Overview of Tax Collected at Source (TCS)

Introduction

Tax Collected at Source (TCS) is a tax that a seller collects from the buyer at the time of selling certain specified goods. As outlined in Section 206C of the Income Tax Act, only goods listed under this section attract TCS. Buyers can later claim credit for the TCS amount while filing their Income Tax Returns (ITR), meaning the seller is not responsible for issuing any refund.

In this article, we take a closer look at TCS and how it works.
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Tax Collected at Source (TCS)

Tax Collected at Source (TCS) is a tax that a seller collects from the buyer at the time of selling specified goods. The seller collects this amount and remits it to the government; the tax burden does not fall on the seller. TCS applies only to certain goods and transactions—such as timber, minerals, scrap, and other notified items—allowing the government to collect tax revenue directly at the source.

Applicability of TCS

Under Section 206C of the Income Tax Act, TCS applies only to transactions involving specified goods or services. TCS obligations arise when both the seller and buyer fall under categories defined in the law.

Sellers who fail to collect or deposit TCS on time are subject to penalties and interest. Buyers whose taxable income falls below the exemption limit can claim credit or a refund by filing their Income Tax Return (ITR).
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Who Is Considered a Seller Under TCS?

Only certain entities are authorised to collect TCS:

Statutory corporations or authorities
Companies
Co-operative societies
Local authorities
Partnership firms
State and Central Governments
Individuals or HUFs whose accounts are audited under Section 44AB

Who Is Considered a Buyer Under TCS?

A buyer is anyone who acquires goods or rights to receive goods through sale, tender, auction, or similar means. However, the following buyers are exempt:

Embassies, High Commissions, and Consulates
Central and State Governments
Public Sector Enterprises
Foreign trade representatives
Social and sports clubs
Buyers purchasing goods for manufacturing or power generation (not for resale)

Goods Covered Under TCS Provisions

TCS applies to the sale of the following goods and services:

Alcoholic liquor
Forest produce (excluding timber and tendu leaves)
Scrap
Tendu leaves
Timber (from leased or non-leased forest sources)
Minerals such as coal, iron ore, and lignite
Bullion above ₹2 lakh / Jewellery above ₹5 lakh
Motor vehicles above ₹10 lakh
Parking lots, toll plazas, mining, and quarrying

TCS applies only when the goods are traded. If they are used for manufacturing or processing, TCS does not apply.

Exemptions from TCS

1. Lower TCS Rate

Buyers may apply for a lower TCS rate by submitting Form 13 to the Assessing Officer, justifying personal use and eligibility based on income.

2. Full Exemption

Buyers intending to use goods for manufacturing or production may file Form 27C to claim a complete exemption. A duplicate declaration must be provided to the seller for submission to authorities.

When Is TCS Collected?

TCS is collected at the earlier of the following:
When the seller receives payment
When the buyer’s payable amount is recorded in the seller’s books
For motor vehicles over ₹10 lakh, TCS is collected at the time of payment. Sellers must deposit collected TCS with the government by the end of the following month.

TCS Rates in India (FY 2023–24)

Nature of Goods/Transaction	TCS Rate
Timber from forest lease	2.5%
Timber from other sources	2.5%
Alcoholic liquor	1%
Scrap	1%
Tendu leaves	5%
Forest produce (except tendu leaves)	2.5%
Minerals (coal, lignite, iron ore)	1%
Parking lots, toll plazas, mining, quarrying	2%
Sale of goods > ₹50 lakh (seller turnover > ₹10 crore)	0.1%
Motor vehicles > ₹10 lakh	1%
Bullion > ₹2 lakh / Jewellery > ₹5 lakh	1%
Foreign remittance for education/medical	Nil up to ₹7 lakh; 20% above ₹7 lakh
Foreign remittance via education loan	Nil up to ₹7 lakh; 0.5% above ₹7 lakh
Foreign remittance for other purposes	Nil up to ₹7 lakh; 20% above ₹7 lakh
Overseas tour package	5% (< ₹7 lakh), 20% (> ₹20 lakh)

Payment of TCS

Government collectors must deposit TCS on the same day of collection. Others must deposit TCS using Challan 281 within seven days after the end of the month in which TCS was collected.
Penalties for Delay
Failure to collect or deposit TCS attracts 1% interest per month or part of a month until the default continues.
TCS Payment Deadlines
Quarter Ending
Deposit TCS
Submit Form 27EQ
Issue Form 27D
June 30
7th of next month
July 15
July 30
September 30
Oct 15
Oct 15
Oct 30
December 31
Jan 15
Jan 15
Jan 30
March 31
May 15
May 15
May 30

TCS Returns – Form 27EQ

Sellers must file quarterly TCS returns in Form 27EQ. All interest for delays must be paid before filing.

TCS Certificate – Form 27D

After filing the quarterly TCS return, the collector must issue a TCS certificate to the buyer in Form 27D. This certificate includes:
Names of the seller and buyer
Tax Deduction and Collection Account Number (TAN)
Permanent Account Number (PAN)
Total amount of tax collected
Date of collection
Applicable TCS rate
The certificate must be issued within 15 days of filing the quarterly return.
Importance of the TCS Certificate
Form 27D is an essential document that acts as proof of the tax collected at source. It must be issued within one week from the last day of the month in which the seller has deposited the TCS. If multiple certificates are required for the same buyer during a financial year, the seller may issue a consolidated certificate within one month from the end of that financial year.
Buyers need Form 27D to claim tax credit while filing their returns. If the certificate is lost or misplaced, the collector may issue a duplicate copy, duly attested, ensuring the buyer retains access to this important tax documentation.

TCS Compliance Calendar

The following table outlines the key due dates for depositing TCS, submitting Form 27EQ, and issuing Form 27D:

Quarter Ending	Due Date to Deposit TCS	Due Date to Submit Form 27EQ	Due Date to Issue Form 27D
June 30	7th of the following month	July 15	July 30
September 30	October 15	October 15	October 30
December 31	January 15	January 15	January 30
March 31	May 15	May 15	May 30

How to Deposit Tax Collected at Source (TCS)

Sellers must deposit Tax Collected at Source (TCS) using Challan 281 to remain compliant with tax regulations. The deposit must be made within seven days from the end of the month in which the TCS was collected.

Online Deposit

Visit the Income Tax Department’s official website.
Navigate to the TDS/TCS section and select Challan No./ITNS 281.
Fill in the required details, including:
- Deductee’s name
- Type of payment
- Goods or services details
- Payment mode
- Assessment year
- TAN details and other relevant information
Submit the form and complete the payment online.

Offline Deposit

Visit the nearest authorized bank branch.
Submit the completed Challan 281 at the bank.
The bank will issue a receipt once the deposit is processed.

Understanding Form 24G

Form 24G is used to deposit TCS under Section 206C of the Income Tax Act, particularly when no challan is used, in accordance with Rule 37CA of the Income Tax Rules, 1962.
Timelines for Deposit
Government offices: TCS must be deposited on the same day if no challan is used, or within seven days from the end of the month if a challan is employed.
Non-government collectors: TCS should be deposited within one week from the last day of the month of collection.
Additional Requirements
Submission Deadlines: Form 24G must be submitted within 15 days from the end of the relevant month. Deadlines for March may vary slightly.
Submission Methods: The form can be submitted using a digital signature, verified via Form 27A, or through an electronic filing process.
Form Details: Must include the amount collected, collector information, TAN, and other relevant details.
Stay Updated: Always refer to official rules to ensure accurate and compliant submission.
Form 24G streamlines the reporting and depositing of TCS when a challan is not used, making compliance easier for tax collectors.

When Does a Higher TCS Rate Apply?

Sellers are required to collect Tax Collected at Source (TCS) at a higher rate in specific situations:
Past Due ITR Filing: If the buyer has missed the deadline for filing their Income Tax Return (ITR).
Non-Filing of IT Returns: If the buyer has not filed ITRs for the previous two financial years.
High TCS/TDS Amounts: If the total TCS and TDS collected from the buyer exceeds ₹50,000 over the last two financial years.
These provisions ensure compliance and proper tax collection from buyers with irregular or high-value transactions.

How to Claim a TCS Refund

Buyers whose income falls below the basic tax exemption limit but have paid TCS can claim a refund of the excess amount by filing their Income Tax Return (ITR).
To claim a refund:
Fill in the relevant sections of the ITR form accurately.
Attach supporting documents, including the TCS certificate (Form 27D) and proof of the transaction.
Verify TCS details in Form 26AS, which records TCS as a tax credit.
The TCS amount can also be adjusted against any advance tax liability, providing added financial flexibility for the taxpayer.

Differences Between TDS and TCS

Feature	TDS (Tax Deducted at Source)	TCS (Tax Collected at Source)
Point of Taxation	Deducted at the time of payment	Collected at the point of sale
Collector	Deducted by the payer (person making the payment)	Collected by the seller (person receiving payment from the buyer)
Applicability	Salaries, professional fees, rent, interest, etc.	Specific goods and transactions like alcohol, tendu leaves, scrap, bullion, etc.

TDS and TCS are complementary mechanisms for tax collection, but they operate at different points in financial transactions and target different types of payments.

About the Author

Ravi

Ravi is an experienced legal writer who translates complex laws into clear, actionable insights. He guides entrepreneurs in understanding their legal obligations, enabling them to build confident, compliant, and sustainable businesses.