Mastering TCS Calculation: Guide for Finance Professionals

Introduction

Tax Collected at Source (TCS) is an essential tax mechanism that impacts various business transactions, particularly for sellers and buyers of specified goods. Under the Income Tax Act of 1961, certain transactions require the seller to collect a percentage of the transaction amount from the buyer, which is then deposited with the government. Understanding TCS calculation is crucial for finance professionals who deal with transactions involving the sale of goods, scrap, and e-commerce sales, among others.

This blog aims to simplify TCS calculation for finance professionals, breaking down complex provisions, including Sections 206C, 206C(1H), and the calculation process. By reading on, professionals will gain clarity on TCS applicability, rates, exemptions, and compliance requirements. We’ll also cover practical examples, such as TCS on the sale of scrap, purchase of goods, and handling TCS under GST.

1. What is TCS (Tax Collected at Source)?

Tax Collected at Source (TCS) refers to the tax collected by the seller from the buyer during the transaction of certain specified goods or services. The seller is responsible for collecting this tax at the point of sale and depositing it with the government. Section 206C of the Income Tax Act governs the collection of TCS on specific goods and services.

For example, if a company sells scrap to a buyer for ₹50,000, and the applicable TCS rate is 1%, the seller must collect ₹500 as tax from the buyer, which is then remitted to the government.

2. When is TCS Applicable?

TCS applies to specific transactions, particularly the sale of certain goods. Under Section 206C and Section 206C(1H), TCS is applicable when the seller’s turnover exceeds ₹10 crore, or when the sale amount exceeds ₹50 lakh in certain categories, like scrap or luxury goods.

Key scenarios include:

• TCS on Sale of Goods: Sellers collecting tax on items such as timber, liquor, and scrap.
• TCS on Purchase of Goods: The seller collects tax when goods are purchased by a buyer for resale purposes.
• TCS on Sale of Scrap: Sellers of scrap must charge TCS at the prescribed rate, which varies based on the item.
• E-commerce Operators: E-commerce platforms must collect TCS on transactions conducted through their platform, especially for transactions exceeding ₹50 lakh.

Some transactions, such as those involving the central government or public sector companies, may be exempt from TCS.

3. TCS Calculation Simplified

Calculating TCS involves a few simple steps:

• Step 1: Identify if the transaction qualifies for TCS. For instance, if a buyer purchases goods exceeding ₹50 lakh, TCS is applicable.
• Step 2: Apply the correct TCS rate. For example, scrap sales may attract 1% TCS, while luxury goods may attract a higher rate.
• Step 3: Calculate the TCS amount. If a buyer purchases goods worth ₹1,00,000, and the applicable TCS rate is 1%, the TCS would be ₹1,000.
• Step 4: Deposit the collected TCS to the authorities within the prescribed deadlines.
• Step 5: Account for TCS in the books of accounts. This will typically involve a journal entry in financial records, reflecting the collection of TCS

4. TCS Rates for Specific Goods

Taxes are paid only when the goods are utilised for trading purposes, and not when utilised for manufacturing, processing or producing things. The tax payable is collected by the seller at the point of sale. The rate of TCS is different for goods specified under different categories :

Type of Goods or transactions	Rate
Liquor of alcoholic nature, made for consumption by humans	1%
Timber wood under a forest leased	2.5%
Tendu leaves	5%
Timber wood by any other than forest-leased	2.5%
Forest produce other than Tendu leaves and timber	2.5%
Scrap	1%
Minerals like lignite, coal and iron ore	1%
Purchase of Motor vehicle exceeding Rs.10 lakh	1%
Parking lot, Toll Plaza and Mining and Quarrying	2%
Where total turnover is more than Rs.10 crore in the previous financial year and receives sale consideration of any products of more than Rs.50 lakh, such seller must collect TCS upon receiving consideration from the buyer on such amount over and above Rs.50 lakh, as per Section 206C(IH). (Without PAN, then 1% is TCS)	0.1%

Practical Examples for Clarity

Let’s look at some practical examples:

• TCS on Sale of Scrap: A company sells scrap to a buyer for ₹10,00,000, and the applicable TCS rate is 1%. The seller collects ₹10,000 as TCS from the buyer and remits it to the government.
• TCS on Purchase of Goods: A buyer purchases goods worth ₹60 lakh. The seller, registered under GST, collects 0.1% TCS on amounts exceeding ₹50 lakh, i.e., ₹10,000.

These examples highlight how TCS is applied and calculated in real-world situations.

5. Key Challenges in TCS Compliance

While TCS is an essential part of tax compliance, businesses often face challenges:

• Non-Compliance: Failure to collect TCS or deposit it within the prescribed time leads to penalties.
• Tax Evasion: Incorrect or inconsistent application of TCS rates can lead to disputes.
• Identifying Transactions: Determining which transactions require TCS can be confusing, especially with changes in regulations.

To overcome these challenges, businesses can invest in tax compliance software or consult tax experts to ensure accurate calculation and reporting.

5. Impact of GST and E-Commerce on TCS

GST registration plays a vital role in TCS compliance. If a business is registered under GST, it must account for both GST and TCS on the sale of goods. Additionally, e-commerce operators are required to collect TCS under Section 206C(Q) for transactions exceeding ₹50 lakh. This obligation extends to online transactions, including purchases of goods and services.

For example, if an online seller sells items worth ₹1,00,000 through an e-commerce platform, the platform must deduct TCS at the applicable rate and remit it to the government.

6. TCS Certificate

• When a tax collector files his quarterly TCS return, Form27EQ, he has to provide a TCS certificate to the purchaser of the goods.
• Form 27D is the certificate issued for TCS returns filed. This certificate contains the following details:
• Name of the Seller and Buyer
• TAN of the seller i.e. who is filing the TCS return quarterly
• PAN of both seller and buyer
• Total tax collected by the seller
• Date of collection
• The rate of Tax applied
• This certificate has to be issued within 15 days from the date of filing TCS quarterly returns. All the TCS due dates are summarised in the below table:

Quarter Ending	Due date to file TCS return in Form 27EQ	Date for generating Form 27D
For the quarter ending on 30th June	15th July	30th July
For the quarter ending on 30th September	15th October	30th October
For the quarter ending on 31st December	15th January	30th January
For the quarter ending on 31st March	15th May	30th May

7. Rules where TCS Under Section 206C is Deposited without Challan (changes to Rule 37CA)

• If TCS has been deposited without a challan, the person to whom the collector has reported the TCS for depositing to the government – such a person will submit Form 24G to the agency authorised by the Principal Director of income tax (systems).
• Such Form 24G must be submitted within 15 days from the end of the relevant month.
• If Form 24G pertains to March, it must be submitted on or before 30 April.
• Form 24G must be issued:
• Electronically under digital signature
• Electronically along with verification in Form 27A or
• Verified through an electronic process as prescribed
• A person referred to in bullet 1 shall inform the Book Identification number generated to each of the deductors for whom the sum deducted has been deposited.
• The Principal Director General of Income Tax (Systems) shall specify the procedure for furnishing and verification of statement Form 24G.

8. Tools and Resources for TCS Compliance

Finance professionals can benefit from ERP systems or TCS compliance software to streamline tax collection, reporting, and filings. Additionally, accessing the official Income Tax Act Section 206C documents and TCS rates published by the government can help ensure accuracy.

9. Differences between TCS and TDS

The differences between TCS and TDS are given below:

• TDS stands for Tax Deducted at Source, which refers to the tax withheld from various payments made by a company to an employee. TDS deductions are governed by the Income Tax Act of 1961. On the other hand, TCS, or Tax Collected at Source, is collected by the seller from the buyer at the time of sale of certain specified goods.
• TCS applies to the sale of specific items such as scrap, wood, tendu leaves, minerals, etc., whereas TDS is deducted from various sources, including wages, interest, dividends, leases, professional fees, brokerage, commission, etc.
• TDS is deducted when payments reach a certain threshold, whereas TCS is applied regardless of the payment amount. TCS is collected at a fixed rate depending on the type of product being sold.

10. FAQs About TCS

• How is TCS different from TDS? TDS (Tax Deducted at Source) is tax deducted from payments made by the payer, whereas TCS is collected by the seller at the point of sale.
• What is the due date for depositing TCS? TCS must be deposited by the 7th of the following month after the tax is collected.
• Is TCS refundable during income tax filing? Yes, TCS can be claimed as a refund during the income tax filing process if it exceeds the actual tax liability.

Learn more about taxation in our The Indian Tax System: What You Need to Know Blog

Conclusion

TCS is a crucial component of the taxation system, especially for businesses involved in the sale of specific goods, including scrap. Finance professionals must understand the process of calculating, collecting, and depositing TCS to remain compliant with the Income Tax Act. By following the guidelines provided in this blog, professionals can streamline their TCS compliance, avoid penalties, and ensure smooth financial operations.