What is TCS (Tax Collected at Source)?
Tax Collected at Source (TCS) is a tax collected by the seller from the buyer. The seller collects this tax at the time of selling specified goods or services. Section 206C of the Income Tax Act governs TCS provisions.
Applicability of TCS
TCS applies to specific goods and transactions defined under the law. It covers alcohol with rates between 1% and 5%. It applies to certain leasing activities at 2%. And also, it applies to high-value motor vehicle sales at 1%. TCS applies to remittances under the Liberalized Remittance Scheme (LRS) at 2% to 20%.
What This Article Covers
This article explains transactions where TCS applies. It also covers TCS due dates and payment timelines. You will learn about late payment interest and penalties.
Budget 2026 Update on TCS
The government reduced TCS on LRS for health and education to 2%. It proposed a 2% TCS on overseas tour packages under LRS. This replaces the earlier rates of 5% and 20%. The new rate applies without any minimum threshold.
What is Tax Collected at Source (TCS)?
Tax Collected at Source (TCS) is a tax that the seller collects from the buyer during a sale. Therefore, the seller must deposit this tax with the authorities within the prescribed due dates. Moreover, Section 206C of the Income Tax Act governs all TCS provisions. In addition, the seller must obtain a Tax Collection Account Number (TAN) to collect TCS. However, the seller only collects and deposits the tax. He does not pay TCS from his own funds.
Example of TCS
For example, Mr. X sells goods worth Rs. 100 to Mr. Y. Since TCS applies, Mr. X collects tax at 1%. Thus, he collects Rs. 1 as TCS from Mr. Y. Consequently, Mr. Y pays a total of Rs. 101. After that, Mr. X deposits the collected TCS within the due dates. Finally, Mr. X only collects and deposits the tax.
Who Can Collect TCS?
The seller collects TCS from the buyer along with the sale value. Therefore, the seller adds TCS to the invoice amount. A buyer purchases specified goods or services under applicable rules. Thus, the buyer pays the TCS along with the total bill amount.
TDS vs TCS – An Illustration
Confused between TDS and TCS? Let’s understand with a simple example. Assume you purchase goods worth Rs. 100. Also, the applicable TDS or TCS amount is Rs. 10.
When TDS Applies
In this case, you deduct TDS before making a payment. Therefore, you pay Rs. 90 to the seller after deduction. Additionally, you must deposit the deducted Rs. 10 with the government. Thus, the buyer handles both deduction and payment of TDS.
When TCS Applies
Here, the seller collects TCS from you at the time of sale. So, you pay Rs. 110 in total (Rs. 100 + Rs. 10). Afterward, the seller deposits the collected TCS with the government. Thus, the seller handles both the collection and the payment of TCS.
Key Difference
Therefore, TDS involves deduction by the buyer before payment. In contrast, TCS involves collection by the seller during the sale. Similarly, this process works like GST collection and payment by the seller.
When Should TCS Be Collected?
The seller must collect TCS at the earlier of the two events. First, when the seller records the sale in the books for credit transactions. Second, when the seller receives payment from the buyer by any means. This includes cash, cheque, or bank draft.
Special Case: Motor Vehicle Sale
However, for motor vehicle sales, the rule differs. The seller collects TCS only when receiving payment from the buyer.
TCS Rates for Specific Goods u/s 206C(1)
TCS applies when buyers use goods for trading purposes. However, it does not apply when buyers use goods for manufacturing or processing. Therefore, the seller collects TCS at the time of sale. Moreover, Section 206C(1) prescribes different TCS rates for various categories of goods.
The seller collects TCS at prescribed rates for specified goods. Moreover, rates vary based on the nature of goods.
- Liquor for human consumption – 2%
- Timber obtained under forest lease – 2.5%
- Tendu leaves – 2%
- Timber obtained by other modes – 2.5%
- Forest produce other than timber, and tendu leaves – 2.5%
- Scrap – 2%
- Minerals like lignite, coal, and iron ore – 2%
Section 206C(1C) – TCS on Leasing and Licensing
A person granting leases or licenses must collect TCS at 2%. This applies to parking lots, toll plazas, mines, and quarries.
Section 206C(1F) – TCS on Motor Vehicles and Luxury Goods
This section applies to high-value motor vehicles and notified luxury goods. The seller collects TCS when the value exceeds Rs. 10 lakhs. Motor vehicles include cars, bikes, and other vehicles. Therefore, high-value bikes also attract TCS.
Notified Luxury Goods
The list includes specific high-value items. These include wristwatches, handbags, and sunglasses. It also covers art pieces like paintings and antiques. Additionally, it includes collectibles like coins and stamps. Items like yachts, boats, and helicopters also qualify. Sportswear, shoes, and home theatre systems are included. Moreover, horses for racing and polo fall under this list.
TCS Rate
The seller collects TCS at 1% on the sale consideration. This applies only when the value exceeds Rs. 10 lakhs.
Section 206C(1G) – TCS on Foreign Remittance
Authorized dealers collect TCS on LRS remittances. Similarly, tour operators collect TCS on overseas packages. They apply the rates prescribed under the law.
TCS Exemptions
TCS does not apply in specific cases. For example, buyers may submit a declaration for manufacturing use. They may also declare use for power generation purposes.
Example of TCS Calculation
A buyer purchases a car worth Rs. 10 lakh. Therefore, the seller collects TCS of Rs. 10,000 at 1%. Thus, the buyer pays Rs. 10,10,000 in total.
TCS Payment and Returns
The seller must deposit TCS within seven days after the month-end. If delayed, the seller pays interest at 1% per month. Additionally, the seller must file quarterly returns using Form 27EQ. The seller should pay interest before filing the return.
TCS Certificate – Form 27D
After filing returns, the seller issues a TCS certificate to the buyer. This certificate is known as Form 27D. It serves as proof of TCS collection.
Contents of Form 27D
Form 27D includes key transaction details. It shows the names of the buyer and seller. It also includes TAN and PAN details. Additionally, it shows tax collected, date, and rate applied.
Due Dates for Form 27D
The seller must issue Form 27D within 15 days of return filing.
- Quarter ending 30 June – Return due 15 July, certificate by 30 July
- Quarter ending 30 September – Return due 15 October, certificate by 30 October
- Quarter ending 31 December – Return due 15 January, certificate by 30 January
- Quarter ending 31 March – Return due 15 May, certificate by 30 May
Interest on Late Payment
If the seller delays collection or payment, interest applies. The rate is 1% per month or part thereof.
Penalty for Incorrect Filing
Incorrect TCS returns attract penalties under Section 271H. The penalty ranges from Rs. 10,000 to Rs. 1,00,000.
Frequently Asked Questions
Should sellers collect TCS on an amount including GST?
Yes, sellers collect TCS on the total sale value, including GST. Therefore, they calculate TCS on the full invoice amount.
What are the consequences of the late filing of the TCS return?
If you file late, you must pay Rs. 200 per day as fees. However, the total fee cannot exceed the TCS amount. Also, you must pay the fee before filing the return.
Is there any penalty for the incorrect filing of the TCS return?
Yes, authorities may impose penalties for incorrect filing. Under Section 271H, penalties range from Rs. 10,000 to Rs. 1,00,000.
Can I check my TCS in Form 26AS?
Yes, you can check TCS details in Form 26AS. It shows seller details, TCS amount, and transaction information.
Is tax collected at source refundable?
Yes, you can adjust TCS against your tax liability. Thus, it works similarly to TDS.
Why was the tax collected at source introduced?
The government introduced TCS to prevent tax evasion. Specifically, it targets high-risk and hard-to-track transactions.
What is tax collected at source used for?
The government treats TCS as advance tax revenue. It funds infrastructure, education, and social development programs.
Is TCS on LRS transactions mandatory?
Yes, TCS on LRS transactions is mandatory. Moreover, Section 206C governs this requirement.
Is TCS applicable to transfers to an NRO account?
TCS applies if the transfer falls under LRS. For example, gifts or loans to NRIs attract TCS.
What is the TCS limit for foreign remittances?
Generally, TCS applies at 20% beyond Rs. 10 lakhs. However, rates may vary based on the transaction type.
When do changes in Section 206C(1F) become effective?
The updated provisions apply from 22 April 2025.
What are the latest changes in Section 206C(1F)?
Earlier, TCS applied only to motor vehicles above Rs. 10 lakhs. Now, it also covers specified luxury goods above this value. These include watches, art, coins, stamps, and sunglasses. Additionally, it includes shoes, handbags, and sports equipment. Home theatre systems and horses also fall under this rule.
