Basic Understanding

  • In simple words, TCS is the tax collected from the buyer at the time of sale and payable by the Seller to the Government. Section 206C of the Income Tax Act, 1961, deals with the goods on which the Seller has to collect tax from the buyers.

What are Goods that fall under the purview of TCS and respective rates applicable?

  • As per the provisions of Section 206C(1), every person, in the capacity of the seller shall at the time sale collect tax payable by the buyer at such time in the cash or issue a cheque or draft or by any other mode. In order to understand better what kind of Goods, TCS would be applicable are explained below:
Nature of GoodsPercentage Rates
Alcohol for human Consumption1%
Tendu/Tobacco Leaves5%
Timber obtained from the forests2.5%
Timber obtained from any other source2.5%
Forest produce apart from timber and tendu leaves2.5%
Scrap material1%
Mineral such as Coal, lignite or iron ore1%
Bullion of more than Rs. 2 Lacs and Jewellery of more than Rs. 5 Lacs1%
Motor Vehicle purchase of more than Rs. 10 Lacs1%
Parking charges, Toll plaza and purpose of Mining and Quarrying2%

What is TCS Certificate?

  • After filing the TCS return in Form 27EQ, the tax collector shall provide a TCS Certificate to the buyer of goods.
  • Form 27D shall be called a TDS Certificate issued after the TCS return is filed.

The following details shall be mentioned on the Certificate:

  • It mentions the name of the seller and buyer
  • The name of the person who files the TCS Return quarterly such as Tax Deduction and Collection Account Number (TAN) of the seller.
  • Permanent Account Number (PAN) of the Seller as well as Buyer.
  • Detail of the total tax collected by the Seller.
  • Date of Collection of TCS
  • The TCS rate applied

After the filing of TCS quarterly returns, the TCS Certificate shall be issued within 15 days from the date of filing and respective due dates are as follows:

  • In the First Quarter, the quarter shall end as of 30th June and Form 27D (TCS Certificate) shall be generated on 30th July.
  • In the Second Quarter, the quarter shall end on 30th September and Form 27D shall be generated on 30th October.
  • In the Third Quarter, the quarter shall end on 30th September and Form 27D shall be generated on 30th January.
  • In the Fourth Quarter, the quarter shall end on March 31st December and Form 27D shall be generated on 30th May.

What kind of Sellers and Buyers are classified for TCS?

There is a specified category of the seller of buyers for Tax Collected and Source and hence no other person shall collect tax at source apart from the following names:

  • Central Government
  • State Government
  • Statutory Authority
  • Any Company registered as per the Companies Act, 2013
  • Partnership firms
  • Co-operative Societies
  • Any person or Hindu Undivided Family is subjected to an audit of accounts as per the Income Tax Act, 1961 of the financial year.

There is also a categorization for the buyers who are liable to pay the tax at the source to Sellers, the name of such buyers are as follows:

  • Public Sector Companies
  • Central Government
  • State Government
  • Embassies and High Commission
  • Representatives of the foreign nation
  • Clubs such as sports and social

New Amendments in Income Tax, 1961 regarding the TCS.

  • From 1st October 2020, Section 206C(1H) of the Income Tax Act,1961 provides the provisions for the collection of tax by a seller, whose total sales, gross receipts, or turnover in the previous financial year is more than 10 crore. Therefore, the tax shall be collected from the amount received with the consideration for the sale of goods that is more than Rs 50 Lacs in the previous financial year.
  • The calculation of the threshold limit of Rs 50 Lacs will be applicable from the 1st April 2020 and to the whole financial year. In the case, where the seller has received Rs 50 Lacs from the buyer till 30th September 2020 then the tax shall be collected on the total sum received till 1st October 2020.

What are the exemptions under TCS?

The TCS shall be exempted in the following case:

  • Those goods that used for personal consumption
  • The goods that are purchased for manufacturing, processing, or production other than in the case of trading of those goods.

What is the Provision of TCS under GST?

  • Under GST, any transaction of selling goods is taking place on the online platform, so the trader will get the payment after the deduction of 1% IGST. In the CGST, 0.5% AND 0.5% in the case of SGST.
  • The tax shall be deposited to the Government by the 10th day of every month. Therefore, all the dealers and traders shall get registered under GST.

Rules for TCS under Income Tax Act, 1961

  • In the case, where TCS has been deposited without the Challan, the collector reporting to the person regarding the TCS for depositing to the Government. This person has to submit Form 24G with the authorized agency constituted by the Director of Income Tax.
  • The above-mentioned Form 24G shall be submitted within 15 days from the end of the relevant month. For example, if Form 24G is for the month of June then it shall be submitted by 30th July.
  • The issuance of Form 24G is done electronically under digital signature, along with verification in Form 27A and verified through any other prescribed format.
  • Application by the transferor- the transfer shall be registered once Company sends application notice to the transferee and in return, a No Objection Certificate is issued by the transferor within two weeks of receiving notice.

Important dates for payments and returns of TCS

  • The payment of TCS and its returns shall be collected in four quarters i.e.
  • 1st quarter starting from April to June and TCS payment shall be made on 7th day of every month and return shall be filed for the same on 15th July.
  • 2nd Quarter starting from July to September and TCS payment shall be made on 7th day of every month and return shall be filed on 15th October. 3rd Quarter starting from October to December and TCS payment shall be made on 7th day of every month and return shall be filed on 15th January.
  • 4th Quarter starting from January to March and TCS Payment shall be made on 7th day of every month and return shall be filed on 15th May.
  • Most importantly, the seller shall deposits the TCS amount in Challan 281 within 7 days from the last day of the month in which tax was collected.
  • Also, if the tax collector fails to collect the tax and depositing the same to the Government on the due dates then he shall be liable to pay 1% interest per month to the Government.
  • On the other hand, the TCS return shall be submitted by every taxpayer in Form 27EQ about the tax collected in the specific quarter. The interest of 1% as explained above shall be paid prior to filing the TCS return.

Conclusion

The Enterprise Resource Planning system has to be well equipped and integrated to implement the above provisions in the business.

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