viii.Any person or HUF who is subjected to an audit of
accounts under Income-tax Act for a particular financial
year.
b. A buyer is classified as a person who obtains goods or the right to
receive goods in any sale, auction, tender or any other mode.
7. TCS is not necessary for the following buyers:
a. Public Sector Companies
b. Central Government, State Government,

c. Embassy or High Commission

d. Consulate and other Trade Representative of a Foreign Nation
e. Clubs such as Sports Clubs and Social Clubs
f. Local authority for the purpose of purchase of vehicle.

8. Goods covered under TCS provisions and rates applicable to them

When the below-mentioned goods are utilised for the purpose of

manufacturing, processing, or producing things, the taxes are not payable. If the
same goods are utilised for trading purposes, then tax is payable. The tax
payable is collected by the seller at the point of sale. The rate of TCS is different
for goods specified under different categories :

Collection Threshold
Section Nature of Payment TCS rates
Code (INR)

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Alcoholic Liquor for
206C A Human NA 1%
Consumption

Timber obtained
B NA 2.5%
under a forest lease

Timber obtained by
C any mode other than NA 2.5%
under a forest lease

Any other forest

produce not being
D NA 2.5%
timber or tendu
leaves

E Scrap NA 1%

Grant of a license,
lease, etc of the
F, G NA 2%
Parking lot and Toll
Plaza respectively

Grant of Mining and

H NA 2%
Quarrying

I Tendu Leaves NA 5%

Minerals, being coal

J NA 1%
or lignite, or iron ore

K Sale of Bullion > 2 lakh 1%

Sale of the motor

vehicle whether
L payment is received > 10 lakh 1%
by cheque or by any
other mode

Sale in cash of any

M other goods except > 2 lakh 1%
bullion & Jewelry

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Providing of any
N service (other than > 2 lakh 1%
Ch-XVII-B)

TCS for sale of

O overseas tour NA 20%
program package

TCS on remittance
under LRS for an
educational loan
P taken from a NA 0.5%
financial institution
as mentioned in
Section 80E

-7 lakh in case
of remittances -5% in case of
for education education and
and medical medical
Foreign remittance
Q purpose remittance
under LRS
-No limit in -20 %in case of
the case of other foreign
other foreign remittances
remittance

0.1% (1% in
case of non-
R TCS on sale of goods NA
availability of
PAN/Aadhar)

When will a higher TCS rate apply?

Note that as per Section 206CCA, tax at a higher rate (other than rates in the
above table) will be collected from the buyer if such buyer has-

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• Not filed ITR for the last two financial years before the relevant
financial year in which TCS had to be collected.

• The time limit to file ITR has expired.

• The total of TCS and TDS was more than Rs.50,000 in each of these
two financial years.

Such a higher TCS rate will be the highest of the following two rates-

• Two times the TCS rate mentioned in the Income Tax Act ( in the
above table)

• 5%

In special cases given under Section 206C(IG), 5% TCS applies where the
authorised dealer arranges remittance out of India of Rs.7 lakhs or more in a
financial year from a buyer of foreign currency remitting under Liberalized
Remittance Scheme (LRS), not being the overseas tour program package. If
Aadhaar or PAN is unavailable, then TCS is 10%. Such TCS is collected while
debiting the buyer’s account or on receipt of money.

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Health & Education Cess @ 4% on TCS +Surcharge as applicable.

10. TCS Payments
(a) The seller shall deposit the TCS amount in Challan 281 within one week
of the last day of the month in which the tax was collected. This
remittance can be made in any branch of RBI, SBI or any other
authorized bank or the same can also be remitted electronically.
All sums collected by any Government office should be deposited on the same
day of collection.

11.Failure to remit the TCS to Government Account shall attract following

consequences:

a. If the tax collector responsible for collecting the tax and depositing the same
to the Government does not collect the tax, then he will be liable to pay interest
at the rate of 1% per month or part of the month in addition to the amount of
TCS which he fails to collect. If, after collecting the TCS, he does not remit the
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same to the Government within due dates, then he is liable for interest at the rate
of 1% per month of delay.

b. The person would also be liable for penalty u/s 271CA of the Act, which would
be equal to amount of tax liable to be collected.
c. The person will also be liable for prosecution u/s 276BB of the Act, the term
of which is upto 7 years of imprisonment.
10. TCS Returns & Certificate of TCS

It is mandatory for all collectors of tax at source to furnish Quarterly TCS

returns (Form 27EQ) to CPC- TDS in electronic mode within the prescribed
time. The collector can also file correction statement for rectification of any
mistake, add/delete or update the information already furnished.

The Collector of TCS has to provide a TCS certificate in Form 27D to the
purchaser of the goods. The due dates for filing TCS quarterly returns and
issue of TCS certificates is as under:

QuarterDue Date of Date for

Ending Filing Generating
Return Form 27D
30’° June 15’h July 2021 30th July
2021 2021
30“ Sept. 15° Oct. 2021 30'° Oct.
2021 2021
31”Dec.2021 15’h Jan. 30th Jan.
2022 2022
st
31 March
15th May 30’h May
2022 1
2022 2022

12. TCS Exemptions

Tax collection at source is exempt in the following cases:
(a) When the eligible goods are used for personal consumption
(b) The purchaser buys the goods for manufacturing, processing or
production and not for the purpose of trading of those goods.
13. Lower Rate of TCS
The buyer (licensee) can apply to the Assessing Officer (TDS) for a lower rate
Certificate by filing Form No. 13. Subject to the provisions of the Act, if the AO is
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convinced that the total income of the buyer (licensee) justifies the lower rate,
the AO may issue a certificate specifying the rate of collection u/s 206C. This
Certificate will be issued by the AO online through the TRACES portal

TCS on Foreign Remittance

What is LRS?

The Liberalised Remittance Scheme facilitates individual Indians to remit funds

outside India up to USD 2,50,000 in a financial year. This scheme is not
applicable to Corporates, Partnership firms, HUF, Trusts, etc. Also, where the
remittance is made by the minor, the LRS declaration form must be signed by a
Minor’s guardian.

The person can make the following remittances under this scheme:
• Private visit to any country (except Nepal and Bhutan)
• Gift or Donation
• Studies
• Medical treatment
• Traveling
• Maintenance of close relatives abroad
• Purchase of property
• Investment in shares, mutual funds, and debts
Note: Individuals can avail of the exchange facility in excess of the limit
prescribed under the LRS if it is required by the universities, medical institutes
for studies, or medical treatment.

When is TCS applicable on Foreign Remittances?

TCS is applicable in the following situations:

• If an authorized dealer receives an amount of more than INR
7,00,000 in a financial year from a buyer who is remitting the

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amount outside India under the LRS, then the dealer is required to
collect TCS in excess of INR 7,00,000.
• In the case of the sale of an overseas tour program package, the
seller should collect TCS on the entire amount received from the
buyer irrespective of any limit.

Rate of TCS on Foreign Remittance

• TCS should be collected by the seller or authorized dealer at the

rate of 5%.
• If an educational loan is taken from Financial institutions for
remitting the amount then the TCS rate will be 0.5% instead of 5%.

In the Budget 2023, it has been proposed that if you are planning to invest in
foreign stocks, gift abroad or purchasing an overseas tour package then the rate
of TCS will be 20% without any threshold limit. However, there is no change in
the rate of TCS for remitting the amount for studies or medical treatment.
Let’s understand this with the help of an example:
Example 1: Shyam is remitting the amount of INR 10,00,000 under the LRS for
medical treatment. In this case, the seller should collect TCS at the rate of 5% on
the excess amount of INR 7,00,000. The tax collected will be INR 15,000 (INR
3,00,000*5%).
Example 2: Ram is planning to purchase an overseas tour package from a tour
operator for an amount of INR 5,00,000. As per Budget 2023, TCS should be
collected by the seller at the rate of 20% of the entire amount. Thus, the TCS will
be INR 1,00,000 (INR 5,00,000*20%). Basically, Ram needs to pay INR 6,00,000
to the tour operator.

When to collect TCS on Foreign Remittance?

TCS should be collected either at the time of :

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• receipt of remittance amount by any mode from the buyer or
• at the time of debiting the amount payable by the
buyer, whichever is earlier

Exemptions from TCS

Following are the conditions in which TCS will not be applicable:

• TDS is applicable under any other provision of the Income Tax Act

• Buyer is a CG, SG, High Commission, Consulate, Foreign diplomat,

Local authority, or any other notified person.
• The amount remitted is up to INR 7,00,000 for studies or medical
treatment.

TCS Return

The seller shall be liable to file a return in Form 27EQ if TCS has been collected
by the seller on foreign remittance or on the sale of the overseas tour package.
Also, the seller can provide a certificate in Form 27D to the buyer whose tax has
been collected.

Analysis of provisions of TCS on Sale of Goods [Section 206C(1H)] A simplified

analysis of provisions of TCS applicable on the Sale of Goods covered under
section 206C(1H) of the Income Tax Act is briefed hereunder –

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Scenario 1 Suppose the turnover of the previous year of the buyer and seller are:
Buyer: Rs 8 Crore
Seller: Rs 15 Crore
The transaction entered between both parties is Rs 55 lakh in the current
financial year. In such a case, Section 194Q is not applicable because the
turnover of the buyer in the previous FY does not exceed Rs 10 Crore. However,
Section 206C(1H) is applicable. TCS @0.1% on the amount of Rs 5 lakhs will be
collected by the seller. (Provided the buyer's PAN is available). In the case Buyer's
PAN is not available, then TCS will be collected by the seller @1% on Rs 5 Lakhs.
Scenario 2 Suppose the turnover of the previous year of the buyer and seller are:
Buyer: Rs 18 Crore
Seller: Rs 7 Crore
The transaction entered between both parties is Rs 58 lakh in the current
financial year. In such a case, Section 194Q is applicable because the turnover of
the buyer in the previous FY exceeds Rs 10 Crore. Section 206C(1H) is not
applicable. TDS @0.1% on the amount of Rs 8 lakhs will be deducted by the
buyer. (Provided the seller's PAN is available). In the case seller's PAN is not
available, then TDS will be deducted by the buyer @5% on Rs 8 Lakhs.

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