Section 206C of Income Tax Act: TCS Rules, Rates & Compliance

Tax Collection at Source (TCS) is a mechanism under the Income Tax Act, 1961, where the seller collects tax from the buyer at the point of sale. Section 206C governs TCS provisions, ensuring tax compliance and revenue collection. The Finance Act 2025 introduced significant changes to these provisions, effective from 1st April 2025.

Section 206C of the Income Tax Act requires sellers to collect TCS on specified goods or transactions when the sale value exceeds certain thresholds. Key points include:​

• Applies to the sale of specific goods like alcohol, timber, tendu leaves, scrap, and minerals

• Includes transactions like leasing, licensing, and contracts related to parking lots, toll plazas, and mining

• Covers high-value transactions such as the sale of motor vehicles above ₹10 Lakhs and foreign remittances

• Recent amendments have removed TCS on the sale of goods exceeding ₹50 Lakhs from 1st April 2025

Section 206C covers several types of transactions where TCS must be collected: 

1. Sale of Specified Goods [Section 206C(1)]

This includes goods like alcoholic liquor, tendu leaves, timber, scrap, minerals, and other notified items:  

• Alcoholic Liquor for Human Consumption: TCS at 1%

• Tendu Leaves: TCS at 5%

• Timber Obtained Under a Forest Lease: TCS at 2%

• Timber Obtained by Any Other Mode: TCS at 2%

• Any Other Forest Produce (Not Being Timber or Tendu Leaves): TCS at 2%

• Scrap: TCS at 1%

• Minerals Like Coal, Lignite, and Iron Ore: TCS at 1%

 

These rates are subject to change based on government notifications. 

2. Lease, Licence, and Contract Transactions [Section 206C(1C)]

This subsection applies to payments received for lease or licence of parking lots, toll plazas, mining leases, and contracts: 

• Licensing of Parking Lots: TCS at 2%

• Licensing of Toll Plazas: TCS at 2%

• Licensing of Mining and Quarrying: TCS at 2%

 

The seller must collect TCS from the licensee or lessee at the time of debiting the amount or receiving the payment, whichever occurs first.

3. Sale of Motor Vehicles Above ₹10 Lakhs [Section 206C(1F)]

Sellers are required to collect TCS at 1% on the sale of motor vehicles exceeding ₹10 Lakhs, subject to these conditions: 

• Applicable to each sale, not on aggregate sales

• Applies to all motor vehicles, not just luxury cars

• Not applicable to sales to the Central or State Government, embassies, and consulates

4. Foreign Remittances & Overseas Tour Packages [Section 206C(1G)]

This covers certain foreign remittances and overseas tour packages booked through authorised dealers: 

• Overseas Tour Packages: 

  • Up to ₹10 Lakhs: TCS at 5%

  • More than ₹10 Lakhs: TCS at 20%

• Foreign Education:

  • Financed by loans from financial institutions: Nil

  • If not financed by a loan: Nil up to ₹10 Lakhs & 5% over ₹10 Lakhs

• For other purposes: 

  • Up to ₹10 Lakhs: TCS at 5%

  • More than ₹10 Lakhs: TCS at 20%

 

These rates and provisions are effective from 1st April 2025, as per the updates announced in the Union Budget for FY 2025-26. 

5. Sale of Goods Above ₹50 Lakhs by Large Sellers [Section 206C(1H)]

Note: As per the Finance Bill 2025, this provision has been removed effective 1st April 2025. 

 

Previously: 

• Sellers with a turnover exceeding ₹10 Crores were required to collect TCS at 0.1% on sales exceeding ₹50 Lakhs to a single buyer

 

The removal aims to reduce compliance burdens and avoid duplication with TDS provisions under Section 194Q.

The responsibility to collect TCS lies with the 'seller' as defined under the Act.

1. Definition of Seller

A seller under Section 206C includes:

• Central and State Governments

• Local authorities

• Statutory corporations or authorities

• Companies registered under the Companies Act

• Partnership firms

• Co-operative societies

• Individuals or Hindu Undivided Families (HUFs) subject to tax audit under Section 44AB

2. Definition of Buyer

Refers to a person who obtains goods or services from the seller. However, certain entities are exempt: 

• Public sector companies

• Embassies and consulates

• Central and State Governments

• Trade representations of foreign states

• Clubs such as sports and social clubs

TCS is not applicable in the following scenarios: 

• Goods purchased for personal consumption by the buyer

• Goods bought for use in manufacturing or production, not for trading

• Transactions involving government entities or local authorities

• Export of goods outside India

• Goods covered under other specific TDS or TCS provisions

• Buyers who deduct TDS under other sections of the Income Tax Act

Sellers liable under Section 206C must adhere to specific compliance requirements:​ 

• Collection Timing: TCS should be collected at the time of debiting the buyer's account or upon receipt of payment, whichever is earlier

• Deposit Deadline: The collected TCS must be deposited with the government within seven days from the end of the month in which it was collected

• TCS Certificate: Sellers must issue a TCS certificate (Form 27D) to the buyer within 15 days from the due date for filing the TCS return

• Quarterly Returns: TCS returns should be filed quarterly in Form 27EQ as per the following due dates: 

  • 15th July for April-June quarter

  • 15th October for July-September quarter

  • 15th January for October-December quarter

  • 15th May for January-March quarter

Failure to comply with TCS provisions can lead to significant penalties:​

• Interest for Late Collection or Deposit: An interest of 1% per month or part thereof is levied for delays in collecting or depositing TCS

• Penalty under Section 271CA: A penalty equal to the amount of TCS not collected or deposited can be imposed

• Prosecution under Section 276BB: In cases of willful default, imprisonment for up to seven years along with fines may be imposed

• Disallowance of Expenditure: Under Section 40(a)(ia), 30% of the expenditure on which TCS was not collected may be disallowed while computing taxable income

Businesses should keep the following points in mind:​ 

• Verify buyer’s PAN or Aadhaar to apply correct TCS rates

• Monitor aggregate sales to each buyer to determine when TCS applies

• Maintain updated records of TCS collected and deposited

• Coordinate with accounting and tax teams to ensure timely compliance

• Stay updated with amendments to Section 206C and related rules

• Educate sales and finance teams about TCS provisions to avoid error