Everything you need to know about Tax Collected at Source(TCS)

Last Updated On: Nov. 1, 2021, 9 p.m.
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TAX COLLECTED AT SOURCE (TCS) UNDER GST

 

What is Tax Collected at Source?

Tax collected at source (TCS) is the tax paid by a seller of a specified goods from the buyer at the time of transfer of goods, which he collects from the buyer at the time of sale. As per Income Tax Act,1961 the seller must collect a specified percentage of tax at the time of receipt of amount from their buyers or at the time transfering the amount to the seller account whichever is earlier.

 

Tax Collected at Source shall not be made in case of buyer who is resident of India, if such buyer furnishes to the collector the declaration in writing to the effect that the goods are to be utilized for the purposes of manufacturing, processing other than trading. One of such copy of Declaration is required to be submitted to the Chief Commissioner of Income Tax or Commissioner of Income Tax on or before expire of 7 days from the end of the month in which the sale is effected.

 

Every person who enters into an agreement of lease or contract for parking lot, will collect an amount @ 2% from such parties as Tax Collected at Source.

 

The person collecting tax that is the seller has to obtain Tax Collection Account Number (TAN) quoted it in all challans, certificates and returns and all other documents pertaining to the transactions. The Buyer should furnish his Permanent Account NUmber (PAN) to the seller, failing to furnish the PAN the tax will be collected at the higher rate which is twice or 5 percent whichever is higher.

 

If the person who is responsible for collection of Tax Collected at Source (TCS) or after collecting tax fails to pay the tax, he/she shall be deemed to be an assessee in default will have to face various consequences.

 

Let us know how Seller and buyer are classified:

Under Income Tax Act, a seller is defined as any of the following:

  • Statutory Corporation or Authority
  • Company registered under the Companies Act
  • Partnership Firm
  • Central Government
  • State Government
  • Local Authority or
  • Any person or HUF who is subjected to an audit of accounts under the Income Tax Act over the financial year.

 

 

 

BUYER FOR TCS

A buyer is a person who obtains goods of specified nature in any sale or right to receive any such goods, by way of auction, tender or any other mode.

 

EXEMPTED BUYERS:

The below buyers are exempted from collection of tax at source

  • Public Sector Companies
  • Central Government
  • State Government
  • Embassy of high commission
  • Consulate and other Trade Representation of a Foreign nation clubs such as sports clubs and social clubs

 

TCS NON-APPLICABILITY

Tax collection at source is exempted in the following cases:

  • When the eligible goods are used for personal consumption
  • The Purchaser buys the goods for manufacturing, processing, or production and not for the purpose of trading those goods.\

 

The Rate of Tax Collected at Source (TCS) is different for goods specified under Different Categories:

Nature of Goods Applicability of Rates from 01.04.2020 to 13.05.2020 Applicability of Rates from 14.05.2020 to 31.03.2021

Tendu leaves

5%

3.75%
A forest produce other than Tendu leaves and timber 2.5% 1.875%
Timber obtained by any other mode than forest leased 2.5% 1.875%
Liquor of alcoholic nature, made for consumption by humans 1% 1%
Scrap 1% 0.75%
Minerals like lignite, coal and iron ore 1% 0.75%
Purchase of Motor vehicle exceeding Rs. 10 Lakhs 1% 0.75%
Parking lot, Toll Plaza and Mining and Quarrying 2% 1.5%
Timber obtained under a forest lease 2.5% 1.875%

 

EXAMPLES FOR UNDERSTANDING TCS

Buyer is purchasing a car that costs Rs 15 lakhs then an amount of Rs 15,000 would be payable as TCS. This amount would need to be submitted to a particular branch of the bank which has been given permission by the government for receiving such payments. The person who is selling those cars is only responsible for collecting the cash from the buyer and paying it to the government and he doesn’t pay anything herself or himself.

 

IMPORTANT POINTS TO BE NOTED:

1. TDS deducted by buyer and TCS collected by seller.

2. Tan no is mandatory

3. The Seller deposits the TCS amount in challan 281 within 7 days from the last day of the month in which the tax was collected.

4. TCS return file quarterly basis.

5. Failure to file your TCS returns within the due date will mean that you will be subject to a late filing fee of Rs.200 per day. The fee will be charged for every day after the due date, until the date on which your return is filed. However, the maximum fees that you will have to pay will be limited to the TDS amount.

 

TCS Returns & Certificate of TCS

It is mandatory for all collectors of tax to furnish Quarterly TCS returns (Form 27EQ) online to CPC-TDS in electronic mode within the prescribed time. The collector can also file correction statement for rectification of any mistake, add/delete or update the information already furnished.

Note: Filing of TCS return after due date is liable for Late Filing Fee of Rs.200/- per day for the period of delay from due date.

The Collector of TCS has to provide a TCS certificate in Form 27D to the purchaser of the goods.

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