TCS on Sales: Tax Collection at Source

TCS on Sales: Tax Collection at Source#

What is TCS?#

Tax Collected at Source (TCS) works the opposite way to TDS. Instead of the buyer withholding tax before paying the seller, the seller collects an additional amount over and above the sale price and deposits it with the government on the buyer's behalf. The buyer later gets credit for this amount against their own tax liability, visible in their annual tax statement, just like TDS credit. TCS on sale of goods was traditionally governed by Section 206C of the Income Tax Act, 1961; under the Income-tax Act, 2025 (effective for Tax Year 2026-27 onward), TCS provisions have been consolidated, but the underlying mechanics — collect, deposit, certify, credit — remain the same.

If you run a business selling goods to other businesses or to consumers, it is worth knowing exactly which of your sales still attract TCS today, because this is one area where the rules changed significantly in the last couple of years and a lot of outdated advice is still floating around.

A Change Every Seller Should Know About#

Until 31 March 2025, a seller whose turnover in the preceding financial year exceeded ₹10 crore had to collect TCS at 0.1% on receipts from a buyer once the aggregate consideration from that buyer crossed ₹50 lakh in a financial year (the erstwhile Section 206C(1H)). This was a general, catch-all provision that applied to almost any sale of goods once volumes got large enough.

This general 0.1%-above-₹50-lakh TCS on sale of goods was removed with effect from 1 April 2025. It was withdrawn specifically because it duplicated Section 194Q, which already requires large buyers to deduct TDS on purchases above the same ₹50 lakh threshold — having both a TDS obligation on the buyer's side and a TCS obligation on the seller's side for the same transaction was redundant, so the TCS leg was dropped. If your business (or your accountant) is still collecting TCS at 0.1% on ordinary trading sales purely because turnover crossed ₹50 lakh from a customer, that practice is now outdated and should stop — the corresponding TDS obligation on the buyer (under Section 194Q, or its ITA 2025 equivalent) is what governs instead.

Where TCS on Sale of Goods Still Applies#

The withdrawal above only affected the general provision. TCS still applies to sale of certain specified categories of goods, which were always governed by separate, older sub-sections of 206C rather than the general 50-lakh rule:

• Scrap — TCS applies on sale of scrap, at a rate specified for that category.
• Timber and forest produce — obtained under a forest lease or by any other mode, TCS applies.
• Alcoholic liquor for human consumption — TCS applies on sale to a buyer.
• Minerals such as coal, lignite, or iron ore (for trading purposes, not for further processing).
• Motor vehicles — TCS applies at 1% where the sale value of a single motor vehicle exceeds ₹10 lakh. Note that TCS applies to the entire sale value once it crosses ₹10 lakh, not just the amount above it — a car sold for ₹12 lakh attracts TCS on the full ₹12 lakh, not ₹2 lakh.
• Overseas tour packages and foreign remittances under the Liberalised Remittance Scheme (LRS) — a different, frequently-revised set of TCS rates applies here; this is a distinct provision from TCS on sale of goods and is not covered in this article.

Because rates for scrap, timber, liquor, and minerals have been revised more than once in recent years, and because Budget proposals have periodically floated rationalising several of these into a uniform rate, always confirm the current rate for your specific product category before setting up your billing software — don't rely on rates from an older invoice or an old article.

How Collection and Deposit Work#

Where TCS does apply, the mechanics are straightforward:

1. At the time of sale, the seller adds the TCS amount to the invoice, over and above the sale price and any GST charged.
2. The buyer pays the seller the sale price plus TCS.
3. The seller deposits the TCS collected with the government, generally by the 7th of the month following the month of collection (for TCS collected in March, the deposit deadline is slightly extended into the following financial year).
4. The seller issues a TCS certificate to the buyer and reports the collection in the quarterly TCS return, so it reflects in the buyer's annual tax statement.
5. The buyer claims credit for the TCS collected against their own tax liability when filing their income tax return, exactly as they would for TDS credit.

A Worked Example#

Suppose a timber trader sells forest produce worth ₹5,00,000 to a furniture manufacturer, and the applicable TCS rate for timber is, say, 2%. The trader would raise an invoice for ₹5,00,000 plus TCS of ₹10,000 (2% of ₹5,00,000), collecting ₹5,10,000 in total from the buyer (GST would be added separately on top). The trader deposits the ₹10,000 with the government by the following month's due date, issues a TCS certificate to the manufacturer, and the manufacturer sees this ₹10,000 reflected as a tax credit available to set off against its own tax liability when it files its return.

Conclusion#

TCS on sale of goods is now a narrower, more specific regime than it was before April 2025 — the broad 0.1%-above-₹50-lakh rule on general trading sales has been scrapped, and what remains applies mainly to scrap, timber, liquor, certain minerals, and motor vehicles above ₹10 lakh, along with the separate LRS/foreign remittance provisions. If your business deals in any of these specified goods, confirm the current applicable rate before invoicing, and if you have been applying TCS to ordinary sales out of old habit, it's worth reviewing your billing setup — you may be collecting an amount that is no longer legally required.