The Income Tax Act of India has mechanisms for collecting taxes at the source. On extraordinary transactions, certain people are compelled to collect a particular proportion of tax from their buyers under these regulations. The majority of these activities are professional or commercial in nature. It has no impact on the average person.

TCS refers to the Tax collected at source (TCS) that a seller must pay and collect from the customer at the time of the sale. The items on which the seller is required to collect tax from the customers are governed by Section 206C of the Income Tax Act.

TCS-eligible products

The taxes are not payable when the commodities listed below are used in the manufacture, processing, or production of goods. Tax must be paid if the same products are used for trade purposes.

Types of Products Rate
Timber wood from a forest that has been leased 2.50%
Minerals like lignite, coal and iron ore 1%
Liquor of an alcoholic character designed for human consumption 1%
Purchase of a vehicle costing more than Rs. 10 lakhs 1%
Any method other than forest leased timber wood 2.50%
Leaves of Tendu 5%
Scrap 1%
Apart from Tendu leaves and timber, a forest produces 2.50%
Bullion costing far beyond Rs. 2 lakhs/jewelry valued more than Rs. 5 lakhs 1%
Toll plaza, parking lot, and mining and quarrying 2%

TCS's classification of Sellers and Buyers

Some individuals or organisations have been designated as sellers for the purpose of collecting tax at the source.

Apart from the following list, no other supplier of goods can collect tax at source from buyers:

  • State Government
  • Central Government
  • Company registered under the Companies Act
  • Partnership firms
  • Local Authority
  • Statutory Corporation or Authority
  • Co-operative Society
  • Any individual or HUF whose finances are being audited under the Income-tax Act for a specific financial year.

A buyer is a person who purchases items of a specific sort through a sale or the right to purchase such goods through auction, tender, or any other method. The buyers listed below, however, are free from paying tax at the point of sale.

  • Central Government
  • Public sector companies
  • State Government
  • Embassy of High commission
  • Consulate and other Trade Representation of a Foreign Nation
  • Clubs such as sports clubs and social clubs

Payments & Returns from TCS

  • Within 7 days of the final day of the month in which the tax was collected, the seller deposits the TCS amount in Challan 281.
  • If the tax collector in charge of collecting the tax and depositing it with the government fails to collect the tax or refuses to pay it to the government by the stated deadlines, he will be obliged to pay interest of 1% every month or part of the month.
  • All funds collected by a government office should be deposited the same day they are received.
  • Every tax collector is required to file a quarterly TCS return, i.e., Form 27EQ, for the tax he collected in that quarter. Interest on late TCS payments to the government must be paid before the return may be filed.

Certificate of TCS

A TCS certificate must be provided to the buyer of the goods when a tax collector files his quarterly TCS return, Form 27EQ. 2. The certificate issued for TCS returns filed is Form 27D. The following information can be seen on this certificate:

  • Name of Seller and Buyer
  • TAN of the Seller (i.e., the person who is filing the TCS return quarterly)
  • Both the seller's and the buyer's PAN
  • The seller's total tax collection
  • The date of the collection
  • The tax rate that was applied

This certificate must be given within 15 days of the TCS quarterly returns being filed. The following are the deadlines:

Quarter Ending Date of generating Form 27D
For the quarter ending on 30th June 30th July
For the quarter ending on 30th September 30th October
For the quarter ending on 31st December 30th January
For the quarter ending on 31st March 30th May

Exemptions from TCS

Situations that are exempt from tax collection at the source:

  • When the products have been used for private use, they are considered eligible.
  • The items are purchased for the purpose of manufacturing, processing, or production, not for the goal of trading.

TCS under GST

  • Any dealer or merchant selling items online will receive payment from the online portal after subtracting a tax of 1% under the IGST Act (0.5 percent in CGST and 0.5 percent in SGST).
  • The tax will have to be paid to the government by the 10th of next month.
  • All dealers/traders are required to submit for GST on a mandatory basis.


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