What is Tax Collected at Source? - TCS Full Form, and Rates

If the purchase value of a box of chocolates is Rs. 100, the buyer ultimately pays Rs. 20 where the Rs. 20 is the tax collected at source. The amount is then given to certain designated branch of banks who have been given the authorization to receive the payments.

The seller is only responsible for the collection of this tax from the buyer and actually not paying it himself or herself. The tax is meant to be collected when selling goods, transactions, when issued a receipt of a sum in cash from the buyer or when issuing a cheque or draft, whichever mode is payed by the earliest.

This provision is made under the Section 206C of the Income Tax Act, 1961.

Takeaways on TCS Changes from 1 April 2025

The following are the key takeaways on changes in TCS rules which are effective from 1 April 2025:

1. TCS threshold for LRS (Liberalized Remittance Scheme) remittances and overseas tour packages has been increased from Rs.7 lakh to Rs.10 lakh.

1. TCS will not be applicable on LRS remittances for education financed by an education loan.

1. Section 206C(1H) (TCS on goods exceeding Rs.50 lakh) has been removed.

1. Section 206CCA (higher TCS rates for non-fillers) has been removed.

1. No prosecution under Section 276BB for delayed TCS payments if tax is paid by quarterly statement due date.

1. TCS rate for forest produce (except tendu leaves) has been reduced to 2.00% from 2.50%.

TCS Threshold Limits as Per Union Budget 2025

The 2025 Budget revises TCS provisions, simplifying compliance with higher threshold limits and removing TCS on specific transactions, effective from 1 April 2025.

TCS (Tax Collected at Source) Rates in India

The following is the list of TCS rates on respective goods and services:

Note: The TCS rate will be charged either double the applicable rate or 5.00%, whichever is higher, in case PAN is not provided.

Due Dates for TCS Payments

The due dates for payment of TCS are mentioned below:

Categories of Sellers for Tax Collected at Source

The following is the list of entities who are designated as sellers and are authorised to collect TCS from buyers:

1. State Government

1. Central Government

1. Co-operative Societies

1. Local Authorities

1. Partnership Firms

1. Statutory Corporations or Authorities

1. Companies

1. Any individual or Hindu Undivided Family (HUF) (depending on account audits under Section 44AB of the Income Tax Act).

Buyers Eligible for Tax Collected at Source

Buyers must pay TCS to sellers for acquiring goods through a sale, auction, tender, or similar means. But here is the list of buyers exempted from this taxation:

1. Central Government

1. State Government

1. Public Sector Enterprises

1. Embassies and High Commissions

1. Sports Clubs

1. Social Clubs

1. Consulates

1. Other Trade Representatives of Foreign Nations

1. Buyers acquire goods for power generation or manufacturing purposes rather than trading.

When Should TCS be Collected?

The seller must collect TCS on the earlier of the following dates:

1. When the entry for credit sales is made in the account books.

1. When the seller receives payment from the buyer (cash, cheque, or draft).

1. For motor vehicle sales, TCS is collected upon receipt of payment from the buyer.

Goods Covered Under the Provisions of TCS

The following is the lists of goods that are covered under the TCS provisions:

1. Alcoholic liquor (including Indian-made Foreign Liquor)

1. Forest produce (excluding timber and tendu leaves)

1. Scrap

1. Timber wood from a leased forest area and non-leased forests

1. Tendu leaves

1. Minerals, such as iron ore, lignite, coal, etc.

1. Bullion and jewelry are worth more than Rs.2 lakh and Rs.5 lakh, respectively.

1. Motor vehicles worth more than Rs.10 lakh

1. Parking lot tickets, tolls, mining, and quarrying

Note: TCS applies only to trading transactions, such as buying and selling and is not applicable to processing, manufacturing, or production of goods.

TCS Exemptions

TCS is exempted for the following cases:

1. Lower TCS Rate: Buyers can apply to the Assessing Officer (AO) for a reduced TCS rate by submitting Form 13, They must justify their personal use and income level, and the certificate is issued after approval.

1. Total Exemption from TCS: Exemption can be availed by the buyers by submitting Form 27C, by proving goods are for manufacturing or production, not trading. For submission to authorities, the approved buyers must provide a copy to seller.

TCS Payments

Here are the details of TCS payments:

1. Collectors must deposit TCS amounts promptly.

1. Government offices must deposit on the same collection day;

1. Challan 281 must be used by others within seven days after the month's end.

Penalties for Delay in Collection and Deposit of TCS

The penalties charged for delay in collection and deposit of TCS:

1. Interest at 1.00% per month or part of a month for the delayed period, will be charged for failing to deposit or collect TCS.
2. If the tax collector submits an erroneous TCS return, then penalty will be charged of a minimum and maximum amount of Rs.10,000 and Rs.1 lakh, respectively, as per Section 271H.

1. On late payment of TCS under Section 234E, a fee of rs.200 per day and maximum fee should not exceed the total TCS amount.

TCS Returns

Collectors must file quarterly TCS returns using Form 27EQ and must provide the details of taxes collected. Before submission of the form, the collector must settle the outstanding interest payments, if any.

TCS Certificate

After filing the quarterly return, collectors must issue Form 27D to the buyer within 15 days, with the following details:

1. Names of seller and buyer

1. TAN (Tax Deduction and Collection Account Number)

1. PAN

1. Total tax collected

1. Collection date

1. TCS rate applied.

TCS Deposit Compliance

Sellers must deposit TCS using Challan 281 within seven days from the end of the month the tax was collected. The online and offline deposit method are mentioned below:

Online Deposit

1. Visit the Income Tax Department website.

1. Under the TDS/TCS section, select Challan No./ITNS 281.

1. Fill in required details, such as:

1. Deductee's name

1. Payment type

1. Goods or services

1. Assessment year

1. TAN, etc.

1. Submit and make payment online.

Offline Deposit

1. Visit an authorized bank branch.

1. Submit the completed Challan 281.

1. The bank will provide a receipt once processed.

Old and New TCS Rates 2025

TCS allocation for online sales under GST

The details of the TCS applied for online sales under GST are mentioned below:

1. Dealers or traders selling goods or services through e-commerce platforms will receive payments after a TCS deduction of 0.5%.

1. As per CGST Notification 15/2024, the new rate is effective from 10 July 2024.

1. Previously, the TCS rate was 1% (applicable until 9th July 2024), based on:

1. For intra-state supplies, TCS of 0.5% will be split as:

1. 0.25% under CGST

1. 0.25% under SGST

1. For inter-state supplies, TCS of 0.5% will be collected under the IGST Act.

Electronic TCS (e-TCS)

e-TCS is the electronic method for filing TCS returns and from the 2004-2005 fiscal year, government and corporate collectors must file electronically. While others can choose between paper or electronic formats. E-TCS returns are handled by NSDL (National Securities Depository Limited) and it requires specific formats to provide necessary details.

Tax Collected at Source on Gold / Jewelry (TCS on Gold)

The tax collected on Bullion that exceeds over Rs.2 lakh and Jewelry that exceeds over Rs.5 lakh are collected at 1% of the amount being considered.

Differences between TCS and TDS

The differences between TCS and TDS are given below: 

Removal of Section 206CCA

The details on removal of Section 206CCA are mentioned below:

1. A higher TDS and TCS rates for non-fillers as per Section 206AB and Section 206CCA, respectively, aimed at encouraging tax compliance.

1. These provisions lead to higher tax deductions, capital blockage, and increased compliance burdens.

1. It caused operational inefficiencies as the businesses struggled to verify tax return status of deductees.

1. Budget 2025 proposes the removal of Sections 206AB and 206CCA to address these issues.

1. Section 206CCA has been removed with effect from 1 April 2025, thereby eliminating the need for businesses to verify if a person has filed tax returns before applying TCS rates.

TCS Provision in Foreign Remittance Transactions

The TCS provisions in Foreign Remittance Transactions are mentioned below:

Educational Purposes

Foreign remittances for educational purposes are exempt from TCS as per recent amendments.

Medical Expenditure

1. Up to Rs.10 lakh: No TCS.

1. Above Rs.10 lakh: TCS at 5%.

Overseas Tour Packages

1. Up to Rs.10 lakh: TCS at 5%.

1. Above Rs.10 lakh: TCS at 20%.

Other Foreign Remittances

1. Up to Rs.10 lakh: No TCS.

1. Above Rs.10 lakh: TCS at 20%.

Submission of Form 24G

Government offices can file Form 24G for tax payments to the Central Government without submitting a challan for the bank deposit.

Rules Under Section 206C Where TCS is Deposited without Challan

The following are the changes to rule 37CA where TCS is deposited without challan:

1. Form 24G to be submitted to the authorised agency within 15 days after the month’s end by the person who reported the TCS deposit without challan to the collector. 

1. The deadline for submitting Form 24G for March is 30 April.

1. Form 24G must be submitted electronically with the following:

1. A digital signature

1. Verification in Form 27A

1. Or verified electronically as prescribed

1. The Book Identification Number (BIN) must be provided by the reporting person to each deductor whose sum was deposited.

1. The procedure for submitting and verifying Form 24G is specified by the Principal Director General of Income Tax (Systems).