Key Takeaways
- Tax Collected at Source (TCS) is the mirror image of TDS. Where TDS is deducted by the payer, TCS is collected by the seller or specified person from the buyer at the time of sale or receipt of payment. The legal framework is Section 206C of the Income Tax Act, 1961 (mapped to Section 506 under the Income Tax Act, 2025).
- Who collects: Sellers of specified goods (liquor, timber, scrap, minerals, tendu leaves), sellers of motor vehicles above Rs 10 lakh, authorised dealers and tour operators processing foreign remittances under LRS, and e-commerce operators making payments to sellers.
- Major change for FY 2026-27: Budget 2026 reduced TCS on foreign remittances for education, medical treatment, and overseas tour packages to 2% (from 5% and 20%). Education loan-funded remittances remain at 0.5%.
- Section 206C(1H) removed: TCS on sale of goods exceeding Rs 50 lakh (which applied to sellers with turnover above Rs 10 crore) was removed effective April 1, 2025. If you were collecting TCS on goods sales, you no longer need to from FY 2025-26 onwards.
- Compliance: Quarterly return in Form 27EQ. TCS certificate in Form 27D. Deposit by the 7th of the following month.
- TCS is not a final tax. The buyer/remitter claims credit for TCS collected against their income tax liability when filing their ITR. It is refundable if it exceeds total tax payable.
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 1% (Rs 10,000) over and above the sale price. The buyer pays Rs 10,10,000 total. You deposit the Rs 10,000 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.
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.
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All TCS Provisions at a Glance (FY 2026-27)
| Section | Transaction | TCS Rate | Threshold |
|---|---|---|---|
| 206C(1) | Alcoholic liquor for human consumption | 1% | No monetary threshold |
| 206C(1) | Tendu leaves | 5% | No monetary threshold |
| 206C(1) | Timber obtained under forest lease | 2.5% | No monetary threshold |
| 206C(1) | Any other forest produce (not timber or tendu) | 2.5% | No monetary threshold |
| 206C(1) | Scrap | 1% | No monetary threshold |
| 206C(1) | Minerals (coal, lignite, iron ore) | 1% | No monetary threshold |
| 206C(1C) | Parking lot, toll plaza, mining and quarrying rights | 2% | No monetary threshold |
| 206C(1F) | Motor vehicle exceeding Rs 10 lakh | 1% | Sale value above Rs 10 lakh |
| 206C(1G) | Foreign remittance under LRS: education (loan-funded) | 0.5% | Above Rs 10 lakh aggregate per FY |
| 206C(1G) | Foreign remittance under LRS: education (self-funded) | 2% | Above Rs 10 lakh aggregate per FY |
| 206C(1G) | Foreign remittance under LRS: medical treatment | 2% | Above Rs 10 lakh aggregate per FY |
| 206C(1G) | Overseas tour package | 2% | No threshold (from first rupee) |
| 206C(1G) | Foreign remittance under LRS: other purposes | 20% | Above Rs 10 lakh aggregate per FY |
| 206C(1H) | Sale of goods exceeding Rs 50 lakh | Removed | Was applicable to sellers with turnover above Rs 10 crore; removed from April 1, 2025 |
Non-filer surcharge: If the buyer/remitter has not filed ITR for the two preceding assessment years and TCS in each of those years exceeded Rs 50,000, the TCS rate is doubled (subject to a maximum of 5% for 206C(1), (1C), (1F) and 20% for 206C(1G)).
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, you collect Rs 2,000 (1% of Rs 2 lakh) as TCS. The buyer pays you Rs 2,02,000. You deposit Rs 2,000 to the government and issue Form 27D to the buyer.
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 goods are purchased by the central government, a state government, or an embassy.
- The goods are purchased by a public sector company engaged in the same business (for instance, a government coal company buying coal).
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 lessor, the government body issuing the licence, or the concessionaire) collects TCS at 2% from the person obtaining the right.
In practice, this affects infrastructure companies operating toll roads (collecting TCS from the concessioning authority or from users, depending on the contractual structure) and mining lease operators.
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.
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.
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.
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)
| Purpose of Remittance | Up to Rs 10 Lakh (aggregate per FY) | Above Rs 10 Lakh |
|---|---|---|
| Education funded by a loan from a financial institution under Section 80E | Nil | 0.5% |
| Education (self-funded, not through a loan) | Nil | 2% |
| Medical treatment | Nil | 2% |
| Overseas tour package | 2% (no threshold, from first rupee) | 2% |
| Other purposes (investments, property purchase abroad, gifts, maintenance of relatives, etc.) | Nil | 20% |
What Changed in Budget 2026
The Finance Act, 2026 (amending Section 506 of the Income Tax Act, 2025, which corresponds to Section 206C(1G) of the Income Tax Act, 1961) brought significant relief effective April 1, 2026:
| Purpose | Rate Before April 1, 2026 | Rate From April 1, 2026 |
|---|---|---|
| Education (self-funded, above Rs 10 lakh) | 5% | 2% |
| Medical treatment (above Rs 10 lakh) | 5% | 2% |
| Overseas tour packages | 5% up to Rs 10 lakh, 20% above Rs 10 lakh | 2% flat (no tiered structure) |
| Education (loan-funded, above Rs 10 lakh) | 0.5% | 0.5% (unchanged) |
| Other purposes (above Rs 10 lakh) | 20% | 20% (unchanged) |
The Rs 10 lakh aggregate threshold across all LRS purposes in a financial year remains 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
The 0.5% rate applies only when the remittance is funded by a loan obtained from a financial institution as defined under Section 80E of the Income Tax 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. For March collections, the due date is April 30.
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.
| Quarter | Period | Due Date |
|---|---|---|
| Q1 | April to June | July 15 |
| Q2 | July to September | October 15 |
| Q3 | October to December | January 15 |
| Q4 | January to March | May 15 |
Form 27EQ is filed electronically through the TRACES portal or through an authorised e-filing intermediary. 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
| Default | Consequence |
|---|---|
| Failure to collect TCS | Interest at 1% per month (or part of month) from the date TCS was collectible to the date of actual collection |
| Failure to deposit TCS after collection | Interest at 1.5% per month (or part of month) from the date of collection to the date of actual deposit |
| Late filing of Form 27EQ | Late filing fee of Rs 200 per day under Section 234E until the return is filed. No upper cap, but the fee cannot exceed the total TCS amount. |
| Non-filing or incorrect filing of Form 27EQ | Penalty of Rs 10,000 to Rs 1,00,000 under Section 271H (applicable if the return is filed more than one year after the due date, or if incorrect information is furnished) |
| Failure to issue Form 27D | Penalty of Rs 100 per day under Section 272A(2)(g) for each day of default, subject to maximum of the TCS amount |
The interest under Sections 206C(7) (non-collection) and 206C(7) read with 201(1A) (non-deposit) is not discretionary. The Assessing Officer will compute and demand it during scrutiny.
TCS and TDS on the Same Transaction
A common question: what happens when both TDS and TCS could apply to the same transaction?
The rule is that if TDS has been deducted on a transaction, TCS does not apply to the same transaction (and vice versa). Section 206C(1H) specifically had a carve-out for this. Now that 206C(1H) is removed, the overlap question is less common.
However, for LRS remittances, there is no TDS overlap because the remitter is the one paying, not receiving. TCS applies cleanly.
For scrap and minerals, if the buyer is required to deduct TDS under Section 194Q (TDS on purchase of goods above Rs 50 lakh), TDS takes precedence and TCS does not apply. But Section 194Q applies only when the buyer's previous-year turnover exceeds Rs 10 crore, so smaller buyers who do not deduct TDS under 194Q will face TCS collection by the seller under 206C(1).
Practical Scenarios
Scenario 1: Scrap Dealer
You run a scrap trading business. You sell ferrous scrap to small workshops. Since these workshops (turnover below Rs 10 crore) do not deduct TDS under Section 194Q, you must collect TCS at 1% on every sale. If a workshop buys Rs 8 lakh of scrap in a year, you collect Rs 8,000 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 under Section 80E, TCS would be:
- On the first Rs 10 lakh: Nil
- On the remaining Rs 5 lakh: 0.5% = Rs 2,500
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.
Frequently Asked Questions
Is TCS applicable on exports? No. TCS under Section 206C does not apply to goods exported out of India. This exemption applies to both 206C(1) specified goods and the erstwhile 206C(1H).
Does TCS apply on GST-inclusive or GST-exclusive amount? For goods under 206C(1), TCS is collected on the sale consideration, which is the amount receivable from the buyer. In practice, this is the GST-inclusive invoice value. For LRS remittances under 206C(1G), TCS is computed on the remittance amount itself (no GST is charged on the remittance amount, though GST applies on the bank's service charges separately).
I am a buyer who paid TCS but the seller did not deposit it. Can I still claim credit? Yes. TCS credit is based on what was collected from you, as reflected in your Form 26AS/AIS. If the seller collected but did not deposit, the department's recovery mechanism will pursue the seller. Your credit is not affected if the collection is visible in Form 26AS/AIS. However, if the collection does not appear in Form 26AS (because the seller did not file Form 27EQ), you may need to contact the seller to rectify the return.
Can a buyer request the seller not to collect TCS? Only in specific cases. For goods under 206C(1), the buyer can submit Form 27C declaring the goods are for manufacturing/processing. For 206C(1F) (motor vehicles) and 206C(1G) (LRS remittances), there is no mechanism to request exemption from TCS (other than the government/diplomatic exemptions).
What is the due date for Form 27EQ for Q4 of FY 2026-27? May 15, 2027. Note that Q4 has an extended due date compared to other quarters (which are due by the 15th of the month following the quarter).
Source Attribution
TCS provisions are governed by Section 206C of the Income Tax Act, 1961, read with the Income Tax Rules. The corresponding section under the Income Tax Act, 2025 is Section 506. The TCS rate for specified goods under 206C(1) is prescribed in the Act itself. The Rs 10 lakh threshold for LRS remittances under 206C(1G) was introduced by the Finance Act, 2023 (effective October 1, 2023) and subsequently amended by the Finance Act, 2026 (effective April 1, 2026) to reduce rates for education, medical, and tour purposes. 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, 272A(2)(g), and the interest provisions under Section 206C(7) of the Act.