Tax Collected at Source

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Tax Collected at Source (TCS) is a tax mechanism in India where the seller collects tax from the buyer at the time of sale of specified goods or services and deposits it with the government. Governed under Section 206C of the Income Tax Act, 1961, TCS is applicable to certain categories of transactions, ensuring efficient tax collection and compliance.

TCS primarily applies to goods and services where the seller has a significant role in collecting taxes. The rate of TCS depends on the nature of goods or services and is specified under the Income Tax Act. Sellers who are liable to collect TCS must have a valid Tax Deduction and Collection Account Number (TAN).

Categories of Transactions Covered Under TCS

Specified Goods:
- Alcoholic liquor for human consumption.
- Tendu leaves.
- Timber obtained under a forest lease or other modes.
- Scrap.
- Minerals such as coal, lignite, and iron ore.
Services:
- E-commerce transactions: Platforms must collect TCS on the payments made by buyers.
Foreign Remittances and Overseas Tour Packages:
- TCS applies to foreign remittances exceeding specified thresholds under the Liberalized Remittance Scheme (LRS) and tour packages.

TCS Rates

The rates of TCS vary depending on the nature of the goods or services and the buyer's status (resident or non-resident).
If the buyer fails to provide their Permanent Account Number (PAN) or Aadhaar, a higher TCS rate of 20% is applicable.

TCS Exemptions

Purchases for Personal Use:
- TCS does not apply if the goods are bought for personal consumption.
Government Buyers:
- TCS is not collected if the buyer is a government entity or similar exempt organization.

TCS Collection Process

Identify Applicability:
- Determine if the goods or services sold fall under the purview of TCS.
Calculate TCS:
- Calculate the tax amount at the applicable rate on the total sale value.
Collect TCS:
- Collect the TCS amount from the buyer at the time of sale.
Deposit TCS:
- Deposit the collected tax to the government using Challan ITNS 281 by the 7th of the following month.
File TCS Returns:
- File quarterly TCS returns using Form 27EQ with details of transactions and TCS collected.
- Due Dates:
  - Q1: July 15
  - Q2: October 15
  - Q3: January 15
  - Q4: May 15
Issue TCS Certificates:
- Provide a TCS certificate (Form 27D) to the buyer within 15 days of filing the return.

Documents Required for TCS Compliance

Tax Deduction and Collection Account Number (TAN).
Details of the buyer, including PAN or Aadhaar.
Invoice and sale transaction details.
Proof of TCS deposit (Challan ITNS 281).
Acknowledgment number for TCS returns.

Consequences of Non-Compliance

Interest:
- 1% per month for delayed collection or deposit of TCS.
Penalty:
- Penalty equal to the amount of TCS not collected or deposited.
Disallowance of Expenditure:
- Non-compliance may lead to the disallowance of related expenditure during tax assessments.

TCS in the Context of E-Commerce

E-commerce operators are required to collect TCS at the rate of 1% (0.5% CGST + 0.5% SGST or 1% IGST) on the net value of taxable supplies made through their platform.
The collected TCS is reflected in the seller's GST returns and can be used as input tax credit (ITC).

Benefits of TCS

Prevents Tax Evasion:
- Collecting tax at the source minimizes the chances of tax evasion.
Ensures Regular Revenue:
- TCS ensures continuous tax collection for the government.
Enhances Compliance:
- Mandating TCS promotes adherence to tax regulations.
Transparency:
- Provides a clear record of transactions and tax collected.

How to Register for TAN

Step 1: Visit NSDL Website
- Access the TAN application page on the NSDL website.
Step 2: Fill Form 49B
- Provide necessary details such as entity type, name, and address.
Step 3: Submit Application
- Pay the required fees and submit the application form.
Step 4: Receive TAN
- A TAN is issued and sent to the registered address.