Important things to know about Tax Collected at Source (TCS)


Date: 26 Oct 2020

Important things to know about Tax Collected at Source (TCS)

Since the advent of civilization, handling the economy has been one of the major parts of running a state efficiently. Be it a small civilization or a massive country like our own nation today, finance is one of the sectors which cannot be neglected. And when we say finances what comes to mind? Taxes, of course, and what better than accounting software to help you sought that. But first, let’s focus on TCS.

Every year we wait for the Budget Session to know how we can re-adjust our consumption and savings to be able to live a financially healthy life. But how good are we with understanding tax terms? Let us take a look today to explore one particular tax called TCS - Tax Collected at Source. 

What is Tax Collected at Source?

It is a tax that is collected by a seller when they are selling goods to a buyer. These are the taxes which are collected at the point of sale of certain types of goods like timber, a liquor made for human consumption, tendu leaves, scrap, minerals like lignite, coal and iron ore, purchase of motor vehicle exceeding over 2 lakhs or jewellery exceeding 5 lakhs or bullion increasing 2 lakhs, parking lot, toll plaza, mining, and quarrying as well.

A seller whose aggregate sales, turnover, or gross receipts from their business is more than INR 100 million in the immediately preceding financial year is required to collect TCS on the sale of goods. 

Apart from these, it is important to note that any person carrying out an e-commerce business needs to collect TCS tax from the supplier who provides them the goods. This is where the accounting software keeps a track of all the undergoing actions. Also, e-commerce businesses should consider downloading. This tax will be applicable to the net transaction value of these goods. The tax collected at the source, in such a case, is applicable at the rate of 1%. 

Some of the goods that are exempted under the TCS are-

  • Alcoholic liquor for human consumption

  • Tendu leaves

  • Timber or any other forest produce

  • Scrap

  • Lignite, being coal, iron ore, different minerals

  • Motor Vehicle

  • Overseas tour package

However, it is also important to note that TCS is not to be levied on the sale made to the Trade Representative/Local Authority, State/Central government Consulate, or Embassy/High-commission. Moreover, this tax is also not collected from someone who is importing any goods into India.

How is TDS different from TCS?

It might get a little confusing to differentiate between tax Deducted at Source and Tax Collected at Source. This is when systems like BUSY Accounting Software come in handy.

So, in order to help you understand these two concepts better, let us explain to you how they are different from one another.

TDS or Tax Deducted at Source is a tax that is deducted on payments made by companies or individuals if the payment exceeds a certain threshold. These are the deductions that are made on salaries, rent, brokerage, professional fees, commission, interest, and others. 

According to the Income Tax Act 1961, a company or an individual has the power to deduct these taxes. 

TCS or Tax Collected at Source is the tax collected by a seller when they are selling the products to a buyer. These deductions are levied on the sale of goods like timber, mineral, scrap, tendu leaves, wood, to name a few. TCS is applicable to all the sales of certain goods. However, it is not applicable to some of the goods that are used for production or manufacturing. As per the Income Tax Act 1961, any person who is selling these specific goods can collect TCS tax.

What happens when you fail to deduct or collect tax?

Any person who fails to deduct or collect tax has to face serious repercussions. These include certain legal consequences too. Apart from being charged with the penalty equal to the tax deducted or collected, the person may also have to go through imprisonment of 3 to 7 years. 

The person may also have to pay the interest levied in such a scenario. This interest can be paid on a monthly basis and is calculated from the date of the tax deductions and collections eligible to the date the interest is finally deducted.

Therefore, it is extremely important to deduct or collect these taxes in order to run your business efficiently, as well as to avoid any legal charges. That is the reason, from the very beginning you should consider getting accounting software such as BUSY Accounting Software for ease of work.

According to a press release by the Government of India, the TCS rates have been reduced to 25% of the existing rates. This measure has been taken as a part of the current Covid-19 relief measures. These new rates will be applicable till 31 March 2021.