TCS in income tax (Complete Detail)

The Income Tax Act of India has several terms related to tax, like TCS, TDS, ITR, etc. Let us know more about TCS in income tax here.

TCS is Tax Collected at Source. The seller needs to pay this tax but gets it from the buyer at the time of purchase. In other words, the seller remits the tax amount to the bank, which he collects from the buyer.

What is TCS tax? An example?

TCS is a concept where, if you sell specific items, you are liable to collect tax from the buyer at a specified rate and deposit it with the Government.

Tax Collected at Source (TCS) is an income tax, collected by the seller of specified goods, from the buyer. 

Let’s take an example to understand TCS:

A purchases jewelry from B for Rs. 7,00,000. Here, as per the provisions of TCS A would be liable to pay Rs. 7,07,000 to B ( Rs. 7,00,000 for jewelry and Rs. 7,000 as TCS at the rate of 1%).

Section 206 of the Income Tax Act cites the list of goods on which the seller should collect tax from buyers.

Can TCS be claimed in income tax?

Yes, you can claim TCS while filing your income tax returns.

On purchasing a high-value product you should pay the tax collected at the source (TCS). The seller of the product collects this tax. The customer has to pay TCS along with the price of goods.

The TCS adds to the PAN of the buyer. It adds up to the tax payment of the buyer. Thus, it is a type of advance tax. If you are not liable to pay any tax but are forced to pay TCS because of the cash, you can get the refund after filing your Income Tax Return.

How is TCS calculated?

The TCS is calculated on a buyer basis. The threshold limit u/s 206C(1H) is 50 lakh in a financial year. So, you should collect @0.1% on over and above Rs 50 lakh.

What is the difference between TCS and TDS?

Tax Deducted at Source and Tax Collected at Source are both incurred at the source of income.

• Tax is deducted on payment by a company/individual if the amount exceeds a certain limit. It is called TDS. 
• The tax collected by sellers while selling certain goods to buyers is TCS.
• TDS deduction is applicable on payments such as salaries, rent, professional fees, brokerage, commission, etc. 
• TCS deduction is on sales of goods like timber, scrap, mineral wood, etc.
• TDS is applicable only on payments that exceed a certain amount.
• TCS is on sales of specific goods which don’t include production or manufacturing material.
• The time of deduction of TDS is when payment is due or made, whichever comes sooner.
• The time of deduction of TCS is at the time of the sale.
• The individual or company making the payment is responsible for TDS.
• Individuals or businesses selling the goods or service are responsible for TCS.
• The due date for TDS is the 7th of every month, though you should submit the returns quarterly.
• The due date for TCS is the month when you receive the supply. You should deposit it to the Government within ten days from the month’s end in which you receive the supply.

Examples of TCS and TDS.

X works at a company. His company deducts a tax on monthly salary at the applicable rate before they make the final payout. This amount is TDS.

Y is a mineral wood trader. He sells some mineral wood to Z. While making the sale, Y collects a 5 percent tax; this sum collected by Y from the customer is called TCS.

Who is exempted from TCS tax?

You need not pay TCS if you belong to the following category,

• Public sector company
•  Central Government
•  State Government
• Embassy of High Commission
• Consulate and another trade representative of a foreign nation.
•  Clubs such as sports clubs and social clubs.

You are exempted from TCS tax under these categories.

Who is eligible for TCS tax?

The sellers collect TCS while selling certain goods to the buyers. You can collect TCS only if you come under any of these vendors.

• Central Government
• State Government
• Local Authority
• Statutory Corporation or Authority
• Company registered under the Companies Act
• Partnership firms
• Co-operative Society
• Any person or HUF whose accounts are audited under the Income Tax Act for a specific financial year.

If you come under any of these vendors, you are eligible for TCS tax.

What happens if TCS is not collected?

If the seller didn’t pay TCS to the government at the due date, he is liable to pay 1% of the total amount as a penalty.

Filing your TCS after the due date suggests you pay a minimum penalty of Rs 10,000 which may extend to Rs 1,00,000. This penalty added to the late fee is what your total TCS amount is.

Thus, to avoid these situations, pay your TCS within the due date.

FAQ- TCS in income tax

1. What is the section of TCS?

Section 206C(1H) comes into effect through Finance Act 2020 to extend the TCS provisions to the seller of goods. As per this provision, a seller whose turnover is above Rs 10 crore should collect tax, when he receives more than Rs 50 lakh from one buyer during a financial year.

2. What is a TCS certificate?

The seller who collects TCS from the buyer issues this certificate. The seller will submit this certificate with Form No. 27D within a week from the last day of the month in which the tax was collected.

3. What is the current TCS rate?

Currently, the tax collection rate (TCS) for the sale of goods is 0.1% of the sale sum exceeding Rs. 50 lakhs.

4. What is the TCS tax limit?

If the sale exceeds Rs.50 Lakhs, the seller is liable to collect TCS from the buyer. Thus, the maximum limit is Rs.50 Lakhs. 

Bottomline

As you can see, every detail about TCS in income tax (Tax Collected at Source) is given here. Every seller needs to collect TCS while selling on behalf of the buyer and submit it to the government. Avoid paying TCS beyond the due date to escape from penalties. I hope you found this article interesting. If you have any questions, please let us know.

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