Confused about What is TCS in Income Tax?. When you pay for certain goods or services, you might notice an extra charge called TCS (Tax Collected at Source). Under the Income Tax Act, 1961, specific sellers are required to collect a percentage of tax from buyers at the time of sale. This collected amount is then deposited with the government. TCS ensures smooth tax collection and wider compliance across industries.
Understanding TCS 🔍
TCS is collected by the seller and not the buyer. Later, the buyer can claim this tax as credit while filing their income tax return.
👉 Example: If a buyer purchases scrap worth ₹1,00,000 and the applicable TCS rate is 1%, the seller collects ₹1,000 as TCS and deposits it with the government.
Goods and Services Covered Under TCS 📊
Here are some common items where TCS applies:
| Nature of Goods/Services | TCS Rate (%) |
|---|---|
| Sale of Alcoholic Liquor | 1% |
| Sale of Timber | 2.5% |
| Sale of Scrap | 1% |
| Foreign Remittance (LRS) | 5% |
| Sale of Motor Vehicle above ₹10 lakh | 1% |
| Overseas Tour Package | 5% |
👉 The government may change rates or introduce new items through Finance Acts.
Difference Between TCS and TDS ⚖️
Although both involve tax collection, the mechanism is different:
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TDS (Tax Deducted at Source) is deducted by the payer before making a payment.
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TCS (Tax Collected at Source) is collected by the seller when selling specific goods or services.
This distinction ensures tax collection at multiple transaction points.
Compliance for Sellers 🧾
Sellers responsible for TCS must:
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Collect the tax at the prescribed rate.
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Deposit the collected TCS with the government.
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File quarterly TCS returns (Form 27EQ).
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Issue TCS certificates (Form 27D) to buyers.
Failure to comply may result in interest, penalties, and disallowance of expenses.
Conclusion ✅
I hope it’s clear What is TCS in Income Tax, TCS in Income Tax is a mechanism where the seller collects tax from the buyer at the point of sale. It applies to specific goods and services, including liquor, scrap, foreign remittances, and high-value vehicles. While buyers can claim credit of TCS, sellers must ensure timely deposit and filing to avoid penalties.