An example of Tax Collected at Source (TCS) occurs when a seller collects a specified amount as tax from the buyer at the time of certain sales transactions.
Practical Example: Car Purchase
A clear illustration of TCS involves the purchase of a high-value item, such as a car. In such a scenario, the showroom (seller) is often required to collect TCS from the buyer.
Scenario Breakdown
Consider the following situation for a new car purchase:
| Detail | Value |
|---|---|
| Car Value | INR 11,00,000 |
| Applicable TCS Rate | 1% |
| TCS Amount | INR 11,000 |
| Total Amount Payable | INR 11,11,000 |
In this example, when a buyer purchases a car valued at INR 11 lakh from a showroom, an additional 1% of the car's value is collected as TCS. This results in an additional INR 11,000 being collected by the showroom from the buyer. Consequently, the buyer's total payment to the showroom becomes INR 11,11,000, which includes both the car's price and the TCS amount. The showroom then deposits this collected tax to the government on behalf of the buyer.
This mechanism ensures that tax is collected at the source of the transaction, simplifying tax compliance for certain high-value sales.
