What is Tax Collected at Source (TCS)

What is TCS? Full Form, Meaning, and Applicability in India

TCS (Tax Collected at Source) is a tax collected by sellers from buyers on specified transactions. Learn its types, rates, and applicability in India

Written by : Knowledge Center Team

2025-12-17

5720 Views

10 minutes read

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Taxes form the backbone of any nation’s economy, providing governments with the funds needed to develop infrastructure, deliver public services, and ensure economic stability. India’s taxation system is both comprehensive and diverse, encompassing direct taxes, like income tax and corporate tax, as well as indirect taxes such as the Goods and Services Tax (GST).

Among these, there exists a lesser-known yet equally significant provision: Tax Collected at Source (TCS).

This tax is collected by the seller from the buyer at the point of sale on specific goods and transactions, playing a vital role in ensuring compliance and steady revenue inflow. Wondering what exactly TCS means or how it is applicable? Worry not! This blog explores the details.

Key Takeaways

  • Certain sellers must collect Tax Collected at Source (TCS) from buyers when selling specified goods and deposit it with the government

  • Different goods and transactions attract different TCS rates, which are defined under Indian tax laws

  • Late payment of TCS results in penalties and interest, making it essential for businesses to adhere to deadlines

  • Some transactions, like government purchases, exports, and certain personal-use items, are exempt from TCS provisions

  • TDS is deducted at the source of income (by the payer), while TCS is collected at the point of sale (by the seller)

What is Tax Collected at Source (TCS)?

The meaning of Tax Collected at Source (TCS) is simple. It is a tax payable by a seller, which they collect from the buyer at the time of the sale of goods. Section 206C of the Income Tax Act mentions the list of goods on which the seller should collect tax from buyers.

  • Who is a Seller for TCS?: For TCS, a seller refers to any individual or organisation auth:orised to collect tax under this provision.

    1. Central Government
    2. State Government
    3. Statutory Corporation or Authority
    4. Local Authority
    5. Company
    6. Co-operative Society
    7. Partnership Firms
    8. Any Individual or Hindu Undivided Family (HUF) defined under Section 44AB who has gross receipts or total sales that exceed the specified financial restrictions based on the previous year
       
  • Who is a Buyer for TCS?: A buyer is categorised as any individual who receives the actual goods or the rights of receiving goods at a tender, auction, sale, or other modes. All individuals (except for the below-mentioned list of individuals and organisations) are classified as buyers for TCS:

    1. Public Sector Entities
    2. Central Government
    3. State Government
    4. Consulates and any other Trade Representations of a Foreign Nation
    5. High Commission Embassies
    6. Clubs such as social clubs or sports clubs

What Goods & Transactions are Covered Under TCS Provisions?

The following goods and/or transactions are considered for Tax Collected at Source:

  1. Liquors of alcoholic nature, including IMFL (Indian Made Foreign Liquor), that are deemed for human consumption

  2. Timber wood obtained from a leased forest area

  3. Tendu Leaves

  4. Timber wood obtained from any mode other than leased

  5. Forest produces (other than timber and Tendu leaves)

  6. Scrap

  7. Parking lot tickets, Toll Plaza, Mining and Quarrying

  8. Minerals that include iron ore, lignite or coal

  9. Bullion having a valuation of over ₹2 lakhs

  10. Jewellery whose value exceeds ₹5 lakhs

  11. Motor vehicle purchases over ₹10 lakhs

  12. Newly notified luxury and lifestyle goods (such as certain high‑value watches, artworks, and collectables) notified under Section 206C(1F) after the April 2025 amendments.

  13. With recent amendments, the scope of TCS has been expanded to cover certain luxury and lifestyle goods as well, in addition to traditional specified goods and minerals.

What are the TCS Rates Applicable in India?

The TCS rates for various goods and transactions are listed in the table below

Kindly note that the interest charges for any late payment of the TCS are 1% for every month delayed.

Type of GoodsExisting TCS Rate For FY 2025-26 (in %)
Liquors of alcoholic nature, including IMFL (Indian Made Foreign Liquor) that are deemed for human consumption1.00
Timber wood obtained from a leased forest area2.50
Tendu leaves5.00
Timber wood obtained from any mode other than leased2.50
Forest produces (other than timber and tendu leaves2.50
Scrap1.00
Parking lot tickets, toll plaza, mining and quarrying2.00
Minerals that include iron ore, lignite or coal1.00
Bullion having a valuation of over ₹2 lakhs or jewellery whose value exceeds ₹5 lakhs1.00
Purchase of a motor vehicle exceeding ₹10 Lakhs1.00

Meanwhile, TCS on the sale of goods exceeding ₹50 lakhs under Section 206C(1H) has been removed effective from April 1, 2025.

  • TCS Certificate (Form 27D): What You Need to Know: Form 27D is the official certificate issued to buyers as proof of Tax Collected at Source (TCS) by the seller. It contains essential details like the seller’s TAN, the buyer’s PAN, the amount collected, and the relevant assessment year. This document is crucial for buyers to claim credit for the TCS paid against their total tax liability. Understanding the importance and issuance process of Form 27D within 15 days from the due date of furnishing the quarterly TCS return. can help ensure smooth tax compliance.
  • Interest and Penalties for Late Payment of TCS: The timely payment of TCS is critical to avoid legal and financial consequences. If TCS is not deposited on time, the government imposes interest at a rate of 1% per month or part thereof until the payment is made. Additionally, failure to submit TCS returns within the due date attracts penalties under Section 271H, which can range from ₹10,000 to ₹1,00,000. Non-compliance can also lead to further scrutiny from tax authorities, making it essential for businesses to adhere to deadlines.
  • TCS Exemptions & Exclusions: While TCS applies to specific transactions, certain categories are exempt or excluded from its scope. Common exemptions include transactions with government entities, exports, and purchases made for personal use. Additionally, if the buyer provides a lower or nil deduction certificate under Section 206C, TCS may not be applicable. Understanding these exemptions can help businesses and individuals manage their tax obligations effectively.

Note: Effective from 1st April 2025, Sections 206AB and 206CCA, which previously mandated higher TDS/TCS rates for non-filers of income tax returns, have been omitted. This means sellers are no longer required to collect higher TCS from specified non-compliant buyers.

Difference Between TDS & TCS

TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) are both methods of tax collection, but they serve different purposes.

  • TDS is deducted by the payer while making payments to the recipient (e.g., salary, professional fees)

  • TCS is collected by the seller at the time of sale of specified goods (e.g., scrap, minerals)

While TDS ensures tax is deducted at the source of income, TCS ensures tax is collected at the point of sale, affecting different entities in a transaction.

Conclusion

Understanding TCS, its exemptions, compliance requirements, and penalties is essential for businesses and buyers. Proper adherence to tax laws can help avoid unnecessary interest charges and legal complications. By ensuring timely payments and maintaining accurate documentation, businesses can efficiently manage their TCS obligations and contribute to a seamless tax process. and with GST no longer applied on individual term insurance premiums, this is also a favourable time to explore affordable, protection-focused plans from insurers such as Canara HSBC Life Insurance.

FAQs

TCS full form is Tax Collected at Source. It is a mechanism under the Indian Income Tax Act where specified sellers collect tax from buyers at the time of making certain sales or carrying out specified transactions.

Yes, if your total tax liability is lower, you can claim a refund while filing your ITR.

Sellers specified under Section 206C of the Income Tax Act must collect TCS.

Yes, buyers can adjust the TCS paid against their total income tax liability.

Current TCS rates for FY 2025-26 :

  • Liquors of alcoholic nature, including IMFL, for human consumption: 1%​

  • Timber wood obtained from a leased forest area: 2.5%​

  • Tendu leaves: 5%​

  • Timber wood obtained by any mode other than leased: 2.5%​

  • Forest produce (other than timber and tendu leaves): 2.5%​

  • Scrap: 1%​

  • Parking lot tickets, toll plaza, mining and quarrying: 2%​

  • Minerals including iron ore, lignite or coal: 1%​

  • Bullion over ₹2 lakh and jewellery over ₹5 lakh: 1%​

  • Purchase of a motor vehicle exceeding ₹10 lakh: 1%

Under Section 206C (as reflected in your blog content and recent changes), TCS currently applies to the following main goods and transactions:

  • Alcoholic liquor for human consumption (including IMFL)

  • Timber obtained from a forest (whether from a leased area or by any other mode)

  • Tendu leaves

  • Any other forest produce (excluding timber and tendu leaves)

  • Scrap

  • Parking lot, toll plaza, mining and quarrying contracts

  • Certain minerals, such as coal, lignite and iron ore

  • Bullion valued above ₹2 lakh

  • Jewellery valued above ₹5 lakh

  • Purchase of a motor vehicle exceeding ₹10 lakh

  • Newly notified luxury / lifestyle goods (such as certain high-value watches, art items, etc.) were covered under Section 206C(1F) after the April 2025 amendments.

Separately, TCS on sale of goods exceeding ₹50 lakh under Section 206C(1H) has been removed with effect from 1 April 2025, so that specific provision no longer applies.

You can claim TCS credit while filing your ITR in a few simple steps:

 

  1. Check that the TCS collected is correctly reflected in your Form 26AS / AIS against your PAN.

  2. While filing your income tax return, go to the “Taxes Paid / TDS & TCS” or “Schedule TCS” section and ensure the TCS amounts (as per Form 27D / Form 26AS) are prefilled or entered correctly.

  3. The TCS will be adjusted against your total tax liability; if total TCS and TDS exceed your final tax payable, the excess will be issued to you as an income tax refund, credited to your bank account after the return is processed

Yes. TCS is collected on:

  • Foreign remittances under the Liberalised Remittance Scheme (LRS), once your total remittances in a financial year cross the applicable threshold.​

  • Overseas tour packages, where TCS is charged by the tour operator on the package amount at prescribed slab-based rates

If you don’t provide your PAN (or Aadhaar) to the seller collecting TCS, they must apply a higher TCS rate to your transaction. This means more tax will be collected upfront, and while you can still claim a credit/refund later through your income tax return, your immediate cash outflow will be higher.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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