TAXATION AND TAX PLANNING

UNIT 2
 Computation of Taxable Income
• Section 14 of the income tax lays down that there can be various
modes of income for a person. These modes are classified into 5 broad
heads for the purposes of computation and determination of total
income and tax rates apply thereafter.
• The 5 main heads of incomes are-
1. Income from salary
2. Income from house property
3. Capital gains
4. Profit and gains from business and profession
5. Income from other sources
 Income from salary
• Section 15 of the act lays down the conditions under which an income
falls under the head of ‘salaries.’
• Any remuneration is due from the employer to any former
employee(assessee) for the due course of his employment in the
previous year, whether paid or not.
• Salary paid to an employee by the employer or former employer in the
previous year even though it was not due to him.
• Salary paid to an employee by the employer or former employer in the
previous year which was not charged under income tax in any other
previous years.
• Section 17 of the Act has mentioned the term ‘salary’, which included-
1. Wages;
2. Any annuity or pension;
3. Any gratuity;
4. Any charges, commissions, perquisites or benefits in lieu of or notwithstanding any
compensation or wages;
5. any advance of salary;
6. Any payment received by a worker in regard to any time of leave not benefited by him;
7. The yearly accumulation to the balance at the employee partaking in a perceived Provident
Fund, to the degree to which it is chargeable to assess under Rule 6 of Part A of the fourth
schedule;
8. The total of all wholes that are included in the transferred parity as alluded to in sub-rule 2 of
Rule 11 of PartA of the Fourth schedule of an employee partaking in a perceived Provident
Fund, to the degree to which it is chargeable to assess under sub-rule 4 thereof; and
9. The contribution made by the Central Government or any other employer in the previous
year, to the account of an employee under a pension scheme, referred to in Section 80CCD
 Allowances
• The employer pays allowances to his employees in order to fulfill his personal
expenses. Allowances can be fully taxable or partly taxable. Partly taxable allowances
include house rent allowance and special allowances under section 10(14) (i)&(ii).
1. Fully taxable allowances are:
2. Dearness Allowance
3. Overtime allowance
4. Fixed Medical Allowance
5. Tiffin Allowance
6. Servant Allowance
7. Non-practicing Allowance
8. Hill Allowance
9. Warden and Proctor Allowance
10. Deputation Allowance
 Perquisites
• In addition to their salary, the employees are often given some other benefits which may or may not be in
cash form. For example, rent-free accommodation or car given by the employer to the employee.
• Reimbursement of bills is not a perquisite. Perquisites are only given during the continuance of
employment.
• Taxable perquisites include
a. Rent free accommodation
b. Interest free loans
c. Movable assets
d. Educational expenses
e. Insurance premium paid on behalf of employees
• Exempted perquisites include:
1. Medical benefits
2. Leave travel concession
3. Health Insurance Premium
4. Car, laptop etc. for personal use.
5. Staff Welfare Scheme
 Profits in Lieu of Salary
• Section 17(3) gives a comprehensive meaning of profits in lieu of
salary. Any payment due or accrued to be paid to the employee by the
employer. Payment to be valid under section 17(3), there are two
essential features-
1. There must be compensation received by an assessee from his
employer or former employer;
2. It is received at or in connection with the termination of his
employment or adjustment of terms and conditions.
• ‘Profit in lieu of Salary’ is taxable on ‘due’ or ‘receipt’ basis. Payment
from unrecognized provident or superannuation fund is taxable as
“profit in lieu of salary” if that balance consists employer’s
contribution or interest on an employer’s contribution.
• Exceptions to section 17(3) (exempted under section 10)
• Death cum retirement gratuity;
• House rent allowances;
• Commuted value of pension;
• Retrenchment pay received by an employee;
• Payment received from a statutory provident fund or recognized
provident fund;
• Any payment from an approved superannuation fund;
• Payment from the recognized provident fund.
 Computation of income tax on salary
Let’s take an example –
An individual, let’s say, Mr. A, receives the following pay –
Basic salary – Rs. 2,50,000 per annum;
Dearness Allowance – Rs. 10,000 per annum;
Entertainment Allowance – Rs. 3,000 per annum;
Professional Tax – Rs. 1,500 per annum;
then how much amount will be taxable from his salary?
Ans. Find out total gross salary = basic salary + Dearness Allowance +
Entertainment Allowance, i.e., 2,50,000 + 10,000 + 3,000 = 2,63,000.
As per deduction under section 16(iii) = 2,63,000 – 1500 = Rs. 2,61,500
Income tax rate on income Rs. 2,61,500 is 5%, which will be equal to Rs.
13,075 and this much amount will be taxable.
 Income from house property
• The total net assessable estimation of property, comprising of any
buildings/lands/flats belonging to the assessee, when assessee is the
owner apart from the property which is under the use for any business
or profession undertaken by him, the proceeds of which are taxable
under the income tax act, falls under the ambit of income from house
property. (section 22)
• The income from house property includes lease-hold and deemed
ownership.
• The income from house property is taxable after considering the
deductions under Section 24 of the act. In the case of repairing and
maintenance of the property, thirty percent of the Net Annual Value is
deductible. This deduction is not allowed on a self-occupied property.
 Deemed ownership
• Section 27 provides that certain persons are not legal owners of a
property but are still considered to be deemed owners under
certain conditions.
• Condition 1 – Transfer of property to a child or spouse, without
consideration.
• Condition 2 – Holder of an impartible estate is deemed to be the
owner of the entire estate.
• Condition 3 – Members of a co-operative society or company or
association of person
• Condition 4 – Person in possession of a property on lease for
more than 12 years as per Section 269UA(f).
 Co-owners of a property – Section 26
• If there are two or more owners of a property and if the share of
co-owners is determinate, the income generated from such
property is calculated as income from one property and it is
divided amongst co-owners. They are entitled to relief under
section 23.
a) Unrealized rent (rent not paid by the tenant for some
reason)
• The unrealized rent is not included while calculation of net
annual value. If the rent is received in the subsequent years,
then the amount will be added to the income from house
property of that particular year.
 Set-off and carry forward of losses
• Under Section 70 of the Income Tax Act, if a person has incurred losses from
house property, he is allowed to set them off from the income of any other
house property.
• Section 71 of the Act lays down the provision of setting off the losses from
house property from any other heads of Incomes but not casual income
(income which might not arise again)
• The unadjusted losses are allowed to be carried forward for a maximum
period of 8 years starting from the year succeeding to the year in which loss
has occurred. In the subsequent years, the set-off is allowed only from the
head ‘Income from House Property’.
• The amount of losses that can be set-off on the house property from other
income heads is restricted to Rs 2 lakh either house is a self-occupied or let
out property.
Calculation of Income from House property
 Income from capital gains
• Any profit or gain emerging from the exchange of capital assets
held as investments are chargeable under the head capital gains.
The gain can be because of short-and long term gains. A capital
gain emerges just when a capital asset is transferred. This
implies if the asset moved is certainly not a capital asset; it
won’t fall under the head of capital gains. Profits or gains
emerging in the previous year in which the transfer occurred
will be considered as income of the previous year and
chargeable to IT under the head Capital Gains and indexation
will apply, if applicable.
• To fall under the ambit of income from capital gains, there must
be –
1. A capital asset
2. Which is transferred by the assessee
3. The transfer has taken place during the final year
4. Gain or loss has arisen from it
• Capital assets include all kinds of properties whether tangible or
intangible, movable or unmovable, which are owned by the
assessee, may or may not be for business and professional
purposes.
• Capital assets do not include assets like stock in trade, goods of
used personal effects, agricultural land, etc.
 Capital gains are of two types
1. Short term capital assets – those assets held by an assessee for at most 36 months,
immediately prior to its date of transfer.
2. Long term capital assets – those assets held by an assessee for more than 36 months.
Long-term capital gains are generally taxable at a lower rate.
• There are some cases where long term capital assets do not require a term of 36 months, assets
held for more than 12 months is valid for long term capital assets. Those conditions are –
I. Listed Equity or preference shares;
II. Securities listed in a recognized stock exchange, like debentures, security exchange;
III. Units of UTI;
IV. Units of Mutual Funds;
V. Zero coupon bond;
VI. Unlisted equity or preferential shares;
VII. Units of equity oriented fund.
VIII. Tax on long-term capital assets is 20 percent.
 Exemptions under section 54
• Exemptions in regards to the transfer of a long-term capital
asset, only when the assessee is an individual or a Hindu
Undivided Family. A capital gain arises from the transfer of
residential property, where the assessee has purchased another
house property within a period of one year before or two years
after the date of transfer or transfer took place within a period
of three years after the date of construction.
• The amount of exemption available will be whichever is lesser
of capital gains and the cost of the new house.
 Computation of Capital Gains

Types of Tax Condition Tax Rate Applicable

Securities transaction tax applicable 15%

Short-term capital gains tax The short-term capital gain is added to a

Securities transaction tax not applicable taxpayer’s income tax return and he will
be taxed based on his income tax slab

Except when selling equity shares/equity-

20%
oriented fund units
Long-term capital gains tax
When selling equity shares/equity-
10% over and above Rs.1 lakh
oriented fund units
Problem – Mr. Shah has a gross total income of Rs. 4,00,000 and
has invested Rs. 1,50,000 in tax-saving instruments. After
applying all the deductions total taxable income would be Rs.
2,00,000. And exemption tax limit as per the income tax slab is
Rs.2,50,000. By the sale of gold, he has a long-term capital gain
of Rs. 5,00,000.
Solution- total taxable income = 2,00,000, which is less than
2,50,000;
Long-term capital gain @ 20% = 5,00,000 (difference between
exemption tax limit and actual taxable income) = 100,000
This much mount can be save from tax.
Income from Profit and Gain from Business and Profession

• Business and Profession has been defined under Section

2(13) and Section 2(36) respectively.
• Business. It includes any trade, commerce or
manufacture or any adventure or concern in the nature of
trade, commerce, or manufacture.
• Profession.“Profession” includes vocation.
• Section 28 of the Income Tax Act covers the “Profits and gains
of Business or Profession”, and there is following income which
shall be chargeable under the head “Profits and Gains of
Business or Profession” :
• Profits and Gains of any business or profession;
• Any compensation or other payments due to or received by any
person specified in section 28(ii), who is managing the whole
affairs of an Indian Company or other than an Indian company
at the termination of his management;
• Pay determined by a trade, professional or comparable
association from explicit services performed for its members;
• Benefit on sale of import entitlement license, incentive by way of
cash compensatory support and drawback of duty;
• Any benefit on an exchange of the Duty Entitlement Pass Book Scheme;
• Any benefit on the exchange of the Duty-Free Replenishment Certificate;
• The estimation of any benefit or perquisite, regardless of whether
convertible into money or not, emerging from business or the activity of a
profession;
• Any interest, pay, reward, commission or compensation received by a
partner of a firm from such firm;
• Any amount received under a Keyman insurance policy including Bonus;
• Income from speculative transactions;
• Any total received in real money or kind, by virtue of any capital asset being
devasted, destroyed, discarded or transferred, if the exhaustive expenditure
on such capital asset has been permitted as a deduction under section
35AD.
• Deduction under the heads of “Profits and Gains from Business or Profession” has
been mentioned under Section 30 to 37.
1. Section 30. A deduction shall be permitted if the lease, rates, taxes, fixes, and
insurance for premises used for the purpose of business or profession.
2. Section 31. A deduction shall be permitted on the repairs and insurance of
apparatus, plant or furniture used for the purposes of business or profession and
the sum paid on the present repairs shall not include any expenditure in the nature
of capital expenditure.
3. Section 32. Deterioration of buildings, hardware, plants or furniture, being tangible
assets, know-how, licenses, copyrights, trademarks, patents, establishment or
some other business or business privileges of comparative nature, being intangible
assets owned, completely or somewhat, by the assessee for the purposes of the
business or professions.
4. Section 32AC. Deduction in respect of investment in new plant or hardware where
the organization being an assessee occupied in business assembling or production
of any article or thing after 31st March 2013 or if any new asset procured or
installed by the assessee is sold within five years of its establishment etc.
5. Section 33AB. where an assessee carrying on business of
developing and assembling tea or coffee or rubber in India has,
before the expiry of six months from the end of the previous year
or before the due date of furnishing the return of his income, kept
in a record affirmed by the Tea Board or Coffee Board or rubber
Board or Central Government and should be audited by an
accountant.
6. Section 33ABA. Any amount or amounts in an account
deposited with the State Bank of India by an assessee who is
carrying on business consisting of the prospecting for, or
extraction or generation of petroleum or natural gas or both in
India and consented to an arrangement with the Central
Government for such business and that account must be audited
by an accountant.
7. Section 33AC. Carrying on the business of the ship by the government
organization or public company, deduction shall be permitted not
surpassing 50% of benefits derived from the business of operation of a
ship.
8. Section 35. If any expenditure laid out or expanded on scientific
research related to the business, deduction shall be permitted but the
organization has to enter in concurrence with the prescribed authority
for co-operation in such a research and development facility and
satisfies such conditions as to support the maintenance of accounts
and audit.
9. Section 35ABB. Expenditure for obtaining the license for media
transmission services before the commencement of the business or
thereafter at any time during the previous year and for which
installment has really been made for acquiring the license.
10. Section 35AC. Where an assessee incurs any expenditure by method
for an installment of any amount to public sector company or a local
authority or to an affiliation or establishment endorsed by the
National Committee for carrying out any qualified venture or plan.
11. Section 35AD. A deduction shall be allowed in the case of capital
expenditure incurred, wholly or exclusively, for the purpose of
specified business.
12. Section 35CCA. Expenditure by method for installment to affiliations
and establishment for carrying out rural development Programmes.
13. Section 35CCC. Expenditure incurred on any agricultural extension
project notified by the Board then deduction shall be allowed on the
sum equal to one and one-half times of expenditure.
14. Section 35CCD. When an organization causes expenditure on
any ability advancement program advised by the Board then
the sum shall be allowed for the deduction of a total
equivalent to one and one-half times of expenditure.
15. Section 35D. Amortisation of certain preliminary expenses.
16. Section 35E. Deduction for expenditure on prospecting for, or
extraction or production of certain minerals, for which
deduction shall be allowed to the one-tenth of the amount of
such expenditure.
Computation of income under the heads of “Profits & Gains of Business or Profession”

The amount of net profit is Rs. 4,00,000 of M/s D Ltd. and

other information provided are:
Advance income tax debited to profit and loss account =
Rs. 30000
Printing of brochures of a political party = Rs. 5000
The amount that has not to deposit till the date of filing of
return = Rs. 50,000
What can be the taxable income of M/s D Ltd.?
Particulars Amount

Net Profit 4,00,000

Amount of advance income tax 30000

Expenses incurred for political parties 5000

An amount that has not to deposit 50000

Net taxable income 4,85,000

 Income from other sources
• All sorts of incomes that are not covered in the above-
mentioned heads are covered and chargeable under this head.
Income from other sources is laid down in section 56 of the act.
• A few of these are :
1. Dividend under section 2(22);
2. Winning from lotteries, horse races, crossword puzzles, and
other games;
3. Contribution received by the employer as an assessee from
his work towards the Staff Welfare Scheme;
4. Interest on debentures, government securities/bonds;
5. Where the assessee let on contract apparatus, plant or
furniture belonging to him and furthermore buildings,
pay from this is assessable as salary from other
sources if it is not taxable under the head of “profits &
gains of business or profession”;
6. Sum received under Keyman insurance policy including
reward;
7. Salary from hardware, plant or furniture belonging to the
assessee.
• Gifts that cannot be charged:
1. Gifts received from any relative
2. Gifts received on the occasion of marriage
3. Gifts are given by the local authority
4. Gifts received in the form of inheritance
5. Gifts received from any funds, institutions, hospitals, etc
 Sl.No. Sections Nature of Income Deductions Allowed
Any reasonable amount paid by
method for commission or
compensation to a banker or
Dividend or interest on some other individual for the
1 57(i)
securities purpose of realizing dividend
(other than dividends referred
to in section 115-O) or interest
on securities

Employees contribution to PF. If employees’ contribution is

superannuation fund, ESI fund credited to their account in the
2 57(ia)
or any other fund set up for the relevant fund on or before the
welfare of such employees due date

Lease, rates, charges, repairs,

Rental income letting of plant,
3 57(ii) insurance, and devaluation, and
machinery, furniture or building
so on.

1/3rd of family pension subject

4 57(iia) Family pension
to a maximum of Rs. 15,000.

Any other expenditure (not

being capital expenditure)
5 57(iii) Any other income
expended completely and solely
for earning such income

Interest on compensation or 50% of such interest (subject to

6 57(iv)
enhanced compensation certain conditions)

Income from the activity of

All expenditure relating to such
7 58(4) owning and maintaining race
activity.
horses
Computation of Income from Other Sources
• Computation of income from other sources can be done in
two ways;
1. If income is one-time income or casual income then
30% tax is imposed on the total income.
2. If income is from any other method, then the tax shall
be applicable in accordance with the tax slab.
Example-
A person gets Family pension = Rs. 30,000 (exemption on
this is 33.33% or 15000);33.33% of Rs. 30,000 = Rs.
9,999, this amount is less than 15000. So the taxable
income is 30,000 – 9,999 = 20,001.Rs. 20,001 is taxable
as income from other sources.
 Tax Deducted at Source (TDS)
• TDS or Tax Deducted at Source is a specific amount that
is reduced when a certain payment like salary,
commission, rent, interest, professional fees, etc. is made.
The person who makes the payment deducts tax at the
source, while the person who receives a payment/income
has the liability to pay tax. It lowers tax evasion because
the tax will be collected at the time of making a payment.
 When should TDS be deducted and who is liable to deduct?

• If you are making any sort of payment specified under the

Income Tax Act, then TDS will be deducted at the time of
these payments. However, no TDS will be deducted if you
are an individual or Hindu Undivided Family (HUF), and your
books are not required to be audited.
• In case of rent payment by an individual or HUF member,
where the amount payable exceeds Rs.50,000, then a TDS
at 5% will be deducted even if your books are not liable for a
tax audit.
• You will not be required to apply for a Tax Deduction
Account Number (TAN) if you are liable to have TDS
deducted at 5%.
• If you are a working professional then your employer will
deduct TDS as per the applicable income tax slab rates. The
bank with whom you hold a working account will deduct TDS
at 10%. However, if they do not have your PAN details, then
TDS at 20% will be deducted. For the majority of payments,
TDS rates are set in the Income Tax Act the payer deducts
TDS as per the rates applicable.
• You will not be required to pay any tax if you submit your
investment proofs to your employer and your total income
that can be taxed is below the total taxable threshold.
Thus, no TDS will be deducted in this case. You can also
submit Form 15G and Form 15H to the bank if the total
taxable income is below the total taxable limit. The bank in
this case will not deduct any TDS on your interest income.
• In case you failed to submit the investment proof to your
employer and the bank deducted the TDS, you can file a
return and claim a refund of it, provided your total taxable
income is below the total taxable limit.
 Example of TDS
• Let’s assume that a start-up company pays Rs.90,000 as
rent every month to whoever owns the property. The TDS
applicable to the amount is 10%, so the company must
subtract Rs.9,000 and pay Rs.81,000 to the property
owner. In this case, the owner of the property will receive
Rs.81,000 following TDS. The owner can add the gross
amount of Rs.90,000 to his income, thereby allowing him
to take credit for the Rs.9,000 that has already been
deducted by the company.
 Types of TDS Deduction
• Here are some of the income sources that qualify for TDS:
1. Salary
2. Amount under LIC
3. Bank Interest
4. Brokerage or Commission
5. Commission payments
6. Compensation on acquiring immovable property
7. Contractor payments
8. Deemed Dividend
9. Insurance Commission
10. Interest apart from interest on securities
11. Interest on securities
12. Payment of rent
13. Remuneration paid to the director of a company, etc
14. Transfer of immovable property
15. Winning from games like a crossword puzzle, card, lottery, etc.
 What is the TDS rate on salary?

• TDS rates on salary are the same as the tax slab rates
applicable to individuals. If you are less than 60 years of
age, your TDS liability will be nil in case your income is less
than Rs.2.5 lakh. Individuals who earn between Rs.2.5 lakh
and Rs.5 lakh will be subject to TDS at 5%, while those who
earn between Rs.5 lakh and Rs.10 lakh will have a TDS
liability of 20%, and those who earn more than Rs.10 lakh
will be subject to a TDS rate of 30%
• Under the new tax regime, no TDS will need to be paid for
an annual income of up to Rs.2.5 lakh. In case the annual
income is between Rs.2.5 lakh and Rs.5 lakh, the TDS
liability is 5%. In case the annual income is between Rs.5
lakh and Rs.7.5 lakh, the TDS liability is 10%. In case the
annual income is between Rs.7.5 lakh and Rs.10 lakh, the
TDS liability is 15%. In case the annual income is
between Rs.10 lakh and Rs.12.5 lakh, the TDS liability is
20%. In case the annual income is between Rs.12.5 lakh
and Rs.15 lakh, the TDS liability is 25%. In case the
annual income is above Rs.15 lakh, the TDS liability is
30%.
 Challan for TDS Payment
• Challan ITNS 281 is the Challan form for online payment of
TDS (Tax Deducted at Source) and TCS (Tax Collected at
Source). Challan No. 281 is applicable for Tax Deducted at
Source / Tax Collected at Source (TDS/TCS) from corporates
and non-corporates. TDS exception is essentially a
mechanism developed by the Indian Government where in
there is a tax deduction at the source of an income,
calculated at a specific rate and thereby becomes payable to
the department of Income Tax.
 Penalty for Late Filing TDS Return
• Failure to submit your returns: Under Section 272A (2) of the
Income Tax Act, a penalty of Rs.100 will be levied for each day that
the returns remain unsubmitted, subject to a maximum of the TDS
amount.
• Failure to file your returns on time: Under Section 234E of the
Income Tax Act, a penalty of Rs.200 will be levied for each day that
the returns remain unfiled, subject to a maximum of the TDS amount.
• For defaults in the filing of TDS statement: Under Section 271H of
the Income Tax Act, a penalty of Rs.10,000 to Rs.1 lakh will be levied
in case the deductor defaults at the time of filing TDS return within the
due date.
• For incorrect details: Under Section 271H of the Income
Tax Act, a penalty of Rs.10,000 to Rs.1 lakh will be charged
in case the deductor submits incorrect information pertaining
to PAN, challan particulars, TDS amount, etc.
• For non-payment of TDS: Under Section 201A of the
Income Tax Act, interest will also be levied along with the
penalty in case TDS is not paid within the due date. In case
a part of the tax amount or the whole of it is not deducted at
source, interest will be charged at 1.5% every month
starting from the date on which the tax was deductible to the
date on which the tax is actually deducted.
 Tax Collected at Source (TCS)
• Indian Income Tax Act has provisions for tax collection at
source or TCS. In these provisions, certain persons are
required to collect a specified percentage of tax from their
buyers on exceptional transactions. Most of these
transactions are trading or business in nature. It does not
affect the common man.
Meaning of Tax collected at source (TCS)
• Tax collected at source (TCS) is the tax collected by the
seller from the buyer on sale so that it can be deposited
with the tax authorities. Section 206C of the Income-tax
act governs the goods on which the seller has to collect
tax from the buyers. Such persons must have the Tax
Collection Account Number to be able to collect TCS.
 Goods covered under TCS provisions and rates applicable to them

Type of Goods or transactions Rate

Liquor of alcoholic nature, made for
1%
consumption by humans
Timber wood under a forest leased 2.5%
Tendu leaves 5%
Timber wood by any other mode than
2.5%
forest leased
Forest produce other than Tendu leaves and
2.5%
timber
Scrap 1%
Minerals like lignite, coal and iron ore 1%
Purchase of Motor vehicle exceeding Rs.10
1%
Lakhs
Parking lot, Toll Plaza and Mining and
Quarrying 2%
Where total turnover is more than Rs.10 crores in the
previous financial year and receives sale consideration of
any products of more than Rs. 50 lakhs, such seller must
collect TCS upon receiving consideration from the buyer
on such amount over and above Rs.50 lakhs, , as per
Section 206C(IH)0.1% (Without PAN, then 1% is TCS)
 When will a higher TCS rate apply?
• As per Section 206CCA, tax at a higher rate (other than
rates in the above table) will be collected from the buyer
if such buyer has
1. Not filed ITR for the last two financial years before the
relevant financial year in which TCS had to be collected,
and
2. The time limit to file ITR has expired, and
3. The total of TCS and TDS was more than Rs.50,000 in
each of these two financial years.
• Such a higher TCS rate will be the highest of the following
two rates-
• Two times the TCS rate mentioned in the Income Tax Act ( in the
above table)
• 5%
• In special cases given under Section 206C(IG), 5% TCS
applies where the authorised dealer arranges remittance
out of India of Rs.7 lakhs or more in a financial year from a
buyer of foreign currency remitting under Liberalized
Remittance Scheme (LRS), not being the overseas tour
program package. If Aadhaar or PAN is unavailable, then TCS is
10%. Such TCS is collected while debiting the buyer’s account
or on receipt of money.
 Classification of Sellers and Buyers for TCS
• There are some specific people or organisationswho have been classified
as sellers for tax collected at the source. No other seller of goods can
collect tax at source from the buyers apart from the following list :
1. Central Government
2. State Government
3. Local Authority
4. Statutory Corporation or Authority
5. Company registered under the Companies Act
6. Partnership firms
7. Co-operative Society
8. Any person or HUF who is subjected to an audit of accounts under the Income-tax
Act for a particular financial year.
• A buyer is a person who obtains goods of specified nature in any
sale or right to receive any such goods, by way of auction, tender
or any other mode. However, the below buyers are exempted from
the collection of tax at the source. In other words, TCS need not
be collected from the following persons.
1. Public sector companies
2. Central Government
3. State Government
4. Embassy of High commission
5. Consulate and other Trade Representation of a Foreign Nation
6. Clubs such as sports clubs and social clubs
7. Where resident buyer utilises such purchase for the purposes of
manufacturing, processing or producing articles or things or for the
purposes of generation of power (not for trading) and gives this declaration
in writing in duplicate.
 When should TCS be collected?
• The seller must collect TCS at the earlier of the following
two dates:
1. When debiting the money payable by the buyer to their
account in the books of accounts.
2. Upon receipt of such money from the buyer in any mode
such as cash issue of a cheque or draft.
• In the case of the motor vehicle sale, the TCS is collected
upon receipt of money or consideration for the motor vehicle
from the buyer.
 Example of TCS calculation
• If a buyer purchases a car from a showroom that is valued at
Rs. 11 lakhs 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. So,
the total payable by the customer is Rs. 12,120.
 TCS Exemptions
• Tax collection at the source is exempted in the following
cases:
1. When the eligible goods are used for personal
consumption
2. The purchaser buys the goods for manufacturing,
processing or production and not for the purpose of
trading those goods.