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Frequently asked questions (FAQs) on Tax Collected at Source (TCS) when you buy a car

Posted on 26 Nov 2023
Author: Sayan Sircar

Tags: Tax ; FAQ

4 mins read
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This article gives you a list of common questions and their answers on the concept of tax collected at source when you buy a car.

Frequently asked questions (FAQs) on Tax Collected at Source (TCS) when you buy a car

📚 Topics covered:

What is Tax Collected at Source (TCS) when purchasing motor vehicles?
How is the TCS rate determined for buying a motor vehicle?
Which types of motor vehicles fall under the purview of TCS?
From whom is TCS collected, and who is responsible for deducting it?
Are there situations where a higher rate of TCS is applicable?
How can buyers ensure compliance with TCS regulations when purchasing motor vehicles?
What about TCS on imported vehicles?
What should the buyer do to get a refund on TCS?
What should the buyer do if Form 26AS or AIS does not show the TCS for a car purchase?
How to claim TCS refund on car purchase?

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What is Tax Collected at Source (TCS) when purchasing motor vehicles?

TCS is a tax levied on certain goods and services, including the purchase of specific motor vehicles above Rs 10 lakh, wherein the seller collects a specified percentage of the transaction value from the buyer and remits it to the government.

How is the TCS rate determined for buying a motor vehicle?

For motor vehicles valued above Rs 10 lakh, the standard TCS rate is 1%. However, it can vary: under Section 206CCA, if the buyer doesn’t provide a PAN card, the rate can be 20%. Additionally, if the buyer hasn’t filed income tax returns in the previous two financial years, the tax rate can be 5%.

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Which types of motor vehicles fall under the purview of TCS?

Motor vehicles with four or more wheels, bikes, scooters, and custom vehicles legally fit for road use, with an engine cubic capacity (CC) of 25CC or more, are subject to TCS if their value exceeds Rs 10 lakh. However, high-end cycles above Rs 10 lakh are exempt as TCS applies only to engine-based vehicles.

From whom is TCS collected, and who is responsible for deducting it?

The seller of the motor vehicle collects TCS. The term ‘seller’ includes various entities like government bodies, companies, cooperatives, or individuals with specified income thresholds from business or professional activities.

Are there situations where a higher rate of TCS is applicable?

Yes, a higher TCS rate may apply if the buyer hasn’t filed income tax returns for the preceding two financial years and if the total TCS and Tax Deducted at Source (TDS) amount exceeded Rs 50,000 in each of those two years. This condition necessitates verification of the buyer’s tax compliance status before the sale to avoid default.

How can buyers ensure compliance with TCS regulations when purchasing motor vehicles?

Buyers must ensure sellers provide them with a TCS certificate (Form 27D) within stipulated timelines. Additionally, they should ensure their PAN details are provided and verify the seller’s compliance with TCS regulations to avoid legal complications.

What about TCS on imported vehicles?

TCS applies to vehicles imported from abroad if they meet specified criteria and exceed Rs 10 lakh in value. However, the process for foreign sellers to collect TCS from buyers in India still needs to be defined in the Income-tax Act.

What should the buyer do to get a refund on TCS?

TCS is never refunded but can be adjusted for your total tax liability in the running Financial Year itself by adjusting TCS vs. your Advance Tax liability. In other words, you are not paying an extra tax called TCS when you buy a car.

What should the buyer do if Form 26AS or AIS does not show the TCS for a car purchase?

If the car dealer has filed their return late, say not by the 15th of the next month, the TCS will not show up. Then you, as the buyer, must contact the dealership if the TCS is not reflected after the next month you bought the car.

How to claim TCS refund on car purchase?

If you have advance tax liability due to tax being paid during the year, the TCS is adjusted against that. Otherwise, TCS will be adjusted against your total tax due at the time of filing income tax return. If the TCS exceeds the total tax due, you will get a refund.

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