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All You Need to Know About Tax Collected at Source (TCS)

Updated on: April 17, 2025
Author: Editorial Team | in

Overview : The Indian Income Tax Act also outlines provisions for tax collected at source or TCS, making it an essential aspect of taxation. The provisions state that certain persons are required to collect a specified percentage of tcs tax from their buyers on specified transactions. In this blog, gain deeper insights into tax collected at source and ensure compliance.

Tax Collected at Source (TCS) is an important concept of the tax landscape under the Indian Income Tax Act, 1961. It is a key part where a seller collects tax from the buyer at the time of sale and deposits it with the government. TCS applies to specific transactions, ensuring tax compliance and reducing tax evasion. This blog covers everything you need to know about TCS meaning, their applicability, rates, exemptions, compliance requirements, and recent changes.

1. What is Tax Collected at Source (TCS)?

TCS is a tax collected by the seller from the buyer on certain specified transactions. The seller then remits this collected tax to the government. Unlike TDS (Tax Deducted at Source), which is deducted from payments, TCS is collected during sales.

Key Points:

  • Collector : Seller or collector (as per Income Tax Act).
  • Collectee : Buyer or payer.
  • Applicability : Only on specific transactions (listed under Section 206C of the Income Tax Act).

2. Applicability of TCS

Section 206C of the Income Tax Act identifies specific goods and services for the applicability of Tax Collected at Source or TCS. In other words, TCS is applicable to the specific sellers or buyers falling within certain categories as specified in the tax legislation.

Upon failing to collect and remit TCS to the concerned authorities, the sellers may have to face penalties. Also, they need to comply with the deadlines as prescribed by the authorities. In contrast, buyers who income is lower than the tax exemption threshold, can claim for TCS refund through filing their income tax returns.

Classification of Sellers for Tax Collected at Source

Some entities are designated as sellers for collecting TCS, and they are the only entities that can collect TCS from the buyers. Those designated entities are listed as below;

  • Statutory Authorities or Corporations
  • Co-operative Societies
  • Companies
  • Partnership Firms
  • State Government
  • Central Government
  • Any individual or Hindu Undivided Family (HUF) subject to account audits under Section 44AB
  • Local Authorities

Buyers' Classification for Tax Collected at Source

In terms of Tax Collected at Source, a buyer is an individual or entity acquiring goods or the rights to receive goods through a sale, auction, tender or such other means. It's mandatory for the buyers to pay the seller for TCS. However, some entities are exempt from TCS, which are described below;

  • Embassies
  • High Commissions
  • Central Government
  • State Government
  • Public Sector Enterprises
  • Consulates and other Trade Representatives of Foreign Nations
  • Sports Clubs and Social Clubs
  • Buyers acquire goods for manufacturing or power generation purposes rather than trading.

Which Goods are covered under TCS Provisions?

According to TCS provisions, a number of goods and services come under the purview of tax collected at source. Certain goods and services falling under the Tax Collected at Source are listed below;

  • Alcoholic liquor (including Indian-made Foreign Liquor)
  • Forest produces except timber and tendu leaves
  • Scrap
  • Tendu leaves
  • Timber wood sourced from a leased forest area
  • Timber wood obtained by any mode other than a forest lease
  • Any individual or Hindu Undivided Family (HUF) subject to account audits under Section 44AB
  • Minerals like iron ore, lignite, or coal
  • Bullion exceeding Rs. 2 lakhs/Jewelry exceeding Rs. 5 lakhs
  • Motor vehicle purchases over Rs. 10 lakhs
  • Parking lot tickets, Toll Plaza, Mining and Quarrying

Exemptions from TCS

Tax Collected at Source or TCS also consists of provisions for exemptions under some specific conditions. The two such conditions are described below;

Lower TCS Rate Option

The buyers may apply for reducing TCS rate to the Assessing Officer (AO). In this process, it's required to submit Form 13, in which the buyer must justify that the goods purchased are for personal use and that a lower TCS rate is warranted based on their income level. If the AO observes that the request submitted is valid, a certificate outlining the reduced TCS rate will be granted.

Total Exemption from TCS

Buyers also have the option to seek full exemption from TCS by submitting Form 27C. This exemption applies if the buyer can substantiate that the goods are purchased for manufacturing or production instead of trading purposes. Once approved, the buyer needs to provide a duplicate copy of this declaration to the seller responsible for submitting it to the concerned authorities.

When is Tax Collected at Source (TCS) collected?

Tax Collected at Source is collected by the seller from the buyer under these two occurrences;

  • Upon receipt of payment from the buyer; either in cash, cheque or draft.
  • When the amount payable by the buyer gets debited to the seller's account.

In case of transactions like purchase of motor vehicles, TCS is collected when the seller receives his payment. In other words, tds is included in the total price the buyer pays while purchasing. However, it's noteworthy that TCS applies only if the value of the motor vehicle exceeds Rs. 10 lakhs. After tax collection, the seller must deposit the TCS with the government before the end of the month.

TCS Payments

Tax Collected at Source (TCS) needs to be managed effectively by collectors. Depositing any TCS amounts, which is collected by the government offices on the same day of collection. However, other collectors must deposit the TCS amount using Challan 281 within 7 days after the last day of the month in which the TCS amount was collected from the buyer.

Penalties for Delay in TCS Collection & Deposit

Upon failing to collect or deposit TCS, or if the collected tax is not deposited, the collector is liable to pay interest at a 1% rate per month or part of a month during the period the delay persists.

Due Dates of TCS Payments

The rules stipulate that every collector is required to submit TCS on a specific deadline as per the quarter in which the tax was collected.

  • TCS must be deposited monthly by the 7th of the following month (for the quarter ending June 30).
  • For the quarters ending September 30, December 31, and March 31, the Due dates for depositing TCS are October 15, January 15 and May 15, respectively.

Why is a Tax Collected at Source Certificate important?

The TCS certificate is an important document that must be issued within a week of the last day of the month in which the seller has paid the TCS. In case, where the need to issue multiple certificates to a particular buyer within a fiscal year arises, a consolidated certificate can be issued within a month of the last day of the financial year.

Form 27D serves as proof of tax collected at the tax collected at the source and is necessary for the buyer to claim tax benefits. In case of the misplacement of certificate, the collector can issue a duplicate, which must be duly attested, ensuring the buyer still has access to crucial tax documentation.

How can you Deposit Tax Collected at Source (TCS)?

In order to ensure compliance with the tax regulations, sellers must deposit Tax Collected at Source using Challan 281. It can be either done online and offline and must be completed within seven days from the end of the month the TCS was collected.

Process of Online TCS Deposit

  • Go to the official website of the Income Tax Department.
  • Go to the TDS/TCS section and select Challan No./ ITNS 281.
  • Complete the details as required on the challan, including the deductee's name, type of payment, details of the goods or services, payment mode, assessment year, TAN details, and other relevant personal information.
  • Submit the form and proceed further to make the payment online.

Process of Offline TCS Deposit

  • Firstly, the seller must visit his nearest authorized bank branch.
  • Then, submit the completed Challan 281 at the bank.
  • The bank will issue a receipt once the challan is processed.

TCS Compliance Calendar

The due dates for TCS payments, submissions of Form 27EQ, and issuance of Form 27D are presented in a table format for clear reference:

Quarter EndingDue Date to Deposit TCSDue Date to Submit Form 27EQDue Date to Generate Form 27D
Jun-307th of every monthJul-15Jul-30
Sep-30Oct-15Oct-15 Oct-30
Dec-31Jan-15Jan-15Jan-30
Mar-31May-15May-15May-30

How do you claim a refund for tax collected at Source (TCS)?

Buyers earning less than the basic tax exemption limit but have had TCS charged by a seller during a specific financial year can claim a refund for the TCS amount paid. This excess deduction is refundable. However, the buyer must file his ITR to initiate the refund process.

To make a TCS refund claim successfully, the buyer should correctly enter the relevant sections of the ITR Form and attach the required documents. It includes the TCS certificate provided by the seller and proof of the transaction. TCS is generally recorded in Form 26AS as a tax credit, which the buyer can claim against the tax payable. Moreover, TCS can offset the amount due while filing advance taxes. Therefore, it provides financial flexibility for the taxpayer.

Conclusion

In conclusion, timely collection and paying taxation are important for both parties involved. To avoid unnecessary penalties due to delayed or incorrect tax filings, it is necessary to understand the significance of each document and file the relevant forms within the prescribed due dates.

Author Bio

setindiabiz

Editorial Team | in

Setindiabiz Editorial Team is a multidisciplinary collective of Chartered Accountants, Company Secretaries, and Advocates offering authoritative insights on India’s regulatory and business landscape. With decades of experience in compliance, taxation, and advisory, they empower entrepreneurs and enterprises to make informed decisions.