1. Introduction & Meaning of TCS
Tax Collected at Source (TCS) is a mechanism under income-tax law where the seller or other specified person (the collector) collects tax from the buyer or other specified person (the collectee) on certain specified transactions and deposits it with the Central Government.
For example, if TCS at 1% applies on a transaction of ₹10,00,000, the collector collects ₹10,000 as TCS in addition to the transaction value. (The rate is only illustrative; actual rates depend on the nature of the transaction.)
The collectee can generally claim credit for the TCS collected while filing the income-tax return. The TCS details can be verified in the applicable tax records, including the Annual Information Statement (AIS – Form 168) under the Income-tax Act, 2025, subject to proper reporting and the applicable provisions.
From 1 April 2026, TCS is principally governed by Section 394 of the Income-tax Act, 2025, which specifies the transactions covered, the person responsible for collection, the applicable rates and the time of collection. The new Act also introduces the concept of a “Tax Year” for determining income and tax liability.
2. TCS vs TDS – Key Differences
Although both Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are mechanisms for collecting income tax at source, they operate differently. In TDS, tax is deducted from a specified payment, whereas in TCS, tax is collected from the buyer or payer on specified transactions.
| Basis | TDS | TCS |
|---|---|---|
| Full Form | Tax Deducted at Source | Tax Collected at Source |
| Basic mechanism | Tax is deducted from the amount payable | Tax is generally collected in addition to the amount payable |
| Person responsible | Deductor | Collector |
| Person whose tax is deducted/collected | Deductee | Collectee |
| Effect on the other party | Deductee receives a lower net amount | Collectee generally pays a higher total amount |
| When applicable | On specified payments such as salary, interest, commission, professional fees, etc. | On specified transactions or receipts covered by the TCS provisions |
| Principal provision under Income-tax Act, 2025 | Sections 392 and 393 | Section 394 |
| Tax credit | Generally available to the deductee | Generally available to the collectee |
| Example | Payment ₹1,00,000; TDS ₹10,000 → net payment ₹90,000 | Transaction ₹10,00,000; TCS ₹10,000 → buyer pays ₹10,10,000 |
The TDS and TCS amounts used in the examples above are only for illustration. Actual rates and applicability depend on the nature of the transaction and the applicable provisions.
In simple terms, TDS reduces the amount paid to the recipient, while TCS is generally collected in addition to the amount payable by the buyer or payer.
3. TCS under Income-tax Act, 2025 vs Income-tax Act, 1961
The Income-tax Act, 2025, effective from 1 April 2026, has reorganised the TCS provisions and introduced new statutory references and form numbers. The basic concept of TCS continues, but the provisions and forms applicable under the new law should be used for transactions from Tax Year 2026–27.
| Particular | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Principal TCS provision | Section 206C | Section 394 |
| Period terminology | Previous Year / Assessment Year | Tax Year |
| TCS quarterly statement | Form 27EQ | Form 143 |
| TCS certificate | Form 27D | Form 133 |
| Buyer’s declaration for obtaining specified goods without TCS | Form 27C — Section 206C(1A) | Form 127 — Section 394(2) |
| Reference while reporting TCS | Relevant provision of Section 206C | Relevant Table Item of Section 394 |
For transactions under the new Act, collectors should use the relevant Table Item of Section 394 instead of the corresponding old Section 206C reference while reporting TCS.
4. TCS Transactions, Collectors, Rates & Thresholds – Tax Year 2026–27
Section 394 of the Income-tax Act, 2025 specifies the transactions subject to TCS, the person responsible for collection and the applicable rates. The principal TCS provisions applicable for Tax Year 2026–27 are summarised below.
| Table Item | Transaction / Nature of Receipt | Person Responsible | Threshold / Condition | TCS Rate |
|---|---|---|---|---|
| 1 | Sale of alcoholic liquor for human consumption | Seller | No monetary threshold | 2% |
| 2 | Sale of tendu leaves | Seller | No monetary threshold | 2% |
| 3 | Sale of timber (whether obtained under a forest lease or otherwise) or other forest produce (not being timber or tendu leaves) obtained under a forest lease | Seller | No monetary threshold | 2% |
| 4 | Sale of scrap | Seller | No monetary threshold | 2% |
| 5 | Sale of minerals, being coal, lignite or iron ore | Seller | No monetary threshold | 2% |
| 6 | Sale of motor vehicle or other goods notified by the Central Government | Seller | Sale consideration exceeding ₹10 lakh | 1% |
| 7(a) | LRS remittance for education or medical treatment | Authorised Dealer | Aggregate remittance exceeding ₹10 lakh during the tax year | 2% |
| 7(b) | LRS remittance for purposes other than education or medical treatment | Authorised Dealer | Aggregate remittance exceeding ₹10 lakh during the tax year | 20% |
| 8 | Sale of overseas tour programme package, including expenses for travel, hotel stay, boarding or lodging, or any similar or related expenditure | Seller | No monetary threshold | 2% |
| 9 | Use of parking lot, toll plaza, mine or quarry for business purposes, excluding mining and quarrying of mineral oil, including petroleum and natural gas | Licensor / Lessor | No monetary threshold | 2% |
Important Notes
- For LRS remittances, TCS applies only on the amount exceeding ₹10 lakh during the tax year.
- For a motor vehicle or other notified goods, once the sale consideration exceeds ₹10 lakh, TCS applies on the entire sale consideration, not merely on the amount above ₹10 lakh. This differs from LRS, where TCS applies only on the amount exceeding the threshold.
- No TCS is collected on an LRS remittance where the amount is remitted out of a loan obtained from a specified financial institution for pursuing education, subject to the conditions of Section 394(4).
- From 1 April 2026, TCS on an overseas tour programme package is 2% irrespective of the amount.
- The earlier 0.1% TCS on sale of goods exceeding ₹50 lakh under Section 206C(1H) is no longer applicable. Purchase-related TDS obligations, where applicable, operate separately under the relevant TDS provisions.
- Higher TCS rate where PAN is not furnished: If the buyer, licensee or lessee does not furnish a valid PAN, TCS is generally collected at the higher of twice the applicable rate or 5%, subject to a maximum rate of 20%, in accordance with Section 397(2). For example, where the normal TCS rate on scrap is 2%, the applicable rate in the absence of a valid PAN would generally be 5%. The higher-rate collection rule does not apply to a non-resident who does not have a permanent establishment in India, subject to the provisions of Section 397(2).
- Buyer exclusions: TCS applicability is also subject to the definition of “buyer” under Section 402(6). Certain persons and transactions are excluded from the definition for specified TCS provisions.
- Certain transactions may qualify for non-collection or other relief, subject to the conditions prescribed under the Act.
5. Time of Collection of TCS
Under Section 394(1) of the Income-tax Act, 2025, TCS is required to be collected at the earlier of:
- the time when the amount payable by the buyer, licensee or lessee is debited to their account; or
- the time when the amount is received from them in cash, cheque, draft or any other mode.
This rule applies to transactions covered under the Section 394 table.
Example:
If a seller of scrap debits ₹5,00,000 to the buyer’s account on 25 September 2026 and receives the payment on 10 October 2026, TCS is collectible on 25 September 2026, being the earlier event. At a 2% rate, the TCS amount would be ₹10,000.
If an advance had instead been received on 5 September 2026, TCS would be collectible on the advance amount on that date. TCS on the remaining amount would arise according to the applicable debit-or-receipt rule.
6. Practical Examples of TCS Calculation
The following examples explain how TCS works in some common transactions covered under Section 394.
| Transaction | Transaction Amount | TCS Calculation | TCS Amount | Total Amount Payable / Remitted |
|---|---|---|---|---|
| Sale of scrap | ₹5,00,000 | ₹5,00,000 × 2% | ₹10,000 | ₹5,10,000 |
| Sale of motor vehicle | ₹15,00,000 | ₹15,00,000 × 1% | ₹15,000 | ₹15,15,000 |
| LRS – education/medical treatment | ₹15,00,000 | (₹15,00,000 − ₹10,00,000) × 2% | ₹10,000 | ₹15,10,000* |
| LRS – other purposes | ₹15,00,000 | (₹15,00,000 − ₹10,00,000) × 20% | ₹1,00,000 | ₹16,00,000* |
| Overseas tour programme package | ₹8,00,000 | ₹8,00,000 × 2% | ₹16,000 | ₹8,16,000 |
*For LRS, the authorised dealer collects TCS in addition to the remittance amount. The examples assume that there was no earlier LRS remittance during the tax year and that the remittance is not funded through an eligible education loan.
Below-threshold cases: A motor vehicle sold for ₹9,00,000 attracts no TCS because the sale consideration does not exceed ₹10 lakh. Similarly, an LRS remittance of ₹8,00,000 during the tax year attracts no TCS.
Important: For motor vehicles, TCS applies on the entire sale consideration once it exceeds ₹10 lakh; for LRS, it applies only on the amount exceeding ₹10 lakh.
7. TCS Deposit, Quarterly Statement & Certificate
After collecting TCS, the collector must deposit the tax with the Central Government, furnish the quarterly TCS statement and issue the TCS certificate within the prescribed timelines.
Deposit of TCS
Under Section 397(3)(a) read with Rule 218 of the Income-tax Rules, 2026, TCS collected must be deposited with the Central Government within the following time limits:
| TCS Collected / Amount Debited or Received | Due Date for Deposit |
|---|---|
| April to February | On or before 7 days from the end of the month in which TCS is collected |
| March | On or before 30 April |
The 30 April due date applies where the relevant amount is debited or received during March.
In the case of a Government office, TCS paid without an income-tax challan must be credited to the Central Government on the same day. Where payment is made with a challan, the applicable 7-day rule applies.
A collector who fails to collect TCS remains liable to pay the tax to the Central Government under Section 397(3)(h).
Quarterly TCS Statement – Form 143
Every person responsible for collecting TCS must furnish the quarterly TCS statement in Form 143 under Section 397(3)(b) read with Rule 219 of the Income-tax Rules, 2026.
| Quarter | Period | Due Date |
|---|---|---|
| Q1 | April – June | 31 July |
| Q2 | July – September | 31 October |
| Q3 | October – December | 31 January |
| Q4 | January – March | 31 May immediately following the tax year |
Where any error or omission is identified after filing, a correction statement may be furnished in the prescribed form and manner. Under Section 397(3)(f), it may be furnished within two years from the end of the tax year in which the original statement was required to be delivered.
TCS Certificate – Form 133
Under Section 395(4), the collector must issue a TCS certificate to the collectee specifying the amount of tax collected, the rate at which tax was collected and other prescribed particulars.
Under Rule 215 of the Income-tax Rules, 2026, the TCS certificate in Form 133 is generated and downloaded from the web portal specified by the Director General of Income-tax (Systems) or the person authorised by him and furnished to the collectee within 15 days from the due date for furnishing the TCS statement under Rule 219.
| Quarter | Form 143 Due Date | Form 133 Due Date |
|---|---|---|
| Q1 (Apr–Jun) | 31 July | 15 August |
| Q2 (Jul–Sep) | 31 October | 15 November |
| Q3 (Oct–Dec) | 31 January | 15 February |
| Q4 (Jan–Mar) | 31 May | 15 June |
8. Interest, Fee & Penalty for TCS Defaults
Failure to collect or deposit TCS, delay in filing the TCS statement, or furnishing incorrect information may result in interest, fee and penalty under the Income-tax Act, 2025.
| Nature of Default | Consequence | Relevant Provision |
|---|---|---|
| Failure or delay in collecting TCS | Simple interest at 1% for every month or part of a month, from the date TCS was collectible to the date it is actually collected | Section 398(3)(a)(i) |
| TCS collected but deposited late | Simple interest at 1.5% for every month or part of a month, from the date of collection to the date of actual payment | Section 398(3)(a)(ii) |
| Delay in filing TCS statement | Fee of ₹200 per day for every day the failure continues, capped at the amount of TCS collectible | Section 427 |
| Failure to furnish TCS statement or furnishing incorrect information | Penalty of ₹10,000 to ₹1,00,000, subject to the applicable conditions | Section 461 |
Under Section 398(1), a person who fails to collect or pay TCS may be treated as an assessee in default, subject to the applicable provisions.
In certain cases relating to Table Items 1 to 5 and 9 of Section 394, the collector is not treated as an assessee in default where the buyer, licensee or lessee has filed the return of income, taken the relevant amount into account in computing income, paid the tax due, and the collector furnishes the prescribed accountant’s certificate. Interest may still be payable in such cases.
Late Filing Fee
Where the quarterly TCS statement is not furnished within the prescribed time, Section 427 imposes a fee of ₹200 for every day of delay. The total fee cannot exceed the amount of TCS collectible, and the fee must be paid before the delayed statement is furnished.
Penalty for TCS Statement Defaults
Under Section 461, the Assessing Officer may impose a penalty of not less than ₹10,000 but which may extend to ₹1,00,000 where a person:
- fails to furnish the prescribed TCS statement within the applicable time; or
- furnishes incorrect information in the statement.
Under Section 461(2), no penalty is levied for delay or non-filing if the collector proves that the TCS, along with the applicable fee and interest, if any, has been paid, and the statement is furnished within one month from the prescribed due date.
Example: If TCS of ₹10,000 was required to be collected on 25 September 2026 but was actually collected on 10 October 2026, interest for delayed collection is calculated at 1% for every month or part of a month. Since the period covers parts of September and October, interest is calculated for two months, resulting in interest of ₹200.
Important: Even a part of a month is treated as a full month for calculating interest under Section 398.
9. TCS Credit & Claim
TCS is not an additional or separate final tax for the collectee. Under Section 390(5), TCS paid to the Central Government is treated as payment of tax on behalf of the person from whom the tax has been collected. Section 390(6) empowers the Board to prescribe the manner in which credit is given and the tax year for which such credit is allowed.
Accordingly, the collectee can claim the eligible TCS credit while filing the income-tax return for the relevant tax year.
How TCS Credit Works
For example, suppose a person has ₹20,000 of eligible TCS credit and the final income-tax liability for the relevant tax year is ₹75,000. The TCS credit can be adjusted against that liability:
₹75,000 − ₹20,000 = ₹55,000 balance tax payable
Where the tax paid or treated as paid exceeds the amount properly chargeable for the tax year, Section 431 provides for refund of the excess. Under Section 433, a claim for refund is made by furnishing the return of income.
Interest on eligible refunds is governed by Section 437, which covers refunds arising from TCS collected under Section 394, subject to the applicable conditions.
Before Claiming TCS Credit
The collectee should verify that the TCS details reported by the collector are correctly reflected in the applicable tax records, including the Annual Information Statement (AIS – Form 168), before filing the return. In particular, the PAN, transaction amount, TCS amount and relevant tax year should be checked for accuracy.
The TCS certificate in Form 133 should also be retained as supporting evidence. If the TCS is not correctly reflected in the tax records, the collectee should contact the collector and request filing or correction of the relevant quarterly TCS statement.
Important: TCS is generally an adjustable tax credit. It can be set off against the collectee’s final income-tax liability, and any eligible excess may result in a refund after the return is processed.
10. Exemption, Declaration & Lower TCS Certificate
The Income-tax Act, 2025 provides specific situations where TCS may not be required to be collected or may be collected at a lower rate, subject to the prescribed conditions.
Declaration for Specified Goods
Under Section 394(2), TCS is not required on transactions covered by Table Items 1 to 5 where the buyer is a resident in India and furnishes the prescribed written declaration in Form 127 under Rule 212 of the Income-tax Rules, 2026, stating that the goods will be used:
- for manufacturing, processing or producing articles or things, or for generating power; and
- not for trading purposes.
The buyer must furnish a valid PAN in the declaration. Without a valid PAN, the declaration becomes invalid and the collector must collect TCS at the higher rate applicable under Section 397(2).
Where a valid declaration is received, Section 394(3) requires the collector to deliver one copy to the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner on or before the 7th day of the month following the month in which the declaration was received.
Exemption for Certain LRS Remittances
Under Section 394(4), TCS is not required to be collected by the authorised dealer on an LRS remittance in specified circumstances, including where:
- TCS has already been collected by the seller in respect of the corresponding overseas tour programme package; or
- the remittance is made out of a loan obtained from a specified financial institution for pursuing education.
Further, under Section 394(5), TCS on transactions covered by Table Items 7 and 8 is not required where the buyer is liable to deduct tax at source under another provision of the Act and has actually deducted such tax.
Lower TCS Certificate
Under Section 395(3), a buyer, licensee or lessee may apply to the Assessing Officer for collection of TCS at a lower rate. The application is made in Form 128 under Rule 213 of the Income-tax Rules, 2026.
If the Assessing Officer is satisfied that the applicant’s total income justifies a lower rate, a certificate may be issued specifying the applicable rate. The collector must then collect TCS at the rate specified in that certificate for as long as the certificate remains valid.
A lower-rate certificate cannot be granted if the applicant does not furnish a valid PAN.
Important: A declaration-based exemption and a lower-rate certificate are different mechanisms. The declaration under Section 394(2) applies only to specified transactions and conditions, whereas Section 395(3) provides a separate route for obtaining a lower TCS rate from the Assessing Officer.
11. Frequently Asked Questions (FAQs)
1. What is TCS under the Income-tax Act, 2025?
TCS stands for Tax Collected at Source. Under Section 394, specified persons are required to collect tax from the buyer, licensee or lessee on specified transactions and deposit it with the Central Government.
2. Which section governs TCS from 1 April 2026?
TCS is principally governed by Section 394 of the Income-tax Act, 2025 from 1 April 2026.
3. Is TCS an additional tax or can it be claimed back?
TCS is generally an adjustable tax credit, not a separate final tax. Under Section 390(5), TCS paid to the Central Government is treated as payment of tax on behalf of the person from whom it was collected. It can be adjusted against the person’s final tax liability, subject to the applicable provisions.
4. What is the TCS threshold for LRS remittances?
For Tax Year 2026–27, TCS on applicable LRS remittances generally arises when the aggregate amount exceeds ₹10 lakh during the tax year. TCS applies only on the amount exceeding the threshold, subject to applicable exemptions and conditions.
5. Is TCS applicable on an overseas tour programme package?
Yes. For Tax Year 2026–27, an overseas tour programme package is subject to TCS at 2%, subject to the applicable provisions.
6. Is TCS applicable on the entire value of a motor vehicle costing more than ₹10 lakh?
Yes. Where the sale consideration of a motor vehicle exceeds ₹10 lakh, TCS at 1% applies on the entire sale consideration, not merely on the amount exceeding ₹10 lakh.
7. When is TCS required to be collected?
Under Section 394(1), TCS is generally collected at the earlier of the debit of the amount payable to the buyer’s, licensee’s or lessee’s account or receipt of the amount in cash, cheque, draft or any other mode.
8. Can TCS be collected at a lower rate?
Yes. Under Section 395(3), the buyer, licensee or lessee may apply to the Assessing Officer for a lower TCS rate. The application is made in Form 128 under Rule 213, subject to the prescribed conditions.
9. Which form is used for the quarterly TCS statement under the new Act?
The quarterly TCS statement is furnished in Form 143 for transactions governed by the Income-tax Act, 2025.
10. Which form is issued as the TCS certificate?
The TCS certificate is issued to the collectee in Form 133 under Section 395(4) read with Rule 215.
11. Can specified goods be purchased without TCS for manufacturing purposes?
Yes. Subject to Section 394(2), a resident buyer may furnish Form 127 under Rule 212 for specified goods covered by Table Items 1 to 5 where the goods are intended for manufacturing, processing, production or generation of power and not for trading purposes.
12. What happens if TCS is collected or deposited late?
Under Section 398, delayed collection generally attracts interest at 1% per month or part of a month, while TCS collected but deposited late attracts interest at 1.5% per month or part of a month. Other consequences may include a late filing fee under Section 427 and penalty under Section 461, depending on the nature of the default.
13. What are the due dates for TCS deposit, quarterly statement and certificate?
TCS collected in a month is generally required to be deposited within 7 days from the end of that month. For amounts debited or received in March, the due date is 30 April. Form 143 is due on 31 July, 31 October, 31 January and 31 May, and Form 133 is due within 15 days from the due date of the corresponding quarterly statement.
14. Is TCS applicable on sale of goods exceeding ₹50 lakh?
No. The earlier 0.1% TCS on sale of goods exceeding ₹50 lakh under Section 206C(1H) is no longer applicable. Purchase-related TDS obligations, where applicable, operate separately.
15. What happens if the collector fails to collect TCS?
A person responsible for collecting TCS who fails to collect it remains liable to pay the tax to the Central Government under Section 397(3)(h). Interest and other consequences may also apply under Section 398.
16. What is the TCS rate if the buyer does not furnish a valid PAN?
Under Section 397(2), where a person paying an amount on which TCS is collectible fails to furnish a valid PAN, TCS is generally collected at the higher of twice the applicable rate or 5%, subject to a maximum rate of 20%. For example, where the normal TCS rate is 2%, the higher rate would generally be 5%. This higher-rate collection rule does not apply to a non-resident who does not have a permanent establishment in India, subject to the provisions of Section 397(2).
12. Conclusion
The Income-tax Act, 2025 has reorganised India’s TCS framework under Section 394, with new statutory references, forms and reporting requirements applying from 1 April 2026.
Collectors should identify the correct transaction under Section 394, apply the applicable rate and threshold, collect TCS at the prescribed time, deposit it within the applicable due date, furnish the quarterly statement in Form 143, and issue the TCS certificate in Form 133.
For buyers and other collectees, TCS is generally an adjustable tax credit rather than an additional final tax. Eligible TCS can be claimed against the final income-tax liability, subject to the applicable provisions.
Taxpayers and professionals should keep track of notifications and amendments, as TCS rates, thresholds, notified goods and related compliance requirements may change.
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