1. Introduction

         Section 394 of the Income Tax Act, 2025 governs the provisions relating to Tax Collection at Source (TCS). It requires specified persons to collect tax at             prescribed rates on certain transactions at the time of receipt or booking of income. Read with Rule 218, it also specifies the timelines and manner for               depositing such tax with the Central Government.

2. Scope of TCS (Section 394(1))

          TCS is applicable where:

• A specified person (seller, licensor, or authorised dealer)
• Collects tax on specified transactions or receipts
• At the prescribed rates
• At the earlier of:
  • Booking of the amount (debit entry), or
  • Receipt of payment (in cash, cheque, or digital mode)

3. Specified Transactions and Rates

          The following transactions are subject to TCS:

4. Timing of Collection

          TCS shall be collected at the earlier of:

• The time at which the amount is debited to the account of the buyer, lessee, or licensee; or
• The time at which payment is received in any mode
  
  

5. Exemptions and Non-Applicability

           5.1 Declaration-Based Exemption (Manufacturing Use)

           TCS shall not be collected in respect of specified goods (such as scrap, timber, tendu leaves, and minerals) where:

• The buyer is a resident; and
• The buyer furnishes a declaration stating that:
  • The goods are to be used for manufacturing, processing, production, or generation of power; and
  • The goods are not intended for trading purposes

           5.2 Compliance for Declaration

• The seller shall submit one copy of the declaration to the tax authority
• Such submission must be made on or before the 7th day of the following month

           5.3 Exclusions for LRS and Tour Packages

           TCS shall not be applicable:

• Where tax has already been collected on an overseas tour programme package
• Where the remittance is funded through an education loan obtained from a financial institution
  
  

         5.4 Overlap with TDS

          TCS shall not be applicable where:

• The buyer is liable to deduct tax at source under any other provision of the Act; and
• Such tax has been duly deducted
  
  

6. Payment of TCS to Government (Rule 218)

          Rule 218 prescribes the timelines and manner for depositing TCS with the Central Government.

      6.1 Government Deductors/Collectors

• On the same day, where payment is made without challan
• Within 7 days from the end of the month, where payment is made with challan
  
  

      6.2 Non-Government Deductors/Collectors

• For transactions in March → On or before 30th April
• For other months → Within 7 days from the end of the month
  
  

7. Certificate of Tax Collected at Source

          Every person collecting tax shall issue a certificate to the collectee specifying:

• The amount of tax collected
• The rate at which tax has been collected
• Other prescribed particulars

          The certificate in Form No. 132 shall be furnished within 15 days from the due date of furnishing the challan-cum-statement in Form No. 141.

8. Statement of Collection of Tax at Source (Rule 219)

          Every person responsible for collection of tax shall furnish a quarterly statement in Form No. 143 as follows:

9. Penal Provisions

          Under Section 398(1), where any person responsible for deduction or collection of tax fails to deduct or collect, or after deduction/collection fails to                    deposit such tax to the credit of the Central Government, such person shall be treated as an assessee in default.

          Further, Section 398(3) provides for interest as follows:

1. 1% per month or part thereof from the date on which tax was deductible/collectible to the date of actual deduction/collection
2. 1.5% per month or part thereof from the date of deduction/collection to the date of payment to the Government