Tax Collected at Source (TCS) in India: A Comprehensive Guide
- Rashmita Choudhary
- Jul 25
- 15 min read
Understanding Tax Collected at Source (TCS): The Basics
Planning a high-value purchase or an overseas trip? You might encounter Tax Collected at Source (TCS). TCS meaning is a tax that the seller collects from the buyer when a sale happens for certain types of transactions. The primary purpose of what is TCS in India is to track these transactions and gather tax for the government right at the source. This guide will give you a complete understanding of TCS rules in the Indian tax system, including the latest 2025 updates, when it applies, the rates, how sellers and buyers should follow the rules, and how it impacts everyone involved, as per the Income Tax Act, 1961.
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Decoding TCS: How Does It Actually Work?
The TCS mechanism is quite straightforward: a seller collects tax from the buyer, which is an amount over and above the price of the goods or services, and then deposits this tax with the government. It's important to understand that TCS is not an extra tax on the seller; instead, the seller acts like an agent for the Central Government to collect this tax. The rules for TCS are mainly covered under Section 206C of the Income Tax Act, 1961. For instance, TCS applies to the sale of a car worth more than Rs 10 lakh or the sale of scrap materials.
Here are some key characteristics of TCS:
It's collected by the seller from the buyer.
It applies only to specific goods and transactions.
The seller deposits the collected tax with the government.
The buyer can usually claim credit for the TCS paid.
Identifying the Players: Who Collects TCS and Who Pays?
Understanding who is responsible for collecting TCS and who needs to pay it is key to navigating this tax provision. The Income Tax Act clearly defines the roles of the 'Seller' and the 'Buyer' for TCS purposes.
Who is a 'Seller' for TCS Purposes?
For TCS, a 'Seller' is defined under Section 206C of the Income Tax Act. The following categories of sellers are generally liable to collect TCS.
Central Government
State Government
Local Authority
Statutory Corporation or Authority
Company registered under the Companies Act
Partnership Firm
Co-operative Society
An individual or Hindu Undivided Family (HUF) whose accounts were subject to a tax audit in the preceding financial year.
Who is a 'Buyer' for TCS Purposes?
A 'Buyer' is generally any person who purchases specified goods or services on which TCS is applicable. However, certain categories of buyers might be exempt from TCS collection, or TCS might not be collected from them if they provide a specific declaration.
These can include:
Public sector companies (PSUs) in some cases.
Central Government.
State Government.
Embassy, High Commission, Legation, Consulate, and the trade representation of a foreign state.
Clubs, such as sports clubs and social clubs.
A buyer who purchases goods for manufacturing, processing, or production and furnishes a declaration in Form 27C to the seller, stating the goods are not for trading purposes.
TCS Applicability: Goods, Transactions, and Current Rates (FY 2025-26)
Tax Collected at Source (TCS) is applicable only on specified goods and transactions as laid down by the Income Tax Act. The rates can vary, and it's important to know the current rates for the Financial Year 2025-26 (Assessment Year 2026-27).
TCS Rates for Specific Goods under Section 206C(1)
Here's a table outlining the TCS rates for various goods:
Nature of Goods/Transaction | TCS Rate (FY 2025-26) | Relevant Sub-section | Brief Notes/Thresholds |
Alcoholic liquor for human consumption | 1% | 206C(1) | Collected by seller. |
Tendu leaves | 5% | 206C(1) | Collected by seller. |
Timber obtained under a forest lease | 2% | 206C(1) | Rate reduced from 2.5% effective April 1, 2025. |
Timber obtained by any other mode | 2% | 206C(1) | Rate reduced from 2.5% effective April 1, 2025. |
Any other forest produce (not tendu leaves/timber) obtained under a forest lease | 2% | 206C(1) | Rate reduced from 2.5% effective April 1, 2025. |
Scrap | 1% | 206C(1) | Collected by seller. |
Minerals (coal, lignite, or iron ore) | 1% | 206C(1) | Collected by seller. |
TCS on Sale of Motor Vehicle [Section 206C(1F)]
TCS on the sale of a motor vehicle applies at a rate of 1% if the sale consideration exceeds Rs. 10 lakhs. This applies to all motor vehicles, not just cars.
TCS on Parking Lot, Toll Plaza, Mining and Quarrying [Section 206C(1C)]
A TCS rate of 2% is applicable on payments related to parking lots, toll plazas, and mining and quarrying leases or licenses.
TCS on Foreign Remittances under Liberalized Remittance Scheme (LRS) [Section 206C(1G)]
The rules for TCS on foreign remittances under the Liberalized Remittance Scheme (LRS) have seen updates. As per RBI guidelines on LRS and tax provisions effective from October 1, 2023, and with further threshold changes from April 1, 2025:
Up to Rs 10 lakh per financial year (increased from Rs 7 lakh effective April 1, 2025): Nil TCS (if no other LRS spending in FY or for specific purposes mentioned below).
For education financed by a loan from a financial institution (u/s 80E): Nil TCS on remittance above Rs 10 lakh (threshold increased from Rs 7 lakh effective April 1, 2025).
For education (not via loan) or medical treatment: 5% on the amount exceeding Rs 10 lakh (threshold increased from Rs 7 lakh effective April 1, 2025).
Overseas tour packages: 5% on amounts up to Rs 10 lakh, and 20% on amounts exceeding Rs 10 lakh per financial year (threshold for lower rate increased from Rs 7 lakh effective April 1, 2025).
Other purposes (e.g., gifts, investments): 20% on the amount exceeding Rs 10 lakh (threshold increased from Rs 7 lakh effective April 1, 2025).
TCS on Sale of Goods exceeding Rs. 50 Lakhs [Section 206C(1H)]
The provision for 0.1% TCS on the sale of goods over Rs 50 lakh by sellers whose turnover exceeded Rs 10 crore (Section 206C(1H)) has been removed effective April 1, 2025. This change simplifies compliance and reduces the overlap that existed with TDS Section 194Q.
New TCS on Luxury Goods (Effective April 22, 2025) [Section 206C(1F) Amendment]
A new 1% TCS is applicable on specified luxury goods if the value of such goods exceeds Rs. 10 lakh, effective from April 22, 2025. The notified luxury items include:
Wristwatches
Art pieces (e.g., antiques, paintings, sculptures)
Collectibles (e.g., coins, stamps)
Yachts, rowing boats, canoes, helicopters
Sunglasses (pairs)
Handbags, purses
High-end shoes (designer/limited-edition)
Sportswear or equipment (e.g., golf kits, ski-wear)
Home theatre systems
Racehorses and polo horses
Higher TCS Rate for Non-Furnishing of PAN/Aadhaar
If a buyer does not furnish their PAN (Permanent Account Number) or Aadhaar to the seller, TCS is collected at a higher rate. Generally, this is twice the normal rate or 5%, whichever is higher. It's important to note that Section 206CCA, which mandated even higher TCS rates for non-filers of income tax returns, has been removed effective April 1, 2025.
The TCS Compliance Cycle: Collection, Deposit, and Reporting
The TCS compliance cycle involves a systematic process for sellers. This includes collecting the tax, depositing it with the government, filing returns, and issuing certificates to buyers.
The point of TCS collection for most specified goods is at the time of debiting the amount payable by the buyer or at the time of receipt of payment, whichever is earlier. For certain transactions, like the sale of a motor vehicle or the now-removed Section 206C(1H) concerning sale of goods, TCS was to be collected at the time of receipt of consideration.
How to Deposit Collected TCS?
The process for depositing collected TCS is straightforward:
Due Date: TCS collected must be deposited with the government within 7 days from the end of the month in which it was collected.
Challan: Use Challan ITNS 281 for depositing the TCS amount.
Mode of Payment: Payment can be made online through e-payment facilities or physically at designated bank branches.
Filing TCS Returns (Form 27EQ)
Sellers must file quarterly TCS returns.
Return Form: Form 27EQ is the quarterly statement used for TCS returns.
Requirement of TAN: The seller must possess a Tax Collection Account Number (TAN) to file TCS returns.
Due Dates for Form 27EQ:
Q1 (April-June): July 15
Q2 (July-September): October 15
Q3 (October-December): January 15
Q4 (January-March): May 15 (It is always advisable to consult the Income Tax Department portal for the latest due dates.)
Issuing TCS Certificate (Form 27D)
After filing the TCS return, the seller issues a TCS certificate to the buyer.
Certificate Form: Form 27D is the certificate issued by the collector (seller) to the collectee (buyer).
Due Date for Issuance: Form 27D should generally be issued within 15 days from the due date of filing Form 27EQ.
Contents of Form 27D: The certificate includes details like the names of the seller and buyer, their PAN/TAN, the total tax collected, the collection date, and the applied tax rate. Sellers can use the TRACES portal for various TCS compliance activities.
When is TCS Not Applicable? Key Exemptions
TCS is not applicable in certain specific scenarios or for particular categories of buyers, which provides relief and avoids unnecessary tax collection burdens.
Key exemptions from TCS include:
If the buyer acquires goods for manufacturing, processing, or production activities and not for trading purposes, they can furnish a declaration in Form 27C to the seller. This declaration exempts the transaction from TCS.
Sales made to the Central Government or a State Government.
Sales to local authorities.
Sales to Public Sector Undertakings (PSUs), though the universality of this exemption across all TCS types should be verified for specific cases.
Sales to an embassy, high commission, legation, consulate, or the trade representation of a foreign state.
Any other specific exemptions that the government may notify from time to time.
Goods exported out of India were exempt under Section 206C(1H) (which is now removed), illustrating a general principle that taxes are typically not exported.
Lower Rate of TCS Collection
A buyer can also apply to their Assessing Officer (AO) using Form 13 to obtain a certificate for the collection of tax at a lower rate than what is normally prescribed, provided they meet the eligibility criteria.
Penalties and Interest: The Cost of TCS Non-Compliance
Non-compliance with TCS provisions can lead to significant financial consequences for the seller/collector. It's crucial to understand these to ensure adherence and avoiding tax penalties.
The consequences for various defaults include:
Failure to Collect TCS: If a seller fails to collect the TCS as required, a penalty equal to the amount of TCS not collected can be imposed.
Failure to Deposit TCS to Government after Collection: Interest is charged at 1% per month or part of the month from the date TCS was collectible/collected to the date it is actually paid. Prosecution under Section 276BB (which could mean imprisonment from 3 months to 7 years with a fine) was a possibility; however, Budget 2025 has proposed a significant relief: no prosecution will be initiated if the TCS collected is deposited by the due date of filing the quarterly TCS statement (Form 27EQ).
Late Filing of TCS Return (Form 27EQ): A late fee under Section 234E of Rs. 200 per day of default is levied. This fee cannot exceed the total TCS amount.
Incorrect Information in TCS Return: Providing incorrect information in Form 27EQ can attract a penalty under Section 271H, ranging from Rs. 10,000 to Rs. 1,00,000.
Failure to Issue TCS Certificate (Form 27D): Penalties may also apply for not issuing the TCS certificate to the buyer within the stipulated time.
As a Buyer: How TCS Affects You and How to Claim Credit
As a buyer, the Tax Collected at Source (TCS) paid by you is not a lost expense. It gets reflected in your tax documents and can be claimed as a credit when filing your Income Tax Return (ITR).
Here's how TCS affects you and how you can claim credit:
The TCS amount paid by you to the seller will appear in your Form 26AS (Annual Tax Statement) and Annual Information Statement (AIS), which you can access from the Income Tax Portal.
You can claim credit for this TCS amount when filing your income tax return for the relevant financial year.
If your total tax liability for the year is lower than the total tax already paid (which includes TDS, advance tax, and TCS), you can claim a refund of the excess amount.
It is very important to provide your correct PAN to the seller so that the TCS collected is accurately reflected in your name.
Always verify the TCS details in your Form 26AS and AIS to ensure the seller has correctly deposited the tax and filed the TCS return.
TCS vs. TDS: Key Differences You Should Know
Understanding the distinction between Tax Collected at Source (TCS) and Tax Deducted at Source (TDS) is important as they are both mechanisms for collecting tax at the transaction point but differ in their application.
Here's a comparison highlighting the main differences:
Aspect | Tax Collected at Source (TCS) | Tax Deducted at Source (TDS) |
Who is responsible? | Seller/Collector collects from Buyer. | Payer/Deductor deducts from payment to Payee/Deductee. |
Point of levy | Typically at the time of sale of specified goods or services. | At the time of payment for specified expenses or income (e.g., salary, interest, rent, commission). |
Nature of transactions | Applicable on the sale of specific goods (e.g., timber, scrap, motor vehicles over a limit, luxury goods) and certain transactions like LRS, lease of parking lots. | Applicable on a wide range of payments like salaries, interest, professional fees, rent, commission, contract payments etc. |
Governing Sections | Primarily Section 206C of the Income Tax Act. | Various sections like 192 (salary), 194A (interest), 194C (contractors), 194H (commission), 194I (rent), 194J (professional fees) etc. |
Forms Used (Returns) | Form 27EQ for quarterly TCS return. | Various forms like 24Q (salary), 26Q (non-salary), 27Q (non-residents) for quarterly TDS returns. |
Forms Used (Certificates) | Form 27D issued by collector to collectee. | Form 16 (salary), Form 16A (non-salary), Form 16B (sale of property), Form 16C (rent) issued by deductor to deductee. |
Quick Look: TCS under GST for E-commerce Platforms
It is important to note that apart from the Tax Collected at Source (TCS) under the Income Tax Act, there's a distinct TCS provision under the Goods and Services Tax (GST) law. This GST TCS applies specifically to GST for e-commerce operators.
Here are the key aspects of TCS under GST:
Applicability: E-commerce operators who collect the payment from customers on behalf of the vendors or suppliers using their platform are required to collect TCS under GST.
Governing Section: This is governed by Section 52 of the Central Goods and Services Tax (CGST) Act, 2017.
Rate: The current TCS rate under GST is 1% (which is 0.5% CGST + 0.5% SGST if the transaction is within the same state, or 1% IGST if it's an inter-state transaction). Verification of any notification like CGST Notification 15/2024 regarding rate changes should always be done from the official GST portal.
Purpose: The main aim of GST TCS is to enable the government to track online transactions effectively and ensure tax compliance by suppliers who sell their goods or services through e-commerce platforms.
Registration: E-commerce operators liable to collect TCS under GST must register themselves under GST, and similarly, sellers supplying through these platforms also have GST registration requirements.
This TCS under GST is entirely different from the TCS provisions discussed earlier under the Income Tax Act.
Stay Updated: Major TCS Changes and Amendments (Effective 2025)
Several significant changes to Tax Collected at Source (TCS) provisions have become effective in 2025, aiming to simplify compliance and, in some cases, expand the tax base. It's crucial for taxpayers to be aware of these updates.
Here’s a quick recap of the major TCS amendments:
Removal of TCS on Sale of Goods under Section 206C(1H): Effective April 1, 2025, the 0.1% TCS on the sale of goods exceeding Rs. 50 lakh by sellers with turnover above Rs. 10 crore has been removed. This eliminates the overlap with TDS Section 194Q.
Revised LRS Threshold and Rates: For foreign remittances under the Liberalized Remittance Scheme (LRS), the threshold for the applicability of lower/nil TCS rates has been increased to Rs. 10 lakh (from Rs. 7 lakh) effective April 1, 2025. Rates for education, medical treatment, and overseas tour packages have also been rationalized based on this new threshold.
New TCS on Specified Luxury Goods: Effective April 22, 2025, a 1% TCS is applicable on the sale of specified luxury goods (like high-end watches, art pieces, yachts etc.) if the value exceeds Rs. 10 lakh. This is an amendment to Section 206C(1F).
Removal of Higher TCS Rates for Non-filers (Section 206CCA): Effective April 1, 2025, Section 206CCA, which mandated higher TCS rates for those who hadn't filed their Income Tax Returns, has been removed. This simplifies compliance for sellers.
Reduced TCS Rates for Certain Forest Produce: Effective April 1, 2025, TCS rates for timber (obtained under forest lease or any other mode) and other forest produce (excluding tendu leaves) obtained under a forest lease have been reduced from 2.5% to 2%.
Relief from Prosecution under Section 276BB: A significant relief has been proposed in Budget 2025. No prosecution under Section 276BB will be initiated for delayed deposit of TCS if the amount is paid to the government by the due date of filing the quarterly TCS statement (Form 27EQ).
Taxpayers should always refer to the latest CBDT notifications and Income Tax Department communications for the most current information.
Conclusion: Tax Collected at Source
Understanding Tax Collected at Source (TCS) is essential for both sellers and buyers involved in specific transactions in India.
Here are the main points to remember:
TCS is a tax collected by sellers from buyers on certain specified transactions, governed mainly by Section 206C of the Income Tax Act, 1961.
It is vital for sellers to comply with TCS provisions, which include correct collection, timely deposit with the government, filing of TCS returns (Form 27EQ), and issuance of TCS certificates (Form 27D).
Buyers should be aware that TCS paid can be claimed as a credit while filing their income tax returns.
The recent updates effective in 2025 have brought significant changes, such as the removal of TCS on general sale of goods (Sec 206C(1H)), revised LRS thresholds and rates, the introduction of TCS on certain luxury goods, and the removal of higher rates for ITR non-filers (Sec 206CCA), aiming to simplify some processes while expanding the tax net in others.
For expert assistance with TCS compliance or ITR filing, you might consider reaching out to professionals. Staying informed through official updates ensures you navigate the TCS landscape correctly. For more help, you can contact Taxbuddy.
Frequently Asked Questions (FAQs) on Tax Collected at Source
Is TCS applicable on the sale amount inclusive or exclusive of GST?
Generally, for Income Tax TCS purposes (like under the now removed Sec 206C(1H) and also for Sec 206C(1F) for motor vehicles/luxury goods), TCS is to be collected on the sale consideration inclusive of GST. However, it's always best to check specific CBDT clarifications if available for particular TCS sections.
Can I claim a refund for TCS collected from me?
Yes, if your actual income tax liability for the year is less than the total tax paid (including TCS, TDS, and advance tax), you can claim a refund of the excess amount when you file your income tax return.
How can I check the TCS amount collected from me?
The TCS amount collected from you by the seller is reflected in your Form 26AS (Annual Tax Statement) and Annual Information Statement (AIS). You can view these on the Income Tax portal.
What happens if the seller collects TCS but doesn't deposit it with the government?
The seller will face penalties, interest, and potential prosecution (though relief is proposed if deposited by the quarterly return due date). As a buyer, if the TCS is not reflected in your Form 26AS, you might face difficulties in claiming the credit.
Is TCS applicable on services?
Generally, TCS under the Income Tax Act applies to specified goods and certain transactions like LRS, or the lease/license of parking lots, toll plazas, mines, and quarries. Pure services are not typically covered under Income Tax TCS, but a separate TCS under GST applies to e-commerce operators facilitating services.
What is the due date to deposit TCS to the government?
The seller must deposit the collected TCS with the government within 7 days from the end of the month in which the tax was collected.
Do I need a TAN to collect TCS?
Yes, the seller who is required to collect TCS must have a Tax Collection Account Number (TAN).
Is there any threshold for TCS on the sale of scrap?
No, there is no specific monetary threshold for the applicability of TCS on the sale of scrap itself; the rate of 1% applies to such sales. The general threshold of Rs 50 lakh under Section 206C(1H) for overall goods has been removed from April 1, 2025.
What is the new TCS rule for foreign travel/LRS from April 1, 2025?
From April 1, 2025, for LRS remittances, the threshold for lower/nil TCS is Rs 10 lakh per financial year. For education via loan, it's Nil above Rs 10 lakh; for self-funded education/medical, it's 5% above Rs 10 lakh; for overseas tour packages, it's 5% up to Rs 10 lakh and 20% above Rs 10 lakh; and for other purposes, it's 20% above Rs 10 lakh.
What are the luxury items on which 1% TCS is applicable from April 22, 2025, if the value exceeds Rs 10 lakh?
Key examples include wristwatches, art pieces, collectibles, yachts, sunglasses, handbags, high-end shoes, certain sportswear/equipment, home theatre systems, and racehorses.
Is TCS applicable if I buy goods for personal use?
Yes, TCS can be applicable on specified goods even if purchased for personal use (e.g., a motor vehicle valued over Rs 10 lakh or newly notified luxury goods over Rs 10 lakh), unless a specific exemption applies. The Form 27C exemption is primarily for goods used in manufacturing or processing, not general personal consumption.
What is Form 27D?
Form 27D is the TCS certificate that the seller (collector) issues to the buyer (collectee) as proof of tax collection.
With Section 206C(1H) removed, is there any general TCS on sale of goods now?
No, the specific provision Section 206C(1H) for a general TCS of 0.1% on sale of any goods exceeding Rs 50 lakh (if seller's turnover was over Rs 10 crore) has been removed effective April 1, 2025. TCS now applies only to the specifically listed goods and transactions under other sub-sections of Section 206C.
What if I don't provide my PAN to the seller for a TCS transaction?
If you do not provide your PAN (or Aadhaar), the seller will collect TCS at a higher rate (generally, twice the normal rate or 5%, whichever is higher).
How does the removal of Section 206CCA (higher TCS for non-filers) benefit taxpayers from April 1, 2025?
The removal of Section 206CCA from April 1, 2025, benefits taxpayers by simplifying compliance. Sellers no longer need to verify the Income Tax Return (ITR) filing status of buyers to determine if higher TCS rates apply, reducing an administrative burden for businesses.
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