1. Overview
- Introduced: Finance Act 2021 (effective from 1st July 2021).
- Purpose: Imposes higher Tax Collected at Source (TCS)on buyers who fail to file income tax returns (ITRs) despite significant TDS/TCS deductions.
- Budget 2025 Update: Proposed for omission(effective 1st April 2025) to reduce compliance burdens.
2. Key Provisions
A. Applicability
- Applies to “Specified Persons”: Buyers who:
- Did not file ITRsfor both of the last two financial years (e.g., FY 2022-23 and FY 2023-24 for TCS in FY 2024-25).
- Had aggregate TDS/TCS ≥ ₹50,000in each of those years.
- Transactions Covered:
- Sale of goods (e.g., scrap, minerals, motor vehicles).
- Overseas tour packages.
- Exclusions: Payments to non-residents without a Permanent Establishment (PE)in India.
B. TCS Rates
- Higher of:
- Twice the normal TCS rateunder the relevant provision, or
- 5%.
- PAN Not Provided: TCS defaults to 20%(as per Section 206CC).
Example:
-
- Normal TCS on scrap: 1%
- Under Section 206CCA: 5%(since 2×1% = 2% < 5%).
C. Who Collects TCS?
- Sellerswith turnover > ₹10 crore (for goods) or tour operators (for overseas packages).
3. Compliance & Penalties
| REQUIREMENT | DETAILS |
| TCS Collection | At the earlier of payment receipt or credit to buyer’s account. |
| Deposit Deadline | 7th of the next month (e.g., August 7 for July collections). |
| Quarterly Return (Form 27EQ) | Due by 15th of next month post-quarter-end. |
| Penalties |
- Late Payment: 1% monthly interest.
- Non-Filing: ₹200/day + ₹10,000–₹1,00,000 penalty.
4. Exemptions
- Non-Residentswithout a PE in India.
- Buyers submitting Form 27C(for manufacturing/processing).
- Transactions under Sections 194B, 194BB, 194LBC, etc..
5. Recent Changes (Budget 2025)
- Proposed Omission: Sections 206AB (higher TDS) and 206CCA (higher TCS) will be removed from 1st April 2025.
- Rationale: Reduce compliance burdens and capital blockage for businesses.
6. Practical Implications
- For Sellers:
- Verify buyer’s ITR status via ITD’s compliance portal.
- Maintain records of declarations (Form 27C).
- For Buyers:
- File pending ITRs to avoid higher TCS.
- Reconcile TCS credits via Form 26AS/AIS.
Pro Tip: Use the TRACES portal for TCS filings and corrections.
Key Points
✔ Higher TCS (5% or twice the rate) applies to non-filers with prior-year TDS/TCS ≥ ₹50,000.
✔ PAN mandatory (else 20% TCS under Section 206CC).
✔ Budget 2025 proposes removing this provision from 1st April 2025
