Tax Collected at Source (TCS) – Meaning, Tax Rates And Exemption

Topic Covers:

1. Introduction
2. Classification of seller and buyer
3. Non- applicability of TCS
4. Exemption from Collection of tax
5. Goods Means
6. TCS Rates
7. TCS at higher rate
8. Other points

What is TCS?

TCS stands for Tax Collected at Source. It is a tax payable by a seller which he collects from the buyer at the time of sale of goods. It is an extra amount collected by the seller in the form of tax. Specific people need to deduct TCS who is the seller.

Classification of Seller for TCS-

There are some specific people or organisations who have been classified as sellers for tax collected at the source. No other seller of goods can collect tax at source from the buyers apart from the following list:

• Central Government
• State Government
• Local Authority
• Statutory Corporation or Authority
• Company registered under the Companies Act
• Partnership firms
• Co-operative Society
• Any person or HUF who is subjected to an audit of accounts under the Income-tax Act for a particular financial year.

Buyers for TCS-

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

Non-Applicability of TCS

The below buyers are exempted :

• 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
• Where resident buyer utilises such purchase for the purposes of manufacturing, processing, or producing articles or things or for the purposes of generation of power (not for trading) and gives this declaration in writing in duplicate.

Exemption from Collection of tax-

There are two main cases where Tax Collected at Source (TCS) is exempted: Section 206C(1A)

Case 1: Goods purchased for personal consumption

TCS is not applicable if the goods are purchased by an individual for personal consumption. This means that if you buy a car, a piece of jewellery, or any other item for your own use, you will not be subject to TCS.

Case 2: Goods purchased for manufacturing, processing, or production

TCS is not applicable if the goods are purchased by a buyer who intends to use them for manufacturing, processing, or production. This means that if you buy raw materials, machinery, or other supplies for your business, you will not be subject to TCS.

In order to claim this exemption, the buyer must submit a declaration in Form 27C to the seller. The declaration must state that the goods are to be used for manufacturing, processing, or production and not for trading purposes. A copy of the declaration must be submitted to the Chief Commissioner or Commissioner of Income Tax within seven days of the end of the month in which the sale is effected.

Goods Means For this Purpose :-

• Alcoholic liquor for human consumption,
• Tendu leaves,
• Timber obtained under a forest lease,
• Timber obtained by any mode other than
• Any other forest produce not being timber or tendu leaves,
• Scrap,
• Minerals, being coal or lignite or iron ore
• Motor vehicle value exceeding ₹ 10 lakhs.
  This Exemption is not Applicable on Other Than Section 206C(1) i.e. 206C(1C), 206C(1F) etc.

TCS Rates –

Nature of Goods	Percentage
Alcoholic liquor for human consumption	1%
Tendu leaves	5%
Timber obtained under a forest lease	2.50%
Timber obtained by any mode other than (c)	2.50%
Any other forest produce not being timber or tendu leaves	2.50%
Scrap	1%
Minerals, being coal or lignite or iron ore	1%

TCS at a higher rate:

1. Section 206CC mandates tax collection at the higher of the following rates if the collectee fails to furnish PAN (or Adhaar number in the case of section 206C(1H)) to the collector:

• Twice the rate specified in the relevant provision of the Act.
• 5% (1% if tax is required to be collected at source under section 206C(1H)). Effective from July 1, 2023, the maximum TCS rate for non-furnishing of PAN should not exceed 20%.

1. The specified rates apply even if the collectee furnishes a declaration under section 206C(1A) but does not provide PAN.

• Both the collectee and collector must quote the PAN of the collectee in all correspondence, bills, vouchers, and other documents exchanged between them.

1. If the PAN provided to the collector is invalid or does not belong to the collectee, it is deemed that the collectee has not furnished PAN. In such cases, tax is collectible at the higher rate specified in (i) above.
2. Section 206CC does not apply to a non-resident without a permanent establishment in India.

Higher Rate of TCS for Non-filers of Income-tax Return [Section 206CCA]:

1. Section 206CCA requires TCS at the higher of:

• Twice the rate specified in the relevant provision of the Act.
• 5%. Effective from July 1, 2023, the maximum TCS rate for non-filers of income-tax return should not exceed 20%.

1. If both Section 206CC and Section 206CCA are applicable to the specified person, TCS is required at the higher of the rates specified in both sections.

"Specified person" refers to an individual who has not filed the income-tax return for the preceding assessment year, where the time limit under section 139(1) has expired, and the aggregate of TDS/TCS in their case is ₹50,000 or more in the said previous year. However, it excludes non-residents without a permanent establishment in India and those not required to furnish an income tax return, as notified by the Central Government.

For instance, if tax collection is required in January 2024, the higher rate under section 206CCA applies if the buyer has not filed the income tax return for the assessment year 2023-24, and the aggregate TDS/TCS in the buyer's case is ₹50,000 or more in the previous year 2022-23.

Other points -

Notification No. 99/2022-Income Tax | Dated: 17th August, 2022 [ S.O. 3878(E)]

CBDT notifies that provisions of Section 206C (1G) of the Income Tax Act shall not apply to a person (being a buyer) who is a non-resident in terms of section 6 and who does not have a permanent establishment (PE) in India.

Circular No. 10 of 2023

Circular to remove difficulty in implementation of changes relating to Tax Collection at Source (TCS) on Liberalised Remittance Scheme (LRS) and on purchase of overseas tour program package

Finance Act, 2023 has amended sub-section (1G) of section 206C of the lncome-tax Act, 1961 (hereinafter referred to as 'the Act') to, inter-alia,

(i)  Increase the rate of Tax Collection at Source (TCS) from 5% to 20% for remittance under LRS as well as for purchase of overseas tour program package; and
(ii) Remove the threshold of ₹ 7 lakh for triggering TCS on LRS.

These two changes did not apply when the remittance is for education and medical purposes.
Threshold of ₹ 7 Lakh per financial year per individual in clause (i) of sub-section (1G) of section 206C shall be restored for TCS on all categories of LRS payments, through all modes of payment, regardless of the purpose: Thus, for first ₹ 7 Lakh remittance under LRS there shall be no TCS. Beyond this ₹ 7 Lakh TCS shall be applicable.

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