What is TCS, which of my sales attract it, and how is it different from deducting TDS?
TCS is tax you collect from the buyer over and above the price on specified transactions under section 206C — liquor, tendu leaves, timber and forest produce, scrap, minerals, leases of parking lots, toll plazas and mines, high-value motor vehicles and notified goods, and outbound remittances and tour packages. Unlike TDS, which the payer withholds out of what he owes, TCS is an addition to the invoice that the buyer funds and later claims credit for.
TCS is the mirror image of TDS. In TDS the person making the payment holds back part of it; in TCS the person receiving the money adds tax to what he charges and pays it over. The buyer, licensee or lessee funds it and takes credit for it in his return. Collection is at the time of debiting the amount payable by the buyer to his account or at the time of receipt, whichever is earlier.
The categories under the 1961 Act sit in four groups. Section 206C(1) covers alcoholic liquor for human consumption, tendu leaves, timber obtained under a forest lease or by any other mode, any other forest produce, scrap, and coal, lignite and iron ore. Section 206C(1C) covers the grant of a lease or licence of a parking lot, a toll plaza, or a mine or quarry. Section 206C(1F) covers motor vehicles and notified luxury goods where the sale consideration exceeds Rs. 10 lakh — a threshold the department applies per item rather than on aggregate yearly sales, with collection at receipt whether by way of advance or on delivery. Section 206C(1G) covers remittances under the Liberalised Remittance Scheme and overseas tour programme packages, a package being one that includes at least two components such as international travel and accommodation.
Rates for AY 2026-27, that is collections during FY 2025-26, under the 1961 Act as amended by the Finance Act 2026: alcoholic liquor 1%; tendu leaves 5%; timber 2%; scrap 1%; coal, lignite and iron ore 1%; parking lot, toll plaza and mine or quarry leases 2%; motor vehicles and notified goods above Rs. 10 lakh 1%; LRS remittances above Rs. 10 lakh 5% for education or medical treatment and 20% for other purposes; overseas tour programme packages 5% up to Rs. 10 lakh and 20% above. Remittance for education funded by a loan under section 80E is outside the LRS charge.
Section 206C(1H), the seller-side collection on sales of goods above Rs. 50 lakh, was withdrawn with effect from 1 April 2025. It is now relevant only to open years.
From 1 April 2026 the charge is in section 394 of the Income-tax Act, 2025, and the Finance Act, 2026 (Act 4 of 2026) substituted the rate table with effect from that date. Most categories move to a uniform 2% — liquor up from 1%, tendu leaves down from 5%, scrap and coal, lignite and iron ore up from 1%. Motor vehicles and notified goods stay at 1% above Rs. 10 lakh. Under the LRS the education and medical rate falls from 5% to 2% above Rs. 10 lakh, while the rate for other purposes remains 20%. Overseas tour programme packages move to a flat 2% with no threshold, replacing the earlier 5%/20% split.
Section 394(2) preserves the buyer's escape for the 206C(1) goods: a resident buyer who furnishes a written declaration in duplicate that the goods are for manufacturing or processing rather than trading is not subject to collection, and the collector delivers a copy of the declaration to the authorities within seven days from the end of the month of receipt. Section 394 also provides that no collection is made where tax is already deductible on the transaction.
The consequences mirror the TDS side. Interest under section 206C(7) runs at 1% per month for failing to collect and 1.5% per month for failing to pay what was collected. Penalty under section 271CA is an amount equal to the tax not collected, subject to reasonable cause under section 273B. The quarterly statement was Form 27EQ, due on 15 July, 15 October, 15 January and 15 May for FY 2025-26, and is Form No. 143 under the Income-tax Rules, 2026; the collection certificate, formerly Form 27D, is among Forms 130 to 133 under the new Rules. The section 234E fee of Rs. 200 a day applies to late TCS statements as it does to TDS.
TCS lands on cash flow rather than on profit, because it sits on top of the invoice and the collector has to fund the deposit before the buyer pays. Travel agents, car dealers and authorised dealer banks carry most of the volume, and the LRS and tour package rates changed twice in successive years — so a rate applied from memory is very likely to be the wrong one. Failing to collect leaves the collector personally liable for tax he never received.
Tax has been collected from me at source on my purchase price as though a fixed percentage of it were my profit. Am I stuck with that figure, or can I still be assessed on my real income?
The faceless unit has disallowed my purchases for not deducting under s.194Q and has said nothing at all about the Board's circular I quoted in my reply. Is that enough to get the order set aside?
I sold scrap without collecting TCS and only got the buyers' Form 27C declarations years later. Has the officer any answer to that, and what about buyers who have already paid tax?
I did not collect TCS because I did not think what I sold was 'scrap'. The officer has levied penalty at a hundred per cent. Is a wrong but honest view a defence?
I produced the buyers' Form 27C during the assessment, and later a Form 27BA from an accountant. The officer says both are too late. Is he right?
I collected the Form 27C declarations late and filed them late with the TDS officer. Can the department still raise a TCS demand on me?
The Assessing Officer has disallowed 30 per cent of my purchases under s.40(a)(ia) for not deducting s.194Q TDS, but the seller had already collected TCS under s.206C(1H) and it shows in my Form 26AS. Does that answer the disallowance?
I only trade in scrap — I do not manufacture anything, and I sell in retail. Can s.206C still be fastened on me, and is there any time limit on the TCS order?
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