The government has recently widened the scope of TCS provisions to cover more businesses. Currently, TCS is applicable only on special category goods such as Scrap, Alcohol, Tobacco, Car exceeding Rs.10 lakhs, etc. Post 1st October 2020 any business meeting the conditions stated below are liable to collect TCS.
This article will help you understand this new amendment which is effective from 1st October 2020.
Let us first understand what is TCS?
TCS means Tax collected at Source. As the name suggests, TCS is a tax that is collected by the seller from the buyer. This tax is collected at the time of sale or at the time of receipt of sale consideration, as applicable, and deposited to the Government on behalf of the buyer. Many of you might have experienced this provision while purchasing cars.
Existing Provision of TCS:
Currently, there are only a few categories wherein TCS is attracted. Below is the list of goods where TCS is attracted:
| Category of Goods | Rate of TCS |
| Scrap (Used for trading purpose) | 1% |
| Motor vehicle exceeding Rs. 10 Lakhs | 1% |
| Liquor made for consumption by humans | 1% |
| Jewellery exceeding Rs. 5 lakhs Bullions exceeding Rs. 2 lakhs | 1% |
| Timber wood | 2.5% |
| Tendu leaves | 5% |
| Toll Plaza, Parking Lot, Mining and Quarrying | 2% |
| Timber wood by any mode other than forest leased | 2.5% |
| A forest produce other than timber and Tendu leaves | 2.5% |
| Minerals like lignite, coal and iron ore | 1% |
Introduction of a New provision:
The Government has now amended the provisions of TCS and has now included certain new transactions on which TCS will have to be collected.
TCS on Selling of Any Goods (Not services):
A seller of goods is liable to collect TCS at the rate of 0.1 percent on the Sale of any goods when the total receipt of sale consideration during the year is above Rs 50 lakhs. The limit of Rs 50 lakh is per buyer per year. Also, TCS needs to be collected only on the amount of sale consideration which exceeds Rs 50 Lakhs. For example, if sale consideration is Rs. 55 lakhs then TCS will be applicable only on Rs. 5 lakhs.
In cases where PAN is not available of the buyer then the rate of TCS shall increase to 1 percent.
Note: TDS & TCS rates have been reduced by 25% till 31.3.2021 owing to Covid-19. Thus, the effective rate of TCS shall be reduced to 0.075%. This reduction does not apply to Non-Pan or Aadhar cases where the TCS rate shall be 1%. For a better understanding of the rates, kindly refer the table furnished below:
| Category | Rate applicable till 31.3.2021 | Rate applicable after 1.4.2021 |
| Normal Case (Rate reduced as per press release dated 13.5.2020) | 0.075 % | 0.1 % |
| PAN or Aadhar is not furnished by the buyer | 1 % | 1 % |
Conditions for collecting TCS
1. This new provision of TCS applies to only those Sellers whose total turnover was exceeding Rs. 10 Crores during the previous financial year. This limit of Rs. 10 crores is to be checked each year and only if in the preceding year Turnover exceeds Rs. 10 crores, this provision of TCS is applicable.
2. The following category of sales are exempted from TCS:
- Export Sale.
- No TCS is to be collected on sales made to Central Government, State Government, Embassy, High Commission, legation, Trade representation of a foreign State or a local authority.
3. If the Purchase already attracts TDS and the buyer is liable to deduct TDS then this provision of TCS does not apply to such buyers as it will lead to Double Taxation (Eg:- On a Jobwork, TDS is already applicable and thus, in this case, there is no need to collect TCS).
4. If the purchase already attracts other TCS provisions, then this provision of TCS does not apply to such transactions (Eg:-Sale of motorcar exceeding Rs. 10 lakhs)
“Buyer” means a person who purchases any goods but doesn’t include Importer importing goods into India. This means TCS will not apply to a person importing goods into India.
Note: TCS is only to be collected when the seller receives payment from the buyer. For example, if you buys goods worth Rs 1 cr from a person and pay only Rs 10 lacs then TCS will NOT be collected from you!
Two more categories under new TCS provisions:
Along with the above new provision, there is an addition of two more categories attracting TCS which are:
1. TCS on Foreign Remittance under LRS (Liberalized Remittance Scheme):
TCS will have to be collected at the rate of 5 % by the Bank from the person remitting the money out of India on the amount exceeding Rs.7 lakhs. For example, if you transfer Rs. 15 lakhs abroad, TCS will be collected by the bank on Rs. 8 lakhs (15 lakhs minus 7 lakhs). The rate of tax will be 10 % if PAN or Aadhar of the transferor is not available. The provision of TCS shall not be applicable if the person has already deducted TDS under other provisions.
2. TCS on Wholesaling Overseas Tour Packages:
TCS will be applicable at the rate of 5 % if a person receives any amount for an overseas tour package. There is no threshold limit for this provision which means TCS will be collected from rupee 1. The rate of tax will be 10 % if PAN or Aadhar of the transferor is not available. The provision of TCS shall not be applicable if the person has already deducted TDS under other provisions.
Due date of making payment to the Government:
The TCS collected is required to be paid by the 7th of the next month in which TCS is collected.
For example – If TCS is collected in January then it has to be deposited to the Government by the 7th of February.
Due date of TCS Return filing:
The seller has to file TCS Return for TCS Collected (Form 27EQ) quarterly. The due date is as follows:
| Quarter | Return filing due date |
| April – June | 15th July |
| July – August | 15th September |
| September – December | 15th January |
| January – March | 15th May |
This new TCS provision is introduced to bring buyers of High-Value transactions into the Income Tax net. Also, this will ensure that the Government gets the tax due on certain transactions earlier. This will happen because, for every transaction of high value, the tax will have to be remitted the next month instead of the dates of filing Income Tax Returns. At the start, these provisions will be a burden but as time progresses these provisions will streamline.
Are the old provisions being changed?
As written in our article earlier, TCS was already present on certain transactions. This provision only gets some new transactions in the purview of TCS. The Old provisions relating to old goods (Like Scrap and Alcohol etc.) remain unchanged.
Parting Notes
The government has introduced these provisions to collect tax on high value transactions even before they are due or whether or not such transations will lead to any revenue. For example, a person buying high value goods may sell them at a loss. TCS will still be applicable on these transactions but in the normal case, Income Tax would not have been applicable.
These provisions will aide the government in collecting taxes early. For example, Reliance Industries buying a product of 1cr would have to pay TCS early on the transaction instead of the quarterly dates of advance tax.
Surely, this provision will be burdensome at the start but slowly people will get used to it. This will also help widen the tax base where people who would never get taxed will have to pay TCS on certain transactions.