Tax Collected at Source (TCS) is an important but often misunderstood concept under the Indian Income-tax Act, 1961. While many taxpayers are familiar with Tax Deducted at Source (TDS), TCS operates on a different principle and applies to specific transactions where the seller or service provider is required to collect tax from the buyer at the time of receipt of consideration.
With the expansion of TCS provisions to cover new-age transactions such as overseas remittances, sale of goods, scrap, motor vehicles, and certain services, compliance under Section 206C has become a critical area for businesses, traders, and professionals. Any lapse in collection, deposit, or reporting of TCS can result in penalties, interest, and scrutiny notices from the Income Tax Department.
This blog explains what TCS is, when it applies, who is required to collect it, applicable forms such as Form 27EQ and Form 27D, due dates, penalties, and practical compliance aspects, in a clear and easy-to-understand manner.
What Is Tax Collected at Source (TCS)?
Tax Collected at Source refers to a mechanism where the seller or collector collects tax from the buyer at the time of sale or receipt of payment and deposits the same with the Central Government. The tax collected is not an additional cost to the buyer; rather, it is an advance tax that the buyer can later claim as credit while filing their income-tax return.
The legal framework for TCS is provided under Section 206C of the Income-tax Act, read along with relevant Income-tax Rules. The intention behind TCS is to track high-value or specified transactions and ensure early tax collection from the economy.
Who Is Required to Collect TCS?
The obligation to collect TCS is cast upon the seller, collector, or service provider, depending on the nature of the transaction. This may include individuals, partnership firms, LLPs, companies, or government entities, provided they fall within the scope of Section 206C.
In many cases, the obligation applies only if the seller’s turnover exceeds prescribed limits in the preceding financial year. However, for certain transactions like overseas remittance under LRS or sale of motor vehicles above a specified value, the applicability is transaction-based and independent of turnover.
Common Transactions Covered Under TCS Provisions
Over the years, the scope of TCS has expanded significantly. It now applies not only to traditional goods like scrap or tendu leaves but also to modern transactions such as foreign remittances and sale of goods exceeding specified thresholds.
For example, TCS applies on:
- Sale of certain specified goods
- Sale of scrap
- Sale of motor vehicles exceeding prescribed value
- Sale of goods exceeding turnover thresholds under Section 206C(1H)
- Overseas remittances under Liberalised Remittance Scheme (LRS)
- Sale of overseas tour packages
Each category has its own rate, threshold, and compliance requirement, making it essential to evaluate applicability carefully.
Rate of TCS and PAN Compliance
The rate of TCS varies depending on the nature of the transaction and whether the buyer has furnished a valid PAN. If the buyer fails to provide PAN, higher rates under Section 206CC become applicable.
This makes PAN verification a critical compliance step before concluding any transaction subject to TCS. Collecting tax at the wrong rate can expose the seller to interest liability and demands during departmental scrutiny.
Deposit of TCS with the Government
Once tax is collected, it must be deposited with the Central Government within prescribed timelines. Generally, for non-government collectors, TCS must be deposited within 7 days from the end of the month in which tax is collected.
Delayed deposit of TCS attracts interest, which continue to accrue until the date of actual payment. Even a short delay can result in avoidable financial cost.
Filing of Quarterly TCS Statement – Form 27EQ
Every collector who collects tax under Section 206C is required to file a quarterly TCS statement in Form 27EQ. This statement contains transaction-wise details of tax collected and deposited with the government.
Due Dates for Filing Form 27EQ
- Quarter ending 30th June – Due by 15th July
- Quarter ending 30th September – Due by 15th October
- Quarter ending 31st December – Due by 15th January
- Quarter ending 31st March – Due by 15th May of the following financial year
Failure to file Form 27EQ on time can result in late fees, penalties, and interest.
Mode of Furnishing TCS Statement
The TCS statement may be furnished:
- In paper form (where permitted), or
- Electronically with digital signature, or
- Electronically with verification through Form 27A or online verification process
However, electronic filing is mandatory where:
- The collector is a company
- The collector is a government office
- The collector was liable to tax audit under Section 44AB
- The statement contains 20 or more collectee records
Mandatory Details in TCS Statement
While preparing Form 27EQ, the collector must ensure:
- Correct quoting of TAN
- Quoting of PAN of the collector and all collectees
- Accurate challan or book identification details
- Disclosure of transactions where TCS was not collected due to declarations, exemptions, or notifications
- Reporting of lower or nil TCS collection cases, if applicable
Errors in PAN or challan details often lead to mismatch notices and delay in credit to the collectee.
Declaration for Non-Collection of TCS – Form 27C
In certain cases, buyers can submit a declaration under Section 206C(1A) stating that goods purchased will be used for manufacturing or processing purposes and not for trading.
Such declaration must be:
- Furnished in Form 27C
- Submitted in duplicate to the seller
- One copy must be forwarded to the jurisdictional Commissioner by the 7th day of the following month
Failure to submit Form 27C correctly can invalidate the non-collection claim.
When Is Form 27D Required to Be Issued?
Form 27D is a TCS certificate that must be issued by the person responsible for collecting tax at source (the collector) to the person from whom tax has been collected (the collectee).
Once the TCS amount is collected and the quarterly TCS statement (Form 27EQ) is filed and processed, the collector is required to download Form 27D from the TRACES portal (https://www.tdscpc.gov.in). This certificate contains details such as the amount collected, rate of TCS, nature of transaction, and challan details.
The certificate must be authenticated either by a digital signature or a manual signature before being issued to the collectee.
Due Date for Issuance of Form 27D
Form 27D must be issued within 15 days from the due date of furnishing the quarterly TCS statement in Form 27EQ.
For example, if the due date for filing Form 27EQ for a particular quarter is 15th July, then Form 27D must be issued by 30th July.
Timely issuance of Form 27D is crucial because the collectee relies on this certificate to claim credit of TCS while filing their income-tax return.
Penalty for Non-Issuance of Form 27D
If a person responsible for collecting tax fails to issue Form 27D, they are liable for penalty under Section 272A of the Income-tax Act.
The penalty can be levied per day of default, subject to prescribed limits. Apart from monetary penalty, continued non-compliance may also invite scrutiny from the Income Tax Department and affect the compliance rating of the deductor/collector.
Certificate for Collection of TCS at Lower Rate
Under Section 206C(9), a buyer may apply to the Assessing Officer for collection of TCS at a lower rate or nil rate if their estimated tax liability justifies the same.
If satisfied, the Assessing Officer issues a lower TCS certificate, which:
- Is valid for the specified assessment year
- Is applicable only to the person named in the certificate
- Must be complied with strictly by the collector
Fresh applications may be required after expiry of the certificate.
Importance of Proper TCS Compliance
Proper TCS compliance ensures:
- Seamless credit to buyers
- Avoidance of penalties and interest
- Lower risk of income-tax scrutiny
- Strong compliance record for businesses
Given the increasing digitisation and data matching by the Income Tax Department, errors in Form 27EQ or delays in Form 27D issuance are easily traceable.
Practical Challenges in TCS Compliance
In practice, businesses face several challenges in TCS compliance, such as determining applicability, tracking receipt-based collection, managing multiple rates, and ensuring accurate reporting across quarters.
For businesses operating across multiple cities or handling high transaction volumes, TCS compliance becomes a continuous process rather than a one-time activity. Proper systems and professional oversight are essential to avoid errors.
Why Professional Assistance Matters in TCS Matters
TCS provisions are detailed, evolving, and closely monitored by the tax department. Errors may not surface immediately but can result in demands years later during assessments or audits.
Engaging a tax professional helps ensure:
- Correct identification of TCS applicability
- Accurate rate application
- Timely deposit and filing
- Smooth generation of Form 27D
- Resolution of notices and mismatches
FAQs on Tax Collected at Source (TCS)
Is TCS an additional tax cost for the buyer?
No. TCS is an advance tax that can be claimed as credit while filing the income-tax return.
Can TCS be adjusted against final tax liability?
Yes. TCS reflects in Form 26AS and can be adjusted against total tax payable.
Is PAN mandatory for TCS transactions?
Yes. Absence of PAN leads to higher TCS rates.
Can Form 27D be issued manually?
No. Form 27D must be downloaded from TRACES after processing of Form 27EQ.
What happens if Form 27EQ is filed late?
Late filing attracts fees, delays Form 27D issuance, and may lead to penalties.
Final Words
Tax Collected at Source is no longer a limited provision applicable to a few industries. With its expanded scope, TCS now impacts a wide range of businesses, professionals, and individuals. Understanding its applicability, timelines, and documentation is essential for staying compliant and avoiding unnecessary disputes.
If you are dealing with TCS compliance, Form 27EQ filing, Form 27D issuance, or handling notices related to Section 206C, taking timely professional guidance can help you make informed and compliant decisions while focusing on your core business activities.
Would you like assistance in reviewing your TCS applicability or ensuring error-free TCS filings?
