Tax deductions at source, primarily called as TDS (Withholding Tax in some countries), are collected for making the payment of services. Likewise, Tax collected at sources (TCS) is a significant method employed by the tax authorities to gather taxes on the sales of certain goods. The government ensures all sellers collect TCS at the point of sale and minimizes the possibility of tax evasion.
What is Tax Collected at Sources (TCS)
When the government levies a tax on specific transactions, the seller collects a particular tax % from the buyer at the time of sale. TCS collects the time of sale and then deposits the same to the government. The primary objective of TCS is to have upfront tax revenues and prevent tax evasion.
Implementation and Applicability
TCS typically applies to specific goods and services defined by the tax authorities. In many countries, it applies to transactions involving alcoholic beverages, luxury cars, certain minerals, etc. The applicability and the rate of TCS can vary based on the nature of goods, the total value of the transaction, and the prevailing tax regulations.
Mechanism of Tax Collected at Source
When a seller conducts a transaction under TCS’s purview, they collect the tax amount from the buyer on the total sale consideration. TCS collected Tax is then deposited with the government within a specified period. The seller issues a TCS certificate to the buyer as proof of tax collection, which the buyer can use to claim credit against their tax liability. TCS amount is deducted from the buyer’s PAN, reflected in their 26AS, and is allowable as a credit in the final income tax of the assessee.
Objectives and Advantages of Tax Collected at Source
- Preventing Tax Evasion: TCS helps curb tax evasion by ensuring that Tax is collected at the time of the transaction.
- Enhanced Revenue Collection: Governments benefit from a steady flow of revenue through TCS, contributing to effective fiscal management.
- Simplified Tax Administration: By collecting taxes at the source, the administrative burden is reduced, making tax collection more efficient.
- Expanding the Tax Base: TCS aids in expanding the tax base by capturing taxes from a broader range of transactions.
Challenges and Limitations
Despite its advantages, TCS also presents specific challenges and limitations:
- Compliance Burden: Sellers must ensure compliance with TCS provisions, which can sometimes be cumbersome.
- Impact on Businesses: TCS might affect cash flows for sellers, especially small businesses.
- Complexity in Implementation: Determining the applicability and rates of TCS for various goods and services can be complex, leading to confusion among stakeholders.
Coverage of Goods
- Trading of goods is where a purchase and sale transaction happens, so the seller has to apply TCS.
- TCS is not applicable when the above-purchased goods are used for further processing and manufacturing and are exempt from TCS.
Type of goods and rate of TCS applicable
- Liquor/Scrap/Minerals/Bullion over 2 lakhs/Jewellery exceeds 5 lakhs/Purchase of motor vehicles over 10 lakhs @ 1%
- Parking lot, Toll Plaza and mining and quarrying companies to apply @ 2%
- Timber wood under forest leased/Timber wood with any other mode/ @2.5%
- Tendu Leaves @ 5%
Who is classified to collect TCS?
- Companies/LLP registered under the Companies Act.
- Partnership Firms & Cooperative Societies
- Central/State/Local and Statutory Authorities and government
- Any other company or individual has to be audited under the Income Tax Act.
TCS due Dates for filing the return
Like TDS, TCS return filling is also after the close of each quarter, like:
- April to June quarter by 15th July
- July to September quarter by 15th October
- October to December quarter by 15th January
- January to March quarter by 15th May
Due date of making the payment
Like TDS, the TCS due date is on or before the 7th of the subsequent month.
Interest Charged on the delayed payment
The tax collector or TC is responsible as per the act for collecting and paying the Tax to the government. If the tax collector fails to collect and deposit the TCS to the government or collects and not paid on the due dates, the TC will be liable for a 1 % interest per month or part of the month.
Penalty for incorrect filling of the TCS return
A minimum penalty of 20,000 or a maximum of 100,000 can be levied u/s 271H for the wrong filing of a TCS return.
Conclusion
Tax collected at source is crucial for governments to gather taxes efficiently and combat tax evasion. While it offers advantages in terms of revenue generation and simplification of tax administration, there are also challenges associated with its implementation. Striking a balance between effective tax collection and minimizing the burden on businesses is essential for the success of TCS. Governments must periodically review and refine TCS provisions to ensure they align with the evolving economic landscape while maintaining fairness and effectiveness in tax collection.
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