Understanding Tax Collected at Source (TCS): A Comprehensive Guide

Tax Collected at Source (TCS) is a mechanism implemented by the Government of India to enhance tax compliance and streamline tax collection. It mandates certain entities, known as TCS collectors, to collect a specific percentage of tax from payments made to suppliers for specified goods or services. This collected tax is then deposited with the government, ensuring timely tax payment and reducing tax evasion.

What is TCS?

TCS is a tax collection system where an entity (TCS collector) is responsible for collecting tax at the source of a transaction, before making payment to the supplier. The collected tax is then deposited with the government, ensuring that tax is paid upfront and reducing the likelihood of tax evasion.

How is TCS Calculated?

TCS is calculated as a percentage of the gross payment made to the supplier. The specific percentage varies depending on the type of goods or services involved. For instance, in the case of e-commerce transactions, the TCS rate is 1%.

Impact of TCS on E-commerce

The implementation of TCS has had a significant impact on the e-commerce industry in India. E-commerce operators, such as Amazon and Flipkart, are required to collect TCS from sellers using their platforms. This has led to increased compliance and reduced tax evasion within the e-commerce sector.

Benefits of TCS

  • Enhanced Tax Compliance: TCS ensures that tax is collected at the source, reducing the risk of tax evasion and promoting compliance.
  • Simplified Tax Administration: TCS simplifies the tax collection process, as the onus of tax collection is shifted from the supplier to the TCS collector.
  • Increased Government Revenue: TCS helps increase government revenue by ensuring that taxes are collected upfront, reducing the likelihood of tax avoidance.

TCS Registration and Compliance

To comply with TCS regulations, e-commerce operators and other entities responsible for collecting TCS must register with the Goods and Services Tax (GST) authorities. They are required to file regular returns and deposit the collected tax with the government within the specified timelines.

Consequences of Non-Compliance

Failure to comply with TCS regulations can result in penalties and interest charges. Additionally, non-compliant entities may face legal consequences, including prosecution.

TCS is a vital mechanism in India’s tax collection system, ensuring that tax is collected upfront and reducing tax evasion. It has had a significant impact on the e-commerce industry, promoting compliance and simplifying tax administration. Entities responsible for collecting TCS must adhere to the regulations to avoid penalties and legal consequences. By understanding TCS and its implications, businesses can ensure compliance and contribute to a more efficient tax collection system.

TDS vs TCS | Simplest Explanation With Example | Income Tax


What is the meaning of TCS with example?

Tax Collected at Source (TCS) is a tax payable by a seller which he collects from the buyer at the time of sale of goods. Section 206 of the Income Tax Act mentions the list of goods on which the seller should collect tax from buyers.

What is an example of TCS on sales?

If a buyer purchases a car from a showroom that is valued at Rs.11 lakh then an amount of Rs.11,000 is the TCS deposited by the showroom. So, the total amount to be collected from the buyer is Rs.11,11,000. An invoice was issued to the customer for Rs.12,000 on which 1% TCS was charged and collected at Rs.120.

How many types of TCS are there?

Type of Goods
Rate of TCS
Parking lot, Toll Plaza and Mining and Quarrying
Timber wood under a forest leased
Timber wood by any other mode than forest leased
A forest produce other than Tendu leaves and timber

What is the TCS rule?

The new TCS rule states that the TCS for foreign remittances under the Liberalised Remittance Scheme was increased frm 5% to 20% percent TCS. However, the applicability of this new TCS rule is subject to certain conditions and varies depending on the nature of payment.

What is TCS & how does it work?

Alternatively, TCS stands for Tax Collected at Source. According to Section 206C of the Income Tax Act, seller imposes TCS on their goods and collect them from buyers at the time of sale. Here are the TCS rates for some commonly bought goods: Suppose Mr Mishra purchases tendu leaves worth Rs.60,000 from Mr Desai.

What is TCS tax?

TCS is a concept where a person selling specific items is liable to collect tax from a buyer at a prescribed rate and deposit the same with the Government. Section 206C of Income Tax Act specifies the detailed list of goods that are liable for TCS tax. Let’s take an example to understand the concept of TCS:

How TCS is collected?

Every seller of specified goods shall collect TCS from the buyer of the goods. TCS will be collected: At the time of receipt of such amount from the buyer, whichever is earlier. TCS tax is collected under Section 206C of Income Tax Act. Below is the list of specific goods on which TCS is applicable along with TCS Rates:

What is the difference between TDs and TCS?

TDS amount is the tax deducted by an individual or company while making a payment. In comparison, TCS amount is the tax collected by the seller during the time of sale. Who will deduct TDS and TCS? In the event of a transaction, the individual making the payment will deduct TDS.

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