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Section 206C Tax Collected at Source (TCS)
The income tax Act has many provisions for tax collection, Tax Collected at Source (TCS) is one of them. Sellers are responsible for collecting TCS from the buyer at the time of sale for certain goods and services. TCS can be credited back to the buyer when filing ITR; therefore, the Seller is not liable to credit it back to the buyer by himself.
In Budget 2023, TCS for foreign remittances under LRS was raised from 5% to 20%
What is the Section 206C tax collected at source (TCS)?
Section 206C of Income Tax Act 1961 deals with the provisions of tax collection at source (TCS) by certain sellers from certain buyers. TCS is a mechanism to collect tax at the source from the buyers of specified goods or services. The objective of TCS is to ensure that the government gets its revenue at the earliest point of time and also to track transactions of high value. The seller who collects the tax must deposit it with the government and file quarterly returns. The buyer who pays the tax can claim credit for it while filing his income tax return.
Classification of Sellers for TCS
Some specified organizations and people are classified as a seller for collecting tax at the source; any other sellers are not allowed to collect tax at the source.
- Company registered under the Companies Act
- Statutory Corporation or Authority
- Central Government
- State Government
- Local Authority
- Partnership firms
- Co-operative Society
- HUF or any person subjected to an audit of accounts according to the Income-tax Act for a particular financial year.
Classification of Buyers for TCS
A buyer is classified as a person or organization that purchases any goods and services from the seller or through the online platform, retailers, or wholesalers. Buyers may purchase goods or services by bidding on them. There are a few specified buyers who are exempted from TCS collection.
List of exempted buyers:
- Central Government
- State Government
- Public sector companies
- Embassy of High Commission
- Consulate and other Trade Representation of a Foreign Nation
- Clubs such as social clubs and sports clubs
- A buyer who uses such a purchase in manufacturing and producing an article or thing to generate power and gives the declaration in writing in duplicate.
When will a Higher Rate of TCS Apply?
According to section 206CCA, the tax will be collected at a higher rate from the buyer if:
- If a buyer has not filed ITR for the preceding two years before the year of TCS collection.
- If the total amount of TDS and TCS exceeds Rs. 50,000 for each year these previous two years.
- Expiration of the due date for filing ITR.
Goods come under the TCS Provision, and the Rate of Tax applied
The rate of TCS varies depending on the type and value of goods sold. Here is a Chart of some common goods and the rate of tax applied to such goods:
Sections | Types of Goods Transactions | Tax Rate |
---|---|---|
206C(1) | Sale of the following goods: | |
Alcoholic liquor for human consumption | 1% | |
Tendu leaves | 5% | |
Timber obtained under a forest lease | 2.5% | |
Timber obtained by any mode other than under a forest lease | 2.5% | |
Any other forest produce not being timber or tendu leaves | 2.5% | |
Scrap | 1% | |
Minerals like lignite, coal, and iron ore | 1% | |
206C(1C) | Permit of lease or license of the following: | |
Toll Plaza | 2% | |
Parking Lot | 2% | |
Mining and Quarrying | 2% | |
206C(1F) | Motor vehicle (if the sale consideration exceeds ten lakh rupees) | 1% |
206C(1G)(a) | Remittance out of India under the Liberalised Remittance Scheme of RBI | 5% |
206C(1G)(b) | TCS on selling of overseas tour package | 5% |
206C(1H) | TCS on sale of any goods excluding goods on which TCS is applicable as per Section 206C (1), 206C (1F), and 206C (1G)] | 0.10% |
TCS Certificate
When the TCS collector files a quarterly TCS return (Form 27EQ), he must provide a TCS certificate to the buyer of goods.
Form 27D is the TCS certificate issued by the seller to the buyer. TCS certificate includes the following information:
- PAN of buyer and seller
- Names of the seller and buyer
- TAN of the Collector
- The amount of TCS deducted and deposited
- Rate of Tax
- Date of collection
TCS Payments & Returns
- Any government office collects the amount; the total amount must be deposited on the same day if paid by book entry (i.e. the day on which TDS was deducted). In case it is to be paid by Challan, the due date is the 7th of succeeding month.
- TCS amount collected by the seller should be deposited in challan 281 within 7 days after the month ends except the month of March due date is 30th April.
- If the tax collector does not collect the tax or deposit it to the government on or before the due date, he will be charged an interest of 1%.
- Every tax collector must submit the quarterly TCS return (Form 27EQ).
What are the Cases of TCS Exemptions?
TCS is exempted if:
- The goods are utilized for personal consumption.
- Purchased goods are being used in the manufacturing and production of an article and thing and are not used in trade.
How TDS is different from TCS?
People often need clarification on TDS and TCS, but these two tax provisions are completely different according to The Income Tax Act. The main difference between TDS and TCS is that the payer deducts TDS before paying the payee, while the seller collects TCS from the buyer at the time of sale. TDS is a tax deducted from Salary, professional fees, interest, etc. TCS is a tax the seller collects at the time of sale for specified goods and services described in the Income TAX Act.
Frequently Asked Questions
Q- What happens if TCS is not collected?
If the TCS has not been paid on or before the due date, the seller will be charged 1% of the total collected amount.
Q- Is TCS refundable in ITR?
TCS can be credited back to the buyer while filing ITR if eligible.
Q- How to Deposit TCS?
The seller has to submit challan 281 within 7 days after the month ends. (Monthly basis)
Q- What is Section 206C income tax?
The seller is liable to collect TCS at the time of sale for specified goods and services and deposit it to the government on and before the due date.