In India’s direct tax framework, the concept of Tax Collected at Source (TCS) plays an important role in ensuring early tax collection and monitoring of high‑value transactions. Under the Income‑tax Act, 1961, certain categories of goods, services, and remittances trigger a requirement for the seller (or collector) to collect tax from the buyer at the point of sale or transaction. This collected tax is deposited with the government and subsequently credited against the buyer’s tax liability. TCS enhances transparency and compliance by capturing transactions at the source rather than waiting for tax filings at year‑end.

What Is Tax Collected at Source (TCS)?

TCS refers to a tax obligation under Section 206C of the Income‑tax Act where a seller or collector must collect tax from the buyer on specified goods or transactions and deposit it with the government. It is not an extra tax on the buyer but rather tax collected in advance at the point of sale and adjusted against the buyer’s tax liability.
In effect, when you pay for the purchase, you pay the price plus the TCS. The seller deposits the TCS amount with the government and issues the relevant certificate, allowing the buyer to claim credit when filing their tax return.

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Applicability of TCS – When Does It Apply?

TCS applies in different situations such as:

Sale of specified goods (e.g., alcohol, minerals, scrap, tendu leaves, timber, jewellery/bullion above thresholds, motor vehicles above thresholds) under Section 206C(1) and its sub‑sections.
Transactions involving foreign remittances under the Liberalised Remittance Scheme (LRS). Starting FY 2025‑26 certain thresholds and rates apply.
Sale of goods exceeding certain turnover thresholds (for example earlier provisions under Section 206C(1H) for sale of goods above ₹50 lakhs when seller’s turnover exceeds threshold).
E‑commerce operator collects TCS under GST regime (distinct from Income Tax TCS).

Who Collects and Who Pays?

Role

Description

Collector (Seller)

The person required to collect TCS from the buyer – may be a company, partnership firm, individual if audit required under Section 44AB etc.

Buyer (Payee)

The person who purchases the specified goods/transactions and pays price + TCS to the collector. Certain buyers may be exempt.

Rates, Due Dates & Deposit Rules

Typical Rates

Rates vary depending on the goods/transactions. Some examples:

Sale of motor vehicle exceeding ₹10 lakhs: TCS @ 1%.
Foreign remittances under LRS: above ₹10 lakh threshold, 5% for certain purposes and 20% for other purposes (effective from AY 2026‑27)
Sale of specified goods like scrap, minerals, tendu leaves etc: 1%, 2.5%, 5% depending on category.

Due Dates & Deposit

TCS collected must be deposited by the seller with the government. Typically, for most collection the deposit is required within 7 days of the end of the month in which tax collection took place.
Quarterly return‑filing (Form 27EQ) is required. Example due dates: Q1 (April‑June) – 15th July; Q2 – 15th Oct; Q3 – 15th Jan; Q4 – 15th May of next year.
Certificate to buyer (Form 27D) must be issued within 15 days of return filing.

Quarter

Period

Due Date for Return

1 Apr – 30 Jun

15 Jul

1 Jul – 30 Sep

15 Oct

1 Oct – 31 Dec

15 Jan

1 Jan – 31 Mar

15 May (of next FY)

Penalties & Interest for Non‑Compliance

Non‑compliance with TCS obligations can lead to interest, fees and penalties:

Late filing of TCS return: Fee under Section 234E – ₹200 per day of delay till return filed; maximum up to the amount of TCS.
Failure to collect TCS: Penalty may include an amount equal to TCS not collected.
Failure to deposit TCS: Interest at 1% per month or part of month from the date it was collectible/collected to date of deposit.
Incorrect information in TCS return: Penalty under Section 271H – minimum ₹10,000 up to ₹1,00,000.
In certain cases, prosecution was applicable (such as Section 276BB) but recent amendments (Budget 2025) have relaxed some provisions if deposit is made by due date of return.

Exemptions & Reliefs

Certain exemptions or reduced rates exist under TCS provisions:

Buyers who furnish declaration in Form 27C stating goods are for non‑trading purposes (manufacture/production) may claim exemption from TCS.
Buyers may apply to AO for lower rate of TCS via Form 13.
Certain transactions such as remittances for education/medical purposes may get lower or nil TCS up to threshold (₹10 lakh).
Sales to Central Government, State Government, Embassies, High Commissions etc may be exempt in certain categories.

Key Differences: TCS vs TDS

Feature

TCS (Tax Collected at Source)

TDS (Tax Deducted at Source)

Collector

Seller / Person selling specified goods

Payer / Person making payment

Point of tax collection

At sale of goods/transaction

At time of payment of income, fees etc

Governing section

Section 206C

Various (e.g., 192, 194C, 194J etc)

Buyer’s credit

Buyer can claim credit via ITR

Deductee gets credit in ITR

Typical transactions

Sale of goods or remittance

Salary, interest, rent, contractor etc

Conclusion

Tax Collected at Source is a strategic tool in India’s tax system designed to ensure the collection and tracking of tax‑relevant transactions at the earliest point. For sellers, it means the obligation to collect tax, deposit it, file returns and issue certificates. For buyers, it means paying the extra tax and subsequently claiming credit. Making sure your transactions fall under or outside TCS‑scope, abiding by the deposit and return deadlines, and claiming appropriate exemptions will keep you compliant and reduce risk of penalties. If you’re involved in high‑value sales, foreign remittances or the supply of specified goods, make it a priority to understand and implement TCS correctly.

Frequently Asked Questions (FAQs)

What is the meaning of TCS?

TCS means tax collected by the seller from a buyer at the time of sale of specified goods or services, under Section 206C of the Income‑tax Act.

When does TCS become applicable?

TCS applies when your transaction involves goods or remittances specified in the Act (e.g., motor vehicle over ₹10 lakhs, foreign remittance above ₹10 lakh) and the seller is liable to collect TCS.

Who is responsible for collecting TCS?

The seller or specified person (e.g., local authority, company, partnership, individual subject to audit) is responsible for collecting TCS from buyer.

What happens if the seller does not collect TCS?

The seller can be penalised for failure to collect; buyer may still be liable if tax not collected correctly.

Can I claim credit for TCS when I file my income tax return?

Yes — TCS collected is reflected in your Form 26AS and you can claim it as tax credit when you file your ITR.

What is the due date for depositing TCS?

TCS collected must be deposited by the seller by the 7th day of the next month following the month of collection; quarterly return is filed by dates like 15 July, 15 Oct etc.

What penalties apply for late filing or non‑compliance?

Late fee under Section 234E (₹200 per day), penalty under Section 271H (₹10,000 to ₹1,00,000), interest on late deposit (1% per month) and possible prosecution in extreme cases.

Are there any exemptions from TCS?

Yes — if the buyer furnishes Form 27C for non‑trading purchase, certain governments/embassies are exempt, and certain remittances for education/medical up to threshold may be exempt.

Does TCS apply to foreign remittance?

Yes. Under rules for Liberalised Remittance Scheme (LRS), TCS may apply for remittances abroad above threshold (recently ₹10 lakh) at specified rates (5% or 20%) depending on purpose.

How is TCS different from TDS?

In TCS, the seller collects tax from the buyer; in TDS, the payer deducts tax from payment to payee. TCS applies on sales/transactions of specified goods; TDS applies on incomes, fees, salary etc.

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