TCS or Tax Collected At Source is an important tax deduction under the Income Tax Act 1961. It is governed by the Central Board for Direct Taxes and the Department of Revenue, which comes under the Indian Revenue Service.
The features of Tax Deducted At Source have been carried forward under the regime of GST or Goods and Services tax.
The concept of TCS is an essential feature of taxation, not only in India but at foreign locations aslo.
As per the new rules, effective October 1st, foreign remittances are also covered under TCS now, as LRS (Liberalised Remittance Scheme) has been introduced.
In India, Section 260C of the Income Tax Act governs TCS’s rules and mentions the goods on which TCS is applicable for all registered taxpayers.
In this article, we will explain what is TCS on sale of goods and the provisions of TCS Section 206C. We will also share some other interesting details about TCS rule, which goods are applicable for TCS and how to get the certificate of TCS.
But first, let’s understand the concept of the tax dedicated at source and know what TCS on sale of goods in India is?
What Is TCS on Sale Of Goods?
When a seller sells goods to a buyer, then as per the Income-tax laws, the seller needs to collect a tax from the buyer called TCS on sale of goods. The seller is liable to deposit this tax collected from the buyer to the Govt and mention the same during the IT returns.
For example, seller A sells 10 tonnes of timber wood to buyer B. In this case, seller A will collect a TCS of 2.5% from the buyer on timber wood and deposit with the Govt.
TCS Section 206c: Which Goods Are Covered?
TCS Section 206C governs the goods covered under this taxation policy and the percentage of tax that the seller needs to collect from the buyer.
Here are the details:
Hence, the maximum TCS of 5% is applicable for Tendu leaves, while 1% TCS is applicable for most items such as alcohol, scrap, minerals, motor vehicles, and more.
TCS On Sale Of Goods: Who Are Covered?
Income Tax Department has classified the sellers, who are liable to collect TCS from the buyers.
These are Central and State Governments, Statutory Corporation, Local Administration, Companies that are registered under the Companies Act, Partnership firms, Co-operative societies, any person or Hindu Undivided Family who can be audited under the income tax laws in India.
Similarly, the IT Dept. has also classified buyers who are liable to pay TCS to the sellers.
These are Central and State Govt, Public sector companies, Consulate, Trade bodies of foreign nations, embassies, clubs such as social clubs and sports clubs.
TCS Exemptions
At the same time, there are few exemptions for TCS on the sale of goods in India.
These are:
- If the eligible goods under Section 206C are used for personal consumption only. This needs to be proved to the Income-tax department while filing returns.
- In case the buyer buys the goods only for manufacturing, processing, or production of the items, and not for trading.
In both of these cases, TCS does not apply to the buyer and the seller, and the TCS is not applicable.
TCS On Foreign Remittances
Effective October 1st, 2020, TCS will also apply to foreign remittances; if any Indian sends money to a foreign location, they are liable to pay TCS.
This new rule has been executed under LRS (Liberalised Remittance Scheme), and only covers those foreign remittances, which are more than Rs 7 lakh in a financial year.
TCS of 5% is applicable for such foreign remittances and reflects on Form 26AS.
New Rule For TCS Under Section 206c
Effective October 1st, 2020, a new rule has been added for TCS Under Section 206c.
As per the new rule, if any company’s overall turnover is more than Rs 10 crore in the previous financial year, then in the current financial year, they will need to collect TCS from those buyers who bought more than Rs 50 lakh of goods in the current financial year.
TCS of 0.1% is applicable in such cases. But due to coronavirus, the TCS has been reduced to 0.075% for such cases.
How To Get TCS Certificate
As per the Income Tax rules, if any seller collects TCS from a buyer under 206 c Income Tax provisions, then that seller needs to provide a TCS certificate to the purchaser.
The TCS certificate needs to be provided to the purchaser while the seller files Form 27EQ for quarterly returns.
TCS Certificate is provided by Form 27D, which is issued for TCS returns and has to be issued within 15 days from the date of filing TCS returns.
TCS certificate has these following information:
- Name of the seller and the buyer
- TAN of the seller, who is filing the quarterly TCS returns
- PAN of both the buyer and seller
- Total tax collect by the seller
- Date of collection of TCS
- The tax rate applied for TCS
TCS Under GST For Ecommerce
TCS also applies e-commerce sellers who are selling goods via online marketplaces under the GST regulations.
As per the TCS & GST rules, any online seller who sells goods through online marketplaces will receive their payments from the online marketplace only after a 1% deduction under IGST Act. That is, 0.5% under CGST & 0.5% in SGST.
This TCS has to be deposited with the Govt by the 10th of the next month.
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