Collection Tax Source (TCS) Section 206C: A tax collected at source (TCS) specifically pertains to the tax liability of a buyer, which the seller collects at the precise moment of the transaction. The specific items on which the seller is supposed to receive tax from customers are specified by Section 206C of the Income-tax Act.
Tax must be actually acquired by the seller at the instance of debiting the amount due by the buyer to the customer’s account or at the point of receipt of such sum from the buyer in cash, by cheque or drafts, or by any other means, whichever is applicable.
To help broaden and strengthen the tax net, the Finance Act 2020 incorporated two supplementary subsections of(1G) and (1H) to section 206C, which came into force on October 1, 2020.
Table of Contents
- Who precisely is a “seller”?
- Who precisely is a “buyer”?
- What is the rate of the TCS applied?
- Tax breaks from TCS
- TCS is subject to GST.
Who Precisely is a “Seller”?
Some individuals or organizations have been officially designated as sellers for tax collection at the source. Except for the sellers enumerated here, no further seller of products is allowed to try to collect tax at source from buyers.
- The Government of India
- A State Government
- Any local government
- Any company incorporated under the Companies Act.
- Any authority originally created by or established by a Central, State, or Provincial Act.
- Any business or firm run on a partnership basis.
- A co-operative society
- An individual or a HUF whose annual turnover in the prior monetary year surpassed Rs. 1 Crore or Rs. 50 Lakhs, whichever one is significantly higher.
Who Precisely is a “Buyer”?
A buyer is someone who acquires goods of a certain sort by any purchase or right to receive such items, whether it is by a bidding process, tender, or just about any specific recognized method.
Buyer, on the other hand, will not incorporate the following, and they are immune from tax collection at the source.
- Companies in the public sector.
- The Central Government of India.
- Government of the State
- High commission embassy
- Consulates and other forms of trade representation of a foreign country
- Sports and social clubs or similar clubs.
What is the Rate of the TCS Applied?
- The TCS percentage of alcoholic beverages intended for human consumption is 1%.
- The rate of TCS applicable on Tendu Leaves is 3.75%.
- The TCS rate for Timber obtained under a forest lease is 1.875%.
- The rate of TCS applicable on Timber obtained by 2.5% in any mode other than under a forest lease is 1.875%.
- The percentage of TCS on any other forest produce not being Timber or tendu leaves is 1.875%.
- Scrap has a TCS rate of 0.75%.
The following are the two most crucial requirements for an object to be officially classified as SCRAP under this section:
- The scrap should be generated during the manufacturing or mechanical processing of materials, and
- It should not be fit to be used in a particular manner.
If one of the above two requirements is not realized, the item will not be officially classified as scrap, and correspondingly no TCS under section 206C will be issued.
- Minerals have a TCS rate of 0.75 percent charged to them, whether they are coal, lignite, or iron ore.
- In the case of metal that exceeds over Rs. 2 lakhs or Jewellery that exceeds over Rs. 5 lakhs, the rate of TCS is 1%.
- The TCS rate is 1% for purchases of automobiles surpassing Rs 10 lakhs.
- Parking lot, Toll Plaza and Mining and Quarrying carry a TCS rate of 2%.
Tax Breaks from TCS
Taxation at the source is free in the particular events:
- When eligible commodities are actually purchased for personal and private purposes
- The customer purchases the commodities for the specific purpose of manufacturing, processing, or producing rather than carrying out business transactions with those commodities.
TCS is Subject to GST
These provisions were applicable since October 1, 2018.
Under the IGST Act, every dealer or trader selling products online will get revenue from the digital site after charging a 1% tax. (0.5 percent CGST and 0.5 percent SGST)
The tax would have to be submitted to the government by the 10th of the following month.
All dealers/traders are bound by law to enroll for GST on a mandatory basis.
TCS Accreditation
When a tax collector submits his periodic TCS return, Form 27EQ, he needs to present the purchaser of the goods with a TCS verification document.
The proof authorized for TCS returns filed Form 27D. This certificate must be given within 15 days after the submission of TCS quarterly returns.