Tax Collected at Source (TCS) is a key practice within the Indian tax system, requiring sellers to collect tax from buyers during transactions and submit this tax to the government. Proper knowledge of when to collect TCS is essential to comply with tax rules and prevent penalties.

TCS should be collected by the seller at the earliest of these two events:

• When the seller records the amount owed by the buyer in their accounts.
• When the seller receives payment from the buyer, whether through cash, cheque, draft, or other means.

In motor vehicle sales, TCS must be collected upon receiving the payment or consideration from the buyer. TCS rates vary based on the type of goods or transactions:

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

Sellers with a turnover exceeding Rs.10 crore in the previous fiscal year, and receiving over Rs.50 lakh in sales, must collect TCS on the amount exceeding Rs.50 lakh at a rate of 0.1% if the buyer has no PAN.

Higher TCS Rate Conditions

Under Section 206CCA, higher TCS rates apply if:

• The buyer hasn't filed Income Tax Returns (ITR) for the last two fiscal years before the relevant year.
• The ITR filing deadline has passed.
• Total TCS and Tax Deducted at Source (TDS) were over Rs.50,000 in the past two years.

The higher rate is the greater of twice the specified TCS rate or 5% of the sale amount. For abroad remittances exceeding Rs.7 lakh per year under the Liberalized Remittance Scheme (LRS), a 5% TCS rate applies, increasing to 10% without Aadhaar/PAN details. This rate applies when debiting the buyer's account or upon payment receipt.

Seller and Buyer Classifications

Authorized TCS collectors include entities like:

• Central and State Governments
• Local Authorities
• Statutory Corporations
• Companies, Partnership Firms, and Co-operative Societies
• Individuals/HUFs subject to audit under the Income-tax Act

Buyers subject to TCS include those acquiring specific goods via purchase or auction, excluding public sector companies, government bodies, embassies, clubs, or those buying for manufacturing (with written declaration).

Example TCS Calculations

Car Purchase: Buying a car worth Rs.11 lakh results in Rs.11,000 TCS, totaling Rs.11,11,000.

Invoice: For an Rs.12,000 invoice at 1% TCS, the payer owes Rs.120 TCS, making it Rs.12,120 total.

TCS Payments and Certificates

• Collected TCS must be deposited within seven days post-collection month using Challan 281.
• Delayed remittance incurs 1% interest per month.
• Quarterly returns via Form 27EQ must include TCS details.
• A TCS certificate (Form 27D) must be issued within 15 days of return filing, detailing seller/buyer data, PANs, total tax, collection date, and rates.

TCS Exemptions and GST Implications

TCS isn't required for personal consumption purchases or manufacturing with written declarations. Under GST, e-commerce sales have 1% TCS deducted by platforms, payable by the following month.

Example: Mr. Raj's Rs.10,000 order on Flipkart incurs Rs.100 TCS.

TCS and Foreign Remittances

For LRS-based remittances, the 2023 Union Budget raised TCS rates from 5% to 20%, effective October 2023, except for medical/education remittances over Rs.7 lakh, staying at 5%. TCS can be claimed during tax returns.

Example: A Rs.5 lakh US stock investment incurs Rs.1 lakh TCS, offsetting a Rs.3 lakh tax liability to Rs.2 lakh.

Submission of Form 24G

Government offices not using challans file Form 24G, due within 15 days post-month, electronically with a digital signature. The March due date is 30 April.

Penalties for Non-Compliance

Delayed TCS remittance results in a 1% monthly interest, while incorrect returns incur penalties of Rs.10,000 to Rs.1 lakh.

This guide outlines TCS collection instances, applicable rates, exemptions, and compliance procedures. For further assistance, don't hesitate to ask!