TCS Part 2 | Latest Updates, Rates, and Complete Rules under Section 206C

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What is TCS (Tax Collected at Source)?

Tax Collected at Source (TCS) refers to the tax that a seller or collector collects from the buyer at the time of selling specified goods or conducting certain financial transactions. The amount collected is later deposited with the government under the buyer’s PAN, which can be adjusted while filing Income Tax Returns (ITR).

Think of it like this — every time you make a purchase that falls under the TCS list, the seller is acting as a temporary tax agent. They collect a small percentage on the government’s behalf and submit it directly. This ensures that no high-value transaction goes unreported.

🎯 Key Objectives of TCS

• To bring transparency to high-value financial transactions.
• To ensure tax collection at the earliest point (source of income).
• To expand the tax base and reduce tax evasion.
• To simplify compliance for both taxpayers and authorities.

In simple words, “TCS ensures the government gets its share first — before the income gets spent.”

Legal Framework of TCS – Section 206C

TCS is governed by Section 206C of the Income Tax Act, 1961. It specifies:

• Who should collect the tax (the collector/seller).
• Who should pay it (the collectee/buyer).
• At what rate and on which goods or services the tax should be collected.

The system is managed and monitored by the Central Board of Direct Taxes (CBDT) through notifications, circulars, and annual amendments like those introduced in the Finance Act 2025.

Who Collects and Who Pays TCS?

TCS involves two main parties: the Collector (Seller) and the Collectee (Buyer).

👨‍💼 Collector (Seller)

• Any person or company selling goods or conducting a specified transaction.
• Must have a valid Tax Collection Account Number (TAN).
• Responsible for collecting TCS from the buyer and depositing it to the government.
• Has to issue Form 27D (TCS Certificate) to the buyer.

🧾 Collectee (Buyer)

• The person making the purchase or payment.
• Pays TCS over and above the invoice value.
• Can claim credit or adjustment for TCS at the time of ITR filing.

💡 Example: Suppose you purchase a luxury car worth ₹20,00,000. The seller collects 1% TCS, i.e., ₹20,000, making your total payable ₹20,20,000. The ₹20,000 goes directly to the government under your PAN and appears in your Form 26AS.

When Does TCS Apply?

TCS is collected either:

• At the time of receiving payment, or
• At the time of sale of goods, whichever comes earlier.

This ensures that the government collects its share before the money circulates further into the economy.

🛒 Common Transactions Where TCS Applies

• Alcoholic liquor for human consumption
• Tendu leaves, timber, or other forest produce
• Minerals such as coal, lignite, or iron ore
• Sale of motor vehicle exceeding ₹10 lakh
• Foreign remittance exceeding ₹10 lakh under LRS
• Sale of goods exceeding ₹50 lakh by a seller (Section 206C(1H))

Latest TCS Updates – April 2025 (Finance Act 2025)

From 1st April 2025, new TCS rules came into effect to bring more clarity and efficiency in collection. Below is the updated TCS rate chart:

🔄 Major Changes Introduced in 2025

• Threshold for LRS transactions increased from ₹7 lakh to ₹10 lakh.
• Penalty relief for late deposits if TCS is paid before return filing due date.
• Clarified that no TCS applies on refunds or canceled transactions.

LRS (Liberalised Remittance Scheme) and TCS Explained

Under the Liberalised Remittance Scheme (LRS), Indian residents can send money abroad for permissible transactions such as investments, travel, education, and medical treatment. However, TCS ensures these remittances are tracked and reported to the Income Tax Department.

💰 Applicability under LRS

• Up to ₹10 lakh per financial year – No TCS (for general purpose).
• Above ₹10 lakh – 20% TCS (for investments, gifts, etc.).
• Education remittance via education loan – 0% TCS.
• Self-funded education abroad – 5% TCS above ₹10 lakh.
• Medical treatment abroad – 5% TCS above ₹10 lakh.

📘 Example: If a student remits ₹20 lakh abroad for education via loan from an approved financial institution, no TCS applies. But if the same is self-funded, TCS @5% = ₹50,000 applies.

TDS & TCS Rule Changes Explained – New Limits, Removed Sections & Complete Guide

Collection and Deposit Process

⚙️ Step-by-Step Process

1. Collection: Seller collects TCS while receiving payment or raising invoice.
2. Deposit: TCS deposited to the government using Challan ITNS 281 before the 7th of the following month.
3. Return Filing: Collector files quarterly statement in Form 27EQ.
4. Issuance of Certificate: Collector issues Form 27D to the buyer within 15 days of return filing.

Example: TCS collected on 15th May → Deposit by 7th June → File Form 27EQ by 15th July → Issue Form 27D by 30th July.

🧾 Accounting Entry Example

Exemption through Form 27C

TCS is not applicable when the buyer provides a declaration in Form 27C confirming that goods purchased are for manufacturing, processing, or production (and not for trading).

Conditions:

• The buyer must be a resident of India.
• Form 27C must be submitted in duplicate.
• The seller must forward one copy to the jurisdictional Chief Commissioner or Commissioner of Income Tax.

Penalties, Interest, and Prosecution for Non-Compliance

Failure to collect or deposit TCS can lead to serious consequences:

• Interest: 1% per month from the date it was due until actual payment.
• Penalty: Equal to the amount of TCS not collected or deposited.
• Prosecution (Sec 276BB): May lead to imprisonment for up to 7 years with fine.

Good News: As per the Finance Act 2025, prosecution will not be initiated if TCS is deposited before the due date of quarterly return filing.

Difference Between TDS and TCS

TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) both serve the same goal — tax collection at source. However, they differ in timing, responsibility, and applicability.

Practical Example: TCS on Sale of Goods (Sec 206C(1H))

Let’s understand through a case:

ABC Ltd. sells goods worth ₹80 lakh to XYZ Traders in FY 2025-26.

• Threshold under Section 206C(1H) = ₹50 lakh
• Excess = ₹30 lakh
• TCS Rate = 0.1%
• TCS = ₹30,000 × 0.1% = ₹30

Hence, ABC Ltd. will collect ₹30 as TCS and deposit it with the government.

Common Misconceptions about TCS

• Myth: TCS is an extra tax you lose.
  Fact: TCS is adjustable while filing returns — it’s not an additional expense.
• Myth: Only big businesses pay TCS.
  Fact: Even individuals remitting funds abroad or buying a car above ₹10 lakh fall under TCS.
• Myth: TCS applies to all transactions.
  Fact: It applies only to specified goods and services.

Frequently Asked Questions (FAQs)

1️⃣ Is TCS refundable?

Yes, if excess TCS is collected, it can be adjusted against your income tax liability or refunded while filing ITR.

2️⃣ What happens if TCS is collected but not deposited?

The collector faces penalty and interest under Section 206C(6A), and the buyer can still claim credit once deposited.

3️⃣ How can I verify TCS credited in my name?

Check your Form 26AS or Annual Information Statement (AIS) on the income tax portal.

4️⃣ Does TCS apply on cash sales?

Yes, if the transaction falls under specified goods and crosses the threshold, TCS applies even if the mode of payment is cash.

5️⃣ Can a buyer refuse to pay TCS?

No. The buyer must pay the invoice value plus applicable TCS. Refusal can result in transaction delay or non-compliance.

Conclusion

In essence, TCS is the government’s smart way of ensuring tax discipline. Whether you’re a buyer, seller, or student learning about taxation, understanding TCS in 2025 is essential to avoid penalties and make smarter financial decisions.

Always verify your Form 26AS, cross-check your Form 27D certificates, and ensure compliance within deadlines.