India is a land of diversity with population count of over 135 crores. To run such a colossal nation, government requires a lot of resources. Such resources are collected in form of tax payments that a person makes to the government.
A tax (from the Latin word taxo) is a mandatory financial charge/levy imposed upon a tax payer by government in order to fund various public expenditures. To check and verify that each taxpayer has contributed fairly (i.e. paid tax) on his income, is next to impossible. As a measure to check the fairness and avoid revenue leakage, the government figured out a transaction and revenue tracking mechanism which is termed as TAX COLLECTED AT SOURCE (TCS).
TCS operates on the very principle of TDS i.e. Tax Deducted at Source but in practical operation, it is exactly opposite of it.
Under TDS, the collector/payer deducts certain percentage (as TDS) from the amount payable to the payee/collectee. This amount is then deposited with the government by the payer/collector on behalf of the payee/collectee (i.e. against the payee's/collectee's PAN). The payee/collectee thus becomes bound to include this income, while filing his return of income, in his total income and claim the constructive credit of such TDS deducted for computing total tax payable. This way the transaction and the revenue get tracked and if the payee/collectee does not include this income in his total income, he can be easily caught and summoned.
However, under TCS, the seller/collector collects a certain percentage as TCS), over and above, the sale consideration, from the buyer/collectee and deposits this amount with the government on behalf of the buyer/collectee (i.e. against the buyer's/collectee's PAN). This way the transaction gets tracked and the government can verify the details, with respect to the above transaction, of both the seller's/collector's and buyer's/collectee's income respectively.
In this article we shall focus upon the provisions of TCS as applicable (under Section 206C of the Income Tax Act, 1961). Moreover we shall also analyze the new insertions made by The Union Budget 2020 vis. a vis. by The Finance Act, 2020 under this section.
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Section |
Detailed Particulars |
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206C(1) TCS to be collected - by the seller - engaged in the business of trading in specified goods - from the buyer |
Person responsible for Collecting Tax |
Every Seller |
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Collectee |
Every Buyer excluding - 1. A public sector company 2. The Central or State government 3. An Embassy, a High Commission, legation, commission, consulate or trade representative of a foreign State and a club 4. A buyer (in retail sale) who buys the above goods for his personal consumption. |
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Time of Collection |
At the time of 1. debit of account of the buyer or 2. receipt of amount from the buyer whichever is earlier |
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Nature of Goods and Rate of TCS |
Sum equal to the following percentage (%) of the purchase price |
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Nature of Goods |
% |
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Alcoholic Liquor for human consumption |
1% |
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Tendu Leaves |
5% |
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Timber obtained under a forest lease or by any other mode |
2.50% |
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Any other forest produce not being timber or tendu leaves |
2.50% |
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Scrap |
1% |
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Minerals, being coal or lignite or iron ore |
1% |
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206C(1C) TCS to be collected - by the lessors, licensors, etc. - from the lessee, licencee, etc. |
Person responsible for Collecting Tax |
Every person, who grants a lease or a licence or enters into a contract or otherwise transfers – · Any right or interest in any parking lot or toll plaza or mine or quarry, to another person, other than a public sector company (hereafter in this section referred to as "licensee or lessee") · for the use of such parking lot or toll plaza or mine or quarry for the purposes of business shall collect TCS equal to the percentage as specified in the below table. |
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Collectee |
Licencee or Lessee |
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Time of Collection |
At the time of 1. debit of account of the licencee/lessee or 2. receipt of amount from the licencee/lessee whichever is earlier |
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Rate of TCS |
Nature of Contract or Licence or Lease, etc. |
% |
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Parking Lot |
2% |
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Toll Plaza |
2% |
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Mining and Quarrying (excl. that of mineral oil i.e. of petroleum and natural gas). |
2% |
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206(1F) TCS to be collected - by the seller of Motor Vehicle - from the buyer |
Person responsible for Collecting Tax |
Every seller receiving - any amount as consideration - for sale of a motor vehicle - of the value exceeding - Rs. 10 lakh |
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Collectee |
Every Buyer excluding - 1. A public sector company engaged in the business of carrying passengers 2. The Central or State government 3. An Embassy, a High Commission, legation, commission, consulate or trade representative of a foreign State and a club 4. Local authority [as defined in explanation to section 10(20)] |
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Time of Collection |
At the time of receipt of amount from the buyer |
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Rate of TCS |
1% of the sale consideration |
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206C(1G) TCS on overseas remittan-ce and for sale of overseas tour package “NEW Insertion" by Budget 2020 and The Finance Act, 2020 w.e.f. 1st October, 2020 |
Person responsible for Collecting Tax |
Every person being a – 1. Authorized Dealer* who receives an amount, for remittance out of India from a buyer who is remitting such amount under the Liberalized Remittance Scheme of the Reserve Bank of India (RBI). *Authorized by RBI under section 10(1) of FEMA to deal in foreign exchange or foreign security. 2. Seller of overseas tour programme package* who receives any amount from a buyer who purchases such package. *A tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto. |
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Collectee |
Every Buyer excluding - 1. The one liable to deduct tax at source (TDS) under any other provision of this Act and has deducted such amount 2. The Central or State government 3. An Embassy, a High Commission, legation, commission, consulate or trade representative of a foreign State and a club 4. Local authority [as defined in explanation to section 10(20)] 5. Any other person as may be notified. |
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Time of Collection |
At the time of 1. debit of account of the buyer or 2. receipt of amount from the buyer whichever is earlier |
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Rate of TCS |
5% of such amount |
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Important Provisos in the newly added sub section i.e. 206C (1G) |
Rate of TCS |
Conditions |
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NIL |
If the amount or its aggregate being remitted by a buyer to the authorized dealer is - - less than Rs. 7 lakh in a financial year and - is for a purpose other than purchase of overseas tour programme package. |
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5% |
If the amount or its aggregate remitted by a buyer to the authorized dealer is - - in excess of Rs. 7 lakh in a financial year and - the amount being remitted is for a purpose other than purchase of overseas tour programme package. |
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0.50% |
If the amount or its aggregate remitted by a buyer to the authorized dealer is - - in excess of Rs. 7 lakh in a financial year and - the amount being remitted out is a loan obtained from any financial institution (as defined in section 80E) for the purpose of pursuing any education. |
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NIL |
If TCS has already been collected by the seller of overseas tour package on any amount paid by the buyer to an authorized dealer. |
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206C(1H) TCS on sale of goods “NEW Insertion” by Budget 2020 and The Finance Act, 2020 w.e.f. 1st October, 2020 |
Person responsible for Collecting Tax |
Every seller -whose total sales, gross receipts or turnover -from the business carried on by him -exceed Rs. 10 crore -during the immediately preceding financial year -in which year, the sale of goods is carried out. |
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Collectee |
Every Buyer excluding - 1. The Central or State government 2. An Embassy, a High Commission, legation, commission, consulate or trade representation of a foreign State 3. Local authority [as defined in explanation to section 10(20)]. 4. A person importing goods into India or any other person as may be notified. |
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Condition for Collection |
Receipt of any amount as consideration for sale of any goods of the value or aggregate of such value exceeding Rs. 50 lakh in any previous year. |
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Rate of TCS |
0.10% of the sale consideration exceeding Rs. 50 lakh |
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Exception |
TCS shall not be collected; if the buyer is liable to deduct tax at source (TDS) under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount. |
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Other provisions under TCS : 206C(1A) and 206C(IB) |
TCS provisions not applicable where resident buyer furnishes a declaration to the person responsible for collecting tax, to effect that, the goods referred to above are utilized for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes. The person responsible for collecting tax shall deliver one copy of such declaration to the Chief Commissioner of Income Tax (CIT) / CIT on or before the 7th day of the month next after the month in which the declaration is furnished to him. |
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Other provisions under TCS : 206C(9) |
Certificate for Lower Deduction of TCS |
Where the total income of the buyer or licensee or lessee is taxable at lower rates, then such person can make an application to the Assessing Officer to issue a certificate for lower deduction of TCS. In such a case, the seller shall deduct TCS as per the rates specified in the certificate till such time the certificate is cancelled by the Assessing Officer. |
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[ For the entire section, Seller means -
- Central Government
- State Government
- any local authority or corporation or authority established by or under a Central, State or Provincial Act
- any company or firm or co-operative society and also includes an individual or a HUF whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB Rs. 1 crore in case of business or Rs. 50 lakh in case of profession (substituted by The Finance Act, 2020) during the financial year immediately preceding the financial year in which the goods are sold ].
Thus, as mentioned above, the government introduced 2 new provisions by the Budget 2020 in order to widen and deepen the tax net.
The provisions were to come into effect from 1st April, 2020, however, The Finance Act, 2020 specified that the new provisions shall be effective from 1st October, 2020 (the relaxation would most probably have been granted due to the COVID-19 situation).
The sole intent of levying TDS and TCS is transaction and revenue tracking. As the size of population and the market is expanding, a need for self-aided revenue check and tracking is felt. The current information technology infrastructure has made this quite simpler for the government. By this, the government could now, without any interference or inspections track the revenues/incomes/transactions and ensure fair tax collections.
Thus, the new move of Tax Collection at Source or TCS is efficacious and worthwhile.
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