You pay more than the sticker price on certain purchases — and that extra amount is TCS. Tax Collected at Source is a mechanism under Section 206C of the Income Tax Act where the seller collects a percentage of tax from you at the time of sale and deposits it with the government. It's not the seller's loss. It's advance income tax, collected at the point of transaction.
TCS applies to specified goods like alcohol (2%), leased activities (2%), high-value motor vehicles (1%), and remittances under the Liberalized Remittance Scheme of RBI (2%–20%). Below, we'll cover every transaction where TCS gets collected, all due dates, and what happens if payments are missed.
The TCS rate on LRS for health and education has been reduced to 2%.
TCS rate on LRS for overseas tour packages is proposed to be reduced to a flat 2% — without any stipulated threshold — down from the existing 5% and 20%.
Tax Collected at Source — TCS — is the tax payable by a seller, but collected from the buyer at the point of sale. It should be deposited with the tax authorities within the applicable due dates.
Section 206C of the Income Tax Act governs all provisions related to TCS. Sellers who collect TCS must have a Tax Collection Account Number (TAN) — without it, they can't legally collect or remit this tax.
The seller's job is just two things: collect the tax, and deposit it. He's not paying it out of his own pocket.
Example:
Mr. A sold goods worth Rs.100 to Mr. B on which TCS is applicable.
Mr. A is responsible only for collecting and depositing — not for paying TCS himself.
The seller collects tax from the buyer over and above the goods or services value. And the buyer — anyone who purchases specified goods — pays TCS as part of the total bill. Simple as that.
Confused between TDS and TCS? Let's get it sorted through this illustration.
Consider yourself as a customer who made a purchase worth Rs.100 and needs to pay the seller. In this case, assume TDS/TCS comes to Rs.10.
If TDS needs to be deducted: You — the person paying the bill — deduct Rs.10 and pay only Rs.90 to the seller. You're also responsible for remitting that Rs.10 to the government within the applicable due dates.
If TCS needs to be collected: The seller collects Rs.10 on top of the Rs.100 bill. You end up paying Rs.110. The seller is responsible for remitting that Rs.10 to the government.
Broadly speaking, it's similar to how a seller collects GST from you and pays it to the government — same concept, different tax.
The seller must collect TCS at the earlier of the following two dates:
For motor vehicle sales, TCS gets collected upon receipt of payment from the buyer.
TCS applies only when goods are purchased for trading — not when they're used for manufacturing, processing, or producing something. The tax is collected by the seller at point of sale.
Type of Goods or Transactions
Rate
Liquor of alcoholic nature, for human consumption
2%
Timber wood obtained under a forest lease
2.5%
Tendu leaves
Timber wood by any mode other than forest lease
Forest produce other than Tendu leaves and timber
Scrap
Minerals — lignite, coal and iron ore
Anyone granting a lease or license for a parking lot, toll plaza, or mine/quarry must collect TCS at 2% from the other party.
You've probably noticed that buying a car above a certain price comes with a slightly higher bill than expected — that's Section 206C(1F) at work.
This section applies to:
Motor vehicles here means all motor vehicles — not just cars. Bikes included. So if your bike purchase crosses Rs 10 lakhs, TCS applies.
Sl No.
Types of Goods
1
Wrist Watch
2
Art pieces like antiques, paintings and sculptures
3
Collectables such as coins and stamps
4
Yacht, rowing boats, canoe, and helicopter
5
Pair of sunglasses
6
Handbags and Purses
7
A pair of shoes
8
Sportswear and equipment
9
Home theatre system
10
Horse for racing and polo games
TCS at 1% is collected on the full sale consideration when the value of any of these goods exceeds Rs 10 lakhs.
How is TCS calculated on a car purchase?
If a buyer purchases a car from a showroom valued at Rs.11 lakh, the showroom collects Rs.11,000 as TCS. Total amount payable: Rs.11,11,000 (Rs.11,00,000 + Rs.11,000).
The changes to Section 206C(1F) are effective from 22nd April 2025.
Under Section 206C(1G), TCS must be collected by:
Rates apply as per the applicable slabs for each type of remittance.
TCS collection is exempt when a resident buyer furnishes a written declaration to the seller stating that the goods will be used for manufacturing, processing, or producing an article — or for generating power. But this doesn't happen automatically. The declaration has to be submitted in writing, and a copy filed with the Income Tax Commissioner within 7 days of month-end.
The seller must deposit the TCS amount within 7 days from the last day of the month in which tax was collected — monthly, no exceptions.
Miss that window? Interest at 1% per month (or part of a month) kicks in immediately.
Every tax collector must file a quarterly TCS return in Form 27EQ, covering all tax collected during that quarter. Any interest on delayed payment must be cleared before filing the return.
Once a seller files the quarterly TCS return via Form 27EQ, they have to issue a TCS certificate to the buyer — this is Form 27D.
It's issued by the seller to the buyer as official proof that TCS was collected and reported.
Form 27D includes:
This certificate must be issued within 15 days from the date of filing the quarterly TCS return.
Quarter Ending
Due Date to File TCS Return (Form 27EQ)
Date for Generating Form 27D
30th June
15th July
30th July
30th September
15th October
30th October
31st December
15th January
30th January
31st March
15th May
30th May
Still unsure about filing TCS returns? A tax expert can help you stay on the right side of the due dates.
If a tax collector fails to collect TCS — or collects it but doesn't remit it to the government within the due date — interest at 1% per month or part thereof applies on the outstanding amount. That compounds fast if ignored.
Under Section 271H, filing an incorrect TCS return can attract a penalty ranging from a minimum of Rs.10,000 to a maximum of Rs.1,00,000. It's not just about late filing — even wrong data in the return can trigger this.
Yes. TCS needs to be collected on the value of sale consideration, which usually includes GST.
If you don't file the TCS return by the due date, a late filing fee of Rs.200 per day applies for every day the delay continues. The total late fee can't exceed the total TCS amount for that quarter. One thing most people miss — you need to deposit this late fee before you can file the return at all.
Penalty under Section 271H can be levied if the tax collector files an incorrect TCS return. A minimum of Rs.10,000 and a maximum of Rs.1,00,000 can be imposed for filing a wrong return.
Yes, Form 26AS shows details of Tax Collected at Source by the seller, including the seller's details, the TCS amount, and the transaction it was collected on.
Yes — TCS collected against your PAN can be adjusted when you file your ITR, just like TDS. If your total tax liability is lower than what was collected, you'll get a refund.
Section 206C was brought in specifically to prevent tax evasion in high-risk trades. Many buyers — especially firms or AOPs — were hard to trace after transactions. Collecting tax at the point of sale solved that.
It's advance income tax revenue for the government — collected in the financial year itself rather than at year-end. It goes toward infrastructure, education, development of backward sections of society, and public services.
Yes. TCS on LRS is a regulatory requirement under Section 206C of the Income Tax Act, 1961.
If the transfer purpose falls under LRS — like a loan to NRI or gift to NRI — TCS will apply on transfers from a domestic account to an NRO account.
For most LRS transactions above Rs.10 lakhs, the TCS rate is 20%. Specific purposes like health and education remittances carry lower rates — now reduced to 2% under Budget 2026.
Open your Form 26AS — the TCS collected against your PAN is already credited there. When you file your income tax return, you claim it as a tax credit against your total liability. If your actual tax payable is lower than the TCS already deposited, you get the difference back as a refund. It works exactly like TDS — the government already has your money, and the ITR is just you telling them how much to return. Most first-time filers don't realise how straightforward this is.
Yes — and this trips up a lot of people. Section 206C(1F) doesn't say car only. It says motor vehicle, which includes bikes. So a Rs 12 lakh superbike means the showroom collects 1% TCS — that's Rs 12,000 on top of your bill. It's not a fee or penalty. It's advance tax, and you can claim it when you file your ITR.
The seller faces the consequences, not you — but your transaction still stays on the government's radar. Under Section 206C, a seller who skips TCS collection pays interest at 1% per month on the uncollected amount. If they collected it but didn't deposit it on time, the same 1% per month applies. Outright non-collection can also attract a penalty of up to Rs 1 lakh under Section 271CA.
No — this depends on your situation, and the exemption doesn't apply automatically. If you're buying goods for manufacturing or production and not for trading, you need to hand the seller a written declaration to that effect. Without that declaration — and a copy filed with the Income Tax Commissioner within 7 days of the month-end — TCS gets collected regardless. The paperwork isn't optional if you want the exemption.
The LRS allows you to send up to USD 2,50,000 abroad annually — that's significant capital leaving India. TCS on LRS was introduced because there was no efficient way to track high-value outflows and the income taxes owed on them. It's not extra tax — it's advance tax, offset against your ITR. For health and education remittances above Rs 10 lakhs, Budget 2026 has reduced this to 2%. Overseas tour packages are also proposed at a flat 2%, with no threshold condition attached.
Earlier, Section 206C(1F) only required TCS on motor vehicles exceeding Rs.10 lakhs. This was amended to include luxury goods like wrist watches, antiques, art works, coins, stamps, sunglasses, shoes, handbags, sportswear, home theatre systems, and horses — all requiring TCS under Section 206C(1F) when their sale value crosses Rs.10 lakhs. These changes are effective from 22nd April 2025.
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