What is TCS Tax

We are all aware of the types of taxes that we pay to the Indian government in various forms. As tax-paying citizens, we contribute to the development of our country by paying direct and indirect taxes. In this article, we discuss a specific type of tax – Tax Collected at Source (TCS) – and address key questions around it.

Who are buyers and sellers?
 

As TCS is associated with the purchase of goods, let’s begin by defining who a ‘buyer’ and ‘seller’ is. A seller can be any of the following individuals or entities:

· The Central government

·  A State government

·  A local authority

·  A statutory corporation or authority

·  A company registered under the Companies Act of 1956.

· A partnership firm

· A cooperative society

· An individual or HUF (Hindu Undivided Family) who is subjected to an audit of accounts under the Income Tax Act for a particular financial year. 

A buyer, on the other hand, is defined as an individual who obtains goods or the right to receive goods in any sale or auction. Any of the following individuals or entities can be designated as buyers:

· Public sector companies

· The Central government

· A state government

· The Embassy of High Commission

· The consulate or 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

What is the definition of Tax Collected at Source?

Tax Collected at Source is defined as the tax that is collected by the seller from the buyer during the sale of a product. It is meant to be deposited to the relevant tax-collecting authorities such as the government. 

When does a seller levy TCS?
 

The seller levies TCS from the buyer at a particular stage of the sale of the product. A seller collects TCS in the following situations.

· When the seller debits the money payable by the buyer in the books of accounts.

· Once the seller receives the money from the buyer in any mode, including cash.

Are certain buyers exempt from TCS?
 

There are two cases where buyers are exempt from paying TCS:

1.  When the goods are meant for personal consumption.

2.  When the buyer buys the goods for manufacturing, processing, or production instead of trading them.

Which situations attract a higher TCS rate?
 

According to Section 206CCA of the Income Tax Act, TCS will be collected at a higher rate from a buyer in the following situations:

·  If the buyer has not filed their IT returns
 

If the buyer has not filed income tax returns for the last two financial years, they must pay a higher amount as TCS. A higher TCS rate is also applicable when the time limit declared by the Income Tax department to file income tax returns has expired.

·  If the TCS and TDS together amount to more than ₹50,000

If in the two financial years preceding the relevant financial year in which TCS needs to be collected, the combined amount of TCS and TDS (Tax Deducted at Source) is more than ₹50,000, a higher TCS rate will be applicable to the buyer.

Both the above situations will be examined together.

FAQs on TCS

Here are answers to some common questions regarding TCS that will give you a better understanding of how it works.    

1.  Is TCS refundable?

The TCS rules state that the amount paid as TCS can be adjusted against your overall tax liability and can be claimed as an income tax refund.

2.  How to check TCS through Form 26AS?

You can access this form directly through the Income Tax department’s site by clicking on the ‘View Form 26AS’ link. The form displays every detail of the sale such as the seller’s details, your details, and the TCS amount.

3.  How is TCS calculated?

Let’s understand the calculation of TCS with the example of a customer X. If X was issued an invoice of ₹11,000 on which 1% TCS was charged, then the amount collected will be ₹110. Hence, the total amount to be paid by the customer will be ₹ 11,110.

A TCS certificate is the most important document for a seller to file TCS returns. Every tax collector, i.e. seller, must submit their TCS certificate in Form 27EQ within a fortnight from the date on which the quarterly TCS return is filed. Do note that an additional fee of ₹200 per day must be paid by sellers in the event of failing to file TCS returns by the due date

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