Tax Collected at Source (TCS) is a tax collected by the seller from the buyer at the time of sale of specified goods or transactions. The seller is responsible for collecting this tax and depositing it with the government. The provisions relating to TCS are governed by Section 206C of the Income Tax Act, 1961.
TCS is applicable to certain specified transactions, such as the sale of alcoholic liquor for human consumption, specified leasing activities, the sale of high-value motor vehicles, and specified remittances under the Liberalized Remittance Scheme (LRS) of the Reserve Bank of India. The applicable rates vary depending on the nature of the transaction, generally ranging from 1% to 5%, and in the case of LRS transactions, from 5% to 20%.
Introduction to Tax Collected at Source (TCS)
Tax Collected at Source (TCS) refers to the tax that is collected by the seller from the buyer at the time of sale of specified goods or transactions. The seller is required to collect the tax and deposit it with the government within the prescribed due dates.
The provisions relating to TCS are governed by Section 206C of the Income Tax Act, 1961. Any person responsible for collecting TCS must obtain a valid Tax Collection Account Number (TAN) to carry out such collections.
It is important to note that the seller acts merely as a collecting agent on behalf of the government. The seller is not required to bear the TCS liability out of his own funds and is responsible only for collecting and remitting the tax as per the provisions of the Act.
Responsibility for Collection of Tax at Source
The seller is required to collect tax from the buyer, in addition to the value of the goods or services, in cases where Tax Collected at Source (TCS) is applicable.
A buyer refers to a person who purchases specified goods or services and is liable to pay the applicable TCS amount along with the invoice value at the time of purchase
When to Collect TCS
The seller is required to collect Tax Collected at Source (TCS) at the earlier of the following two events:
- At the time of crediting the sale amount to the buyer’s account in the books of accounts; or
- At the time of receipt of payment from the buyer, whether in cash, cheque, draft, or any other mode.
In the case of the sale of motor vehicles, TCS is required to be collected at the time of receipt of consideration from the buyer.
TCS Rates Applicable to Specified Goods under Section 206C(1)
Tax is required to be collected only when the specified goods are used for trading purposes. If the goods are purchased for manufacturing, processing, or production, TCS is not applicable, subject to the conditions prescribed under the law.
The seller collects the applicable TCS at the time of sale and deposits it with the government. The rate of TCS varies depending on the category of goods, as specified under Section 206C(1) of the Income Tax Act, 1961.
| Type of Goods or Transactions | Rate |
| Liquor of alcoholic nature, made for consumption by humans | 1% |
| Timber wood obtained under a forest leased | 2.5% |
| Tendu leaves | 5% |
| Timber wood by any mode other than forest-leased | 2.5% |
| Forest produce other than Tendu leaves and timber | 2.5% |
| Scrap | 1% |
| Minerals being lignite, coal and iron ore | 1% |
TCS on Leasing, Licensing, and Mining Contracts under Section 206C(1C)
Under Section 206C(1C) of the Income Tax Act, Tax Collected at Source (TCS) at the rate of 2% is required to be collected by any person who grants a lease or license for the following activities:
- Parking lot
- Toll plaza
- Mine or quarry
The tax is to be collected from the licensee or lessee at the time of receipt of consideration or credit, as applicable.
TCS on Motor Vehicles and Luxury Goods under Section 206C(1F)
Section 206C(1F) applies to the sale of high-value motor vehicles and notified luxury goods, where the sale value exceeds ₹10 lakh.
Applicability
- Motor vehicles with a value exceeding ₹10 lakh
- Notified luxury items with a value exceeding ₹10 lakh
The term “motor vehicle” includes all types of motor vehicles, such as cars, two-wheelers, and other motorized vehicles. Therefore, if the purchase value of even bikes exceeds ₹10 lakh, TCS provisions will apply.
List of Notified Luxury Goods
| Sl. No. | Type of Goods |
|---|---|
| 1 | Wristwatches |
| 2 | Art pieces such as antiques, paintings, and sculptures |
| 3 | Collectibles (coins, stamps, etc.) |
| 4 | Yachts, rowing boats, canoes, and helicopters |
| 5 | Sunglasses |
| 6 | Handbags and purses |
| 7 | Shoes |
| 8 | Sportswear and sports equipment |
| 9 | Home theatre systems |
| 10 | Horses for racing and polo |
TCS at the rate of 1% is required to be collected on the sale consideration where the value of the motor vehicle or luxury goods exceeds ₹10 lakh.
TCS on Motor Vehicles and Luxury Goods under Section 206C(1F)
Under Section 206C(1G) of the Income Tax Act, Tax Collected at Source (TCS) is required to be collected at the prescribed rates by:
- An authorised dealer on amounts remitted under the Liberalised Remittance Scheme (LRS); and
- A seller of an overseas tour programme package at the time of receiving payment from the customer.
The tax is to be collected at the rates applicable to the respective transactions, as specified under the provisions of the Act.
Exemptions in Tax Collected at Source (TCS)
Certain transactions and buyers are exempt from TCS under the Income Tax Act. Key exemptions include:
Transactions with certain government bodies, statutory authorities, or entities exempt under the Income Tax Act may also be exempt from TCS, as specified under relevant notifications.
1. Goods for Manufacturing or Production
TCS is not required when a resident buyer furnishes a declaration stating that the purchased goods will be used for manufacturing, processing, or production of any article, or for the generation of power, and not for trading purposes.
2. Threshold Limit
If the value of goods or transactions does not exceed the prescribed threshold, no TCS is required to be collected.
The thresholds vary depending on the type of transaction as specified under Section 206C.
3. Specified Forms (15G/15H)
In certain cases, a declaration under Form 15G or 15H may exempt a buyer from TCS, particularly when the buyer’s income is below taxable limits, subject to the applicable provisions.
4. Government or Exempt Entities
Transactions with certain government bodies, statutory authorities, or entities exempt under the Income Tax Act may also be exempt from TCS, as specified under relevant notifications.
Note: Exemptions are conditional and require proper documentation from the buyer. Sellers must retain these declarations to avoid future disputes with the Income Tax Department.
TCS: Payment and Return Filing Procedures
The seller is required to deposit the Tax Collected at Source (TCS) with the government within 7 days from the end of the month in which the tax is collected.
In case of non-compliance with the provisions relating to the collection or deposit of TCS, the seller shall be liable to pay interest at the rate of 1% per month or part of a month on the amount of TCS, calculated from the date on which the tax was collectible to the date of actual payment.
Further, every person responsible for collecting tax is required to file a quarterly TCS return in Form 27EQ, furnishing details of the tax collected during the relevant quarter. Any interest payable on delayed payment of TCS must be discharged before filing the return.
TCS Certificate (Form 27D)
A TCS Certificate is a document issued by the seller (tax collector) to the buyer (collectee) as proof of Tax Collected at Source (TCS) and deposited with the government.
The certificate is issued in Form 27D and contains details such as
- Name and TAN of the seller
- Name and PAN of the buyer
- Amount of TCS collected
- Rate of TCS
- Challan details of tax deposited
- Period to which the TCS relates
Due Date for Issue of TCS Certificate
The TCS certificate must be issued within 15 days from the due date of filing the quarterly TCS return (Form 27EQ).
| Quarter Ending | Due date to file TCS return in Form 27EQ | Date for generating Form 27D |
| For the quarter ending on 30th June | 15th July | 30th July |
| For the quarter ending on 30th September | 15th October | 30th October |
| For the quarter ending on 31st December | 15th January | 30th January |
| For the quarter ending on 31st March | 15th May | 30th May |
Importance of TCS Certificate
The TCS certificate enables the buyer to:
- Claim credit of TCS while filing the income tax return
- Verify that the tax collected has been properly deposited with the Income Tax Department
Failure to issue the TCS certificate within the prescribed time may attract penalties under the Income Tax Act.
TCS Interest Rules
Interest is chargeable on Tax Collected at Source (TCS) if the seller fails to deposit the tax with the government within the prescribed due dates. Under the Income Tax Act, interest is levied at the rate of 1% per month or part of a month on the TCS amount that remains unpaid. The period for which interest is calculated begins from the date on which the tax was collectible and continues until the date on which the tax is actually deposited. Any interest payable on delayed TCS must be paid before filing the quarterly TCS return (Form 27EQ). Interest applies both in cases where the seller delays collection of TCS at the time of sale and where the deposited tax is submitted after the due date.
Penalty for Non-Compliance of TCS Provisions
Under the Income Tax Act, failure to comply with the provisions of Tax Collected at Source (TCS) can attract penalties in addition to interest for delayed payment. A person responsible for collecting TCS may be liable to pay a penalty of up to the amount of TCS not collected or not deposited with the government.
This penalty can arise in cases where the seller fails to collect TCS at the time of sale, fails to deposit TCS within the prescribed due dates, or fails to file the quarterly TCS return (Form 27EQ). The penalty is separate from interest under Section 206C and ensures compliance with the statutory obligations of tax collection and deposit.
Penalty for Incorrect Filing of TCS Return
Under the Income Tax Act, a person responsible for collecting Tax Collected at Source (TCS) is required to file accurate quarterly TCS returns in Form 27EQ. If the return is incorrectly filed—for example, due to wrong details of the buyer, incorrect PAN, incorrect TCS amount, or any other discrepancy—the deductor may be liable to penalties under Section 272A(2).
The penalty for incorrect filing can be ₹10,000 for each default, in addition to interest for delayed or short payment of TCS under Section 206C. The penalty is intended to ensure accurate reporting and proper compliance of TCS obligations.
It is therefore crucial to verify all details carefully before filing the TCS return to avoid penalties and additional liabilities.
TCS is the counterpart of TDS. Learn all about TDS, its applicability, due dates, and filing process in our detailed post here: TDS Explained
Frequently Asked Questions (FAQ) on TCS
1. What is TCS?
Answer: Tax Collected at Source (TCS) is the tax collected by a seller from the buyer on the sale of specified goods or transactions. The seller collects the tax and deposits it with the Government under Section 206C of the Income Tax Act.
2. Who is liable to collect TCS?
Answer: The seller, authorized dealer, or person specified under the Income Tax Act is liable to collect TCS. Examples include:
- Sellers of specified goods
- Sellers of high-value motor vehicles or luxury items
- Authorized dealers on remittances under the Liberalized Remittance Scheme (LRS)
- Sellers of overseas tour packages
3. When is TCS required to be collected?
Answer: TCS must be collected at the earlier of the following events:
- When the sale is credited in the books of accounts (for credit sales)
- When the payment is received from the buyer, in cash, cheque, draft, or other modes
For motor vehicles, TCS is collected at the time of receipt of money.
4. What are the rates of TCS?
Answer: TCS rates vary depending on the type of goods or transaction:
- Section 206C(1): Specified goods like alcohol, tendu leaves, timber, etc. (1–5%)
- Section 206C(1C): Leasing, licensing, and mining contracts (2%)
- Section 206C(1F): Motor vehicles & luxury goods (1% if value > ₹10 lakh)
- Section 206C(1G): Overseas remittances and tour packages (5–20% depending on remittance)
5. Are there any exemptions from TCS?
Answer: Yes, TCS is not required in certain cases:
- When the buyer furnishes a declaration stating that goods are used for manufacturing, production, or power generation
- If the transaction value does not exceed the prescribed threshold
- Certain buyers, like government or exempt entities, are also exempt
- Forms 15G/15H may exempt a buyer when income is below taxable limits
6. What are the due dates for depositing TCS?
Answer:
- TCS must be deposited with the Government by the 7th of the following month in which tax is collected.
- For TCS on property transactions under Section 194-IA, the due date is 30 days from the end of the month in which TCS is collected.
- For March TCS, deposit can be made by 31st May.
7. What are the TCS return filing requirements?
Answer:
- Every tax collector must file quarterly TCS returns in Form 27EQ, furnishing details of TCS collected.
- TCS certificates must be issued in Form 27D to the buyer within 15 days from the due date of filing the return.
8. What happens if TCS is not deposited on time?
Answer:
- Interest is charged at 1% per month or part of a month on the TCS amount that is not deposited.
- Penalties may be imposed under Section 271H, up to the amount of TCS not deposited.
- Incorrect filing of TCS return can attract a penalty of ₹10,000 under Section 272A(2).
9. Can the buyer claim credit of TCS?
Answer:
Yes, the buyer can claim credit of TCS while filing the income tax return. TCS is adjusted against the total tax liability, and any excess TCS can be claimed as a refund.
10. What documents are required for TCS compliance?
Answer:
- TAN of the seller
- PAN of the buyer
- Invoice / bill of sale
- TCS certificate (Form 27D)
- Challan / proof of TCS deposit
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