Section 206C TCS: Rates, LRS Remittances and 2026-27 Rules

TDS vs TCS: Why Both Exist

If you are already familiar with TDS (Tax Deducted at Source), TCS can feel redundant. Both are advance tax collection mechanisms. The difference is directional.

TDS is deducted by the person making a payment. Your company pays a contractor Rs 5 lakh, and you deduct TDS at the applicable rate before releasing the payment. The contractor receives less. You deposit the deducted amount to the government.

TCS works the other way. You are the seller. You sell scrap metal worth Rs 10 lakh. You collect TCS from the buyer at 2% (the FY 2026-27 rate; Rs 20,000) over and above the sale price. The buyer pays Rs 10,20,000 total. You deposit the Rs 20,000 TCS to the government.

The reason TCS exists for certain goods and transactions is that TDS cannot easily apply to them. A scrap dealer selling to multiple small buyers cannot be expected to deduct tax from the buyer's account. Instead, the seller, who is typically a larger and more traceable entity, collects tax from the buyer and remits it.

Scrap dealers also have GST reverse charge on metal scrap and their own ITR requirements to manage, which we cover in our income tax and GST guide for scrap dealers and recyclers.

For foreign remittances, TCS works through authorised dealer banks and tour operators. When you send money abroad under the Liberalised Remittance Scheme (LRS), the bank collects TCS from you before processing the remittance. This ensures the government captures data on outbound capital flows that might not otherwise be reported.

All TCS Provisions at a Glance (FY 2026-27)

Tax Rate Chart

TCS Rates Under Section 206C (FY 2026-27)

Tax Collected at Source rates for specified goods, motor vehicles, and foreign remittances

LRS: Education funded by a Sec 80E-type loan

No TCS whatever the amount (from 1 April 2025)

NIL

Motor Vehicle / notified luxury goods above Rs 10 lakh

Sl. No. 6 (old 206C(1F)), unchanged

1%

Scrap / Coal, Lignite, Iron Ore

Sl. Nos. 4 and 5 (old 206C(1)), raised from 1% by Finance Act 2026

2%

Alcoholic Liquor for Human Consumption

Sl. No. 1 (old 206C(1)), raised from 1% by Finance Act 2026

2%

Tendu Leaves

Sl. No. 2 (old 206C(1)), cut from 5% by Finance Act 2026

2%

Timber / Forest Produce under forest lease

Sl. No. 3 (old 206C(1)), 2% since 1 April 2025

2%

Parking Lot / Toll Plaza / Mine or Quarry

Sl. No. 9 (old 206C(1C))

2%

LRS: Education (self-funded) / Medical above Rs 10 lakh

Sl. No. 7 (old 206C(1G)), cut from 5% by Finance Act 2026

2%

Overseas Tour Package (any amount)

Sl. No. 8, flat 2% with no threshold from 1 April 2026

2%

LRS: Other Purposes (above Rs 10 lakh)

Sl. No. 7, investments, property, gifts abroad

20%

Source: Section 394(1) Table, Income-tax Act 2025 (old Section 206C, Income-tax Act 1961), as amended by Finance Act 2026 from April 1, 2026

No more non-filer higher rate: Section 206CCA, which doubled TCS for non-filers of ITR, was omitted by Finance Act, 2025 from April 1, 2025. The higher rate for a buyer without a valid PAN still applies: twice the normal rate or 5%, whichever is higher, capped at 20%.

Section 206C(1): Specified Goods

This is the oldest TCS provision. It applies to sellers of specific goods that are either high-value natural resources or regulated commodities.

Who Collects

• Sellers of alcoholic liquor (manufacturers, wholesalers with valid licences)
• Sellers of tendu leaves (buyers from forest departments or cultivators)
• Sellers of timber or forest produce obtained under a forest lease or licence
• Sellers of scrap (including metal scrap, rubber waste, used electronic components)
• Sellers of minerals (coal, lignite, iron ore, and similar)

How It Works

The seller collects TCS from the buyer at the applicable rate at the time of debiting the buyer's account or at the time of receipt of payment, whichever is earlier. The TCS is collected on the sale consideration itself.

If you are a scrap dealer and sell scrap worth Rs 2 lakh to a buyer in FY 2026-27, you collect Rs 4,000 (2% of Rs 2 lakh) as TCS. The buyer pays you Rs 2,04,000. You deposit Rs 4,000 to the government and issue a TCS certificate to the buyer. (In FY 2025-26 the scrap rate was 1%.)

Exemptions Under 206C(1)

TCS under 206C(1) is not collected if:

• The buyer provides a declaration in Form 27C that the goods are being purchased for manufacturing, processing, or production (not for trading). The buyer must furnish this declaration to the seller before the purchase.
• The buyer is the Central or a State Government, or an embassy, High Commission, legation, commission, consulate or trade representation of a foreign State.
• The buyer is a public sector company or a club.
• The buyer purchases the goods in a retail sale for personal consumption.

The Form 27C exemption is heavily used in practice. A steel manufacturer buying scrap for its furnace provides Form 27C to the scrap dealer. The dealer does not collect TCS on that transaction. But if the scrap dealer sells the same scrap to a trader who will resell it, TCS must be collected.

Section 206C(1C): Rights and Contracts

This covers TCS on:

• Parking lot operations (toll collected from vehicle users)
• Toll plaza operations
• Mining rights (royalty or licence fee paid for extraction rights)
• Quarrying rights

The person who grants the right (the licensor or lessor) collects TCS at 2% from the licensee or lessee who obtains the right to use the parking lot, toll plaza, mine or quarry for business. Mining and quarrying of mineral oil (including petroleum and natural gas) is excluded.

In practice, this affects contractors who take toll plazas or parking lots on licence and mining lease operators. Road users paying toll are not the collectees.

Section 206C(1F): Motor Vehicles Above Rs 10 Lakh

Any person who sells a motor vehicle with a value exceeding Rs 10 lakh must collect TCS at 1% from the buyer.

This clause is often confused with transport services; our note on TCS under Section 206C(1F) on vehicles above Rs 10 lakh clarifies that it does not apply to freight or logistics charges.

Practical Points

• The Rs 10 lakh threshold is per vehicle, not per year. If you are a car dealer and sell a car for Rs 12 lakh, you collect TCS of Rs 12,000 (1% of Rs 12 lakh).
• Two-wheelers and three-wheelers rarely cross the Rs 10 lakh threshold. This provision primarily affects car dealers, luxury vehicle sellers, and commercial vehicle dealers.
• Used vehicle sales are also covered if the value exceeds Rs 10 lakh.
• The buyer claims TCS credit in their ITR.

Exemptions

TCS under 206C(1F) does not apply if:

• The buyer is the central government, a state government, an embassy, a high commission, or a consulate.
• The buyer is a local authority.
• The buyer is a public sector company engaged in the business of carrying passengers.

Section 206C(1G): Foreign Remittances and Overseas Tour Packages

This is the provision that affects the most people. Any time you send money abroad under the Liberalised Remittance Scheme (LRS) or purchase an overseas tour package, TCS applies.

For the education and medical rules, the Budget 2026 rate cut and how to claim the TCS back in your ITR, see our dedicated guide to TCS on foreign remittances under LRS.

Who Collects

• Authorised dealer banks (the bank through which you make the foreign remittance) collect TCS on LRS remittances.
• Tour operators collect TCS on overseas tour packages.

Current Rates (FY 2026-27, effective April 1, 2026)

What Changed in Budget 2026

The Finance Act, 2026 amended Section 394(1) of the Income-tax Act, 2025 (Table Sl. Nos. 7 and 8, which correspond to Section 206C(1G) of the Income-tax Act, 1961), effective April 1, 2026:

• Education (self-funded) and medical treatment remittances above Rs 10 lakh: 5% cut to 2%.
• Overseas tour packages: the earlier 5% (up to Rs 10 lakh) and 20% (above Rs 10 lakh) replaced by a flat 2% with no threshold.

The Rs 10 lakh aggregate threshold across all LRS purposes in a financial year remains unchanged, and the 20% rate for other purposes is unchanged.

How the Rs 10 Lakh Threshold Works

The threshold is cumulative across all LRS remittances in a financial year, regardless of purpose. If you send Rs 6 lakh for your child's education in July and Rs 5 lakh for medical treatment in November, the total is Rs 11 lakh. TCS applies on the Rs 1 lakh that exceeds the Rs 10 lakh threshold.

However, overseas tour packages have no threshold. If you buy a Rs 2 lakh tour package in April, TCS at 2% (Rs 4,000) applies on the entire amount from the first rupee.

Education Loan Distinction

Since April 1, 2025, no TCS is collected when the remittance for education is funded by a loan obtained from a financial institution as defined under Section 80E of the Income-tax Act, 1961 (Section 129(3)(b) of the 2025 Act). The student or parent must provide proof that the funds are sourced from such a loan. If the same student pays from savings, the 2% rate applies on amounts above Rs 10 lakh.

Claiming TCS Credit

TCS collected under 206C(1G) is fully creditable. The person from whom TCS is collected (the remitter or the tour package buyer) claims credit in their ITR for the relevant assessment year. If TCS exceeds total tax liability, the excess is refundable.

This means TCS is a cash-flow cost, not a real cost. You get the money back when you file your return. But for individuals sending large amounts abroad, the upfront cash outflow can be substantial. A person sending Rs 30 lakh abroad for property investment pays Rs 4 lakh TCS (20% on Rs 20 lakh above the Rs 10 lakh threshold) and must wait until ITR filing for the credit or refund.

Section 206C(1H): Sale of Goods (Removed)

Section 206C(1H) required sellers with previous-year turnover exceeding Rs 10 crore to collect TCS at 0.1% on the sale of goods to any buyer where the aggregate value exceeded Rs 50 lakh in a financial year.

This provision was removed effective April 1, 2025. If you were collecting TCS on goods sales under 206C(1H), you no longer need to from FY 2025-26 onwards. However, TCS already collected for FY 2024-25 and earlier years must still be reported in Form 27EQ and deposited.

The removal simplifies compliance for manufacturers, distributors, and wholesale traders who were burdened with tracking buyer-wise aggregate sales and collecting TCS at 0.1% on amounts exceeding Rs 50 lakh.

Compliance: Deposits, Returns, and Certificates

TCS Deposit

TCS collected in a month must be deposited to the government by the 7th of the following month. Unlike TDS, March collections are also due by April 7 (there is no April 30 extension for TCS).

Deposit is made through Challan ITNS 281 (same challan used for TDS, but with the "TCS" box selected). The payment is linked to the collector's TAN.

Form 27EQ: Quarterly TCS Return

Every person who collects TCS must file Form 27EQ every quarter.

Form 27EQ is filed electronically through a TIN facilitation centre or the e-filing portal (TRACES is used to download certificates and file corrections). For quarters of tax year 2026-27 onward the TCS statement is Form 143 under the Income-tax Rules, 2026. It reports:

• Details of every buyer/remitter from whom TCS was collected
• Amount collected, rate applied, and challan details
• PAN of the buyer/remitter

Form 27D: TCS Certificate

The collector must issue Form 27D (TCS certificate) to the buyer/remitter within 15 days from the due date of filing the quarterly Form 27EQ return.

Form 27D is the buyer's proof that TCS was collected from them. The buyer uses this certificate (along with Form 26AS/AIS data) to claim TCS credit in their ITR.

Penalties for Non-Compliance

Interest is mandatory, not discretionary, and must be paid before the quarterly statement is filed.

TCS and TDS on the Same Transaction

A common question: what happens when both TDS and TCS could apply to the same transaction?

Section 206C(1H) had a specific carve-out: no TCS where the buyer deducted TDS under Section 194Q. Now that 206C(1H) is removed, the overlap question is less common.

For LRS remittances and overseas tour packages, no TCS is collected if the buyer is liable to deduct TDS on the same payment and has deducted it.

For scrap and minerals, it works the other way: Section 194Q (TDS on purchase of goods above Rs 50 lakh by a buyer with turnover above Rs 10 crore) does not apply to a transaction on which TCS is collectible under Section 206C (other than 206C(1H)). So the seller collects TCS under 206C(1) whatever the buyer's size, unless a manufacturing-use declaration is given.

Practical Scenarios

Scenario 1: Scrap Dealer

You run a scrap trading business. You sell ferrous scrap to small workshops. You must collect TCS on every sale, at 2% from April 1, 2026 (1% up to FY 2025-26). If a workshop buys Rs 8 lakh of scrap in FY 2026-27, you collect Rs 16,000 TCS over the course of the year. You deposit this monthly and file Form 27EQ quarterly.

Exception: If the workshop provides Form 27C declaring the scrap is for manufacturing (not resale), you do not collect TCS.

Scenario 2: Parent Sending Money for Child's Education Abroad

Your child is studying in the UK. You are funding the education yourself (no loan). In FY 2026-27, you send Rs 15 lakh through your bank. The bank collects:

• On the first Rs 10 lakh: Nil TCS (within the threshold)
• On the remaining Rs 5 lakh: 2% = Rs 10,000 TCS

Total TCS: Rs 10,000. You claim this as credit when filing your ITR for AY 2027-28.

If the same Rs 15 lakh was funded through an education loan from a financial institution referred to in Section 80E, TCS would be nil on the entire amount.

Scenario 3: Company Sending Employee on International Training

Your company sends employees abroad for training. The company buys a group tour package worth Rs 6 lakh from a tour operator. The tour operator collects TCS at 2% on the entire Rs 6 lakh = Rs 12,000 (no threshold for overseas tour packages). The company claims TCS credit in its corporate ITR.

Scenario 4: High-Value Car Purchase

You buy a car for Rs 18 lakh from an authorised dealer. The dealer collects TCS at 1% = Rs 18,000. Your total payment is Rs 18,18,000. You claim Rs 18,000 TCS credit in your ITR.

Source Attribution

TCS provisions up to FY 2025-26 are governed by Section 206C of the Income-tax Act, 1961, read with the Income-tax Rules, 1962. From tax year 2026-27 the corresponding provision is Section 394 of the Income-tax Act, 2025. The TCS rates are prescribed in the Act itself. The Rs 10 lakh threshold for LRS remittances (earlier Rs 7 lakh) and nil TCS on loan-funded education remittances came from the Finance Act, 2025 (effective April 1, 2025). The Finance Act, 2026 (effective April 1, 2026) reduced rates for education, medical and tour purposes and revised the rates for liquor, tendu leaves, scrap and minerals. The removal of 206C(1H) (TCS on sale of goods) was effected by the Finance Act, 2025, effective April 1, 2025. Form 27EQ and Form 27D are prescribed under Rule 31AA and Rule 37D of the Income Tax Rules, 1962. Penalty provisions are under Sections 234E, 271H, 271CA and 272A(2)(g), and the interest provisions under Section 206C(7) of the 1961 Act.