Tax Collection at Source: This is another tax collecting mechanism in addition to Tax Deduction at source (TDS).   

Difference between tax deducted at source (TDS) and tax collected at source (TCS): TDS is made when any amount is paid out. TDS is to be made by the person responsible for payment of the amount. TCS is the amount that is collected over and above the amount agreed upon in case of some transactions. TCS responsibility is on the person who is the seller. TCS is made as per Section 206C. 

As per Section 206C, the collection of tax at source shall be made at the time of debiting the account or at the time of receipt of the amount, whichever is earlier. The mode of receipt can be in the form of cash, or cheque or draft or by any other mode.  

As per Section 206C(1) : Every person being a seller of specified goods is required to collect tax at source from buyer at the prescribed rate on the value of sale. The specified goods and the prescribed rates now prevailing are given below:   

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As per Section 206(1F):  

Ø  No collection of tax shall be made in the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the Form No. 27C to the effect that the goods referred to in the above table are utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purpose. Further, if the above goods are used for the purpose of generation of power, the buyer can declare that the goods are bought for the purpose of generation of power in which case the collection of tax will not be made. 

Ø  Seller includes the government, company or partnership firm. Seller also includes individual or HUF whose business or profession are subject to audit under section 44AB.  

Ø  Individual or HUF is liable to collect tax when it is a seller of specified goods or Motor Vehicle, carries on business, whose total sales or turnover exceeds Rs.1,00,00,000 (Rupees One Crore only) in the financial year immediately preceding the financial year in which specified goods are sold by it. In case of carrying on of profession by the Individual or HUF, the gross receipts have to exceed Rs.50,00,000 (Rupees Fifty Lakh) 

Ø  Buyer is defined by Explanation (a) to Section 206C as a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the table in the section or the right to receive any goods. 

Ø  Buyer does not include Public Sector Company, Central or State Governments, an embassy, a high commission, legation, commission, consulate and the trade representation of a foreign State and a club. 

Ø  Buyer also does not include a person in retail sale of goods purchased by him for his personal consumption. 

Ø  Scrap means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons; It means that scrap which is not generated from out of manufacturing process or mechanical working of material is not liable for TCS. 

Ø  Purchase price to include excise duty, etc. for the purpose of tax collection  

The excise duty paid or payable by the buyer will also form part of the purchase price for the purposes of section 44AC. On the same analogy, the "Nirgam Mulya" or issue price which is paid by a buyer in the State of Uttar Pradesh will also form part of the purchase price. Thus, income-tax will have to be collected at source under the provisions of section 206C by all persons referred to in section 44AC (e.g., Central Government, State Government, local authority, corporations, etc.) at the specified rates, with reference to the purchase price including the excise duty, etc.--Vide Circular No. 585, dt. 27-11-1990.  

Section 206C(1C): Person who grants licence also is liable to collect tax at source:   

As per Section 206C(1C), every person who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest in any parking lot or toll plaza or a mine or a quarry to another person, other than a public sector company, for the use of such parking lot or toll plaza or mine or quarry for the purpose of business shall be responsible for collection of tax at source.   

Tax shall be collected at the time of debiting of the amount payable by the licensee or lessee to the account of the licensee or lessee or at the time or receipt of such amount from the said licensee or lessee in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.  

Quarrying shall not include mining and quarrying of mineral oil. Mineral oil includes petroleum and natural gas.  

Tax collection at source in this case shall be at the following rates:   

Table   

Section 206C(1G): Every person shall collect tax at source under Section 206C(1G) w.e.f. 01.10.2020 as under: 

Ø  In case there is a liability to deduct tax at source on the buyer under any of the provisions of the Income Tax Act, then the liability to collect tax by the seller does not arise.  

Ø  Buyer does not include a local authority, Central or State Governments, embassy, a high commission, legation, commission, consulate and the trade representation of a foreign State and a club. 

Section 206C(1H): Under Section 206C(1H) from 01.10.2020: 

Ø  Liability to collect tax on any person who is a seller of any goods 

Ø  Seller means a person whose total sales, gross receipts or turnover from the business carried on by him exceeds Rs.10 Crore during the financial immediately preceding the financial year in which the sale of goods subject to TCS happens. 

Ø  Receipt of consideration for goods of the value or aggregate of the value exceeding Rs.50,00,000 during the financial year. 

Ø  Goods exported out of India not counted. 

Ø  TCS at 0.1% on the value of goods or aggregate exceeding Rs.50,00,000 

Ø  If buyer does not submit his PAN to the seller, the rate of TCS is at 5% 

Ø  Buyer does not include a local authority, Central or State Governments, embassy, a high commission, legation, commission, consulate and the trade representation of a foreign State and a club. 

Ø  Buyer does not include a person importing goods into India or any other person as notified by the Central Goverenment. 

Credit for tax collected :  

As per Rule 37-I, credit for tax collected at source and paid to the Central Government in accordance with the provisions of section 206C of the Income Tax Act, shall be given to the person from whom the tax has been collected, on the basis of information relating to collection of tax at source furnished to the income tax authority or the person authorised by such authority.  

Where tax is collected at source and remitted to Government, credit for tax collected at source shall be given for the assessment year for which the income is assessable to tax.   

In case of lease or licence which is relatable to more than one year, credit for tax collected at source shall be allowed across those years to which the lease or licence relates in the same proportion.  

Liability to pay :  

If the tax has not been collected or paid as per the Act, the person is liable to pay the tax, he is considered as assessee in default and finally, he is liable to pay simple interest for default in remittance of tax collected at source at the rate of one per cent per month or part thereof from the date on which the tax was collectible to the date of payment.  

Lower of rate of collection :   

For lower rate of collection of tax at source, a certificate is issued under Rule 37G. This certificate is issued on plain paper on application made by buyer in Form No.13.