Introduction

Tax Collected at Source (TCS) under Section 206C of the Income Tax Act is a mechanism where sellers collect a percentage of tax from buyers at the time of sale. The objective of TCS is to track high-value transactions, prevent tax evasion, and ensure transparency in the flow of funds.

TCS applies to the sale of specific goods, motor vehicles, scrap, alcohol, tendu leaves, minerals, and even international remittances through the Liberalised Remittance Scheme (LRS).

This guide explains the complete TCS structure, applicable rates, collection rules, return filing, and compliance responsibilities for sellers.

What Is TCS under Section 206C?

TCS is a tax collected by the seller from the buyer at the time of sale of specified goods or receipt of consideration.

The seller must:

• Collect TCS at the applicable rate

• Deposit it with the government

• Report it through quarterly TCS returns

• Issue TCS certificates to buyers

Section 206C contains multiple sub-sections, each governing different categories of goods and transactions.

Transactions Covered Under Section 206C

TCS applies to the following key transactions:

1. Sale of Alcoholic Liquor

TCS Rate: 1%

2. Sale of Tendu Leaves

TCS Rate: 5%

3. Sale of Timber Forest Produce

TCS Rate: 2.5%

4. Scrap Sales

TCS Rate: 1%

Scrap includes waste or by-products arising from manufacturing or mechanical processes.

5. Sale of Minerals (Coal, Lignite, Iron Ore)

TCS Rate: 1%

6. Motor Vehicle Sales > ₹10 Lakhs

TCS Rate: 1%

Applicable on sale to end customers, not dealers.

7. Foreign Remittances under LRS

TCS applies depending on remittance purpose and threshold.

8. Overseas Tour Packages

TCS Rate: 5%

9. Sale of Goods > ₹50 Lakhs (Section 206C(1H))

TCS Rate:

• 0.1% when PAN/Aadhaar is provided

• 1% if PAN/Aadhaar is not provided

TCS Under Section 206C(1H) – High-Value Sale of Goods

This widely applicable provision covers sale of goods (other than exports and already-notified goods).

• Applies when seller’s turnover in the previous FY exceeds ₹10 crore

• TCS collected on receipt basis (not invoice)

• Applies only when the buyer’s payment exceeds ₹50 lakh in a financial year

TCS Rates Summary Table

How TCS Works (Step-by-Step)

Step 1: Seller makes a sale

Invoice is issued as usual.

Step 2: TCS collected on receipt

TCS is added at the time of receiving money (where applicable).

Step 3: Deposit TCS with Government

TCS must be deposited by the 7th of the next month.

Step 4: File Quarterly TCS Returns (Form 27EQ)

Due dates:

Step 5: Issue TCS Certificate – Form 27D

Must be provided to the buyer by the seller.

Penalties for Non-Compliance

IExemptions from TCS

TCS is not applicable when:

• Buyer furnishes a declaration for exempt usage

• Goods purchased for manufacturing/processing, not trading

• Government entities purchasing goods

• Government entities purchasing goods.

Conclusion

Understanding TCS under Section 206C is vital for businesses involved in the sale of notified goods and high-value transactions. Proper implementation helps avoid penalties, ensures smooth compliance, and prevents disputes during assessments.

Bisways Consulting Group supports businesses with TCS registration, monthly deposits, return filing, 206C(1H) calculation, and complete compliance management.