Section 206C of the Income tax Act, 1961: TCS Rules and Updates

Introduction

Section 206C of the Income-tax Act, 1961 governed Tax Collected at Source, commonly known as TCS, for transactions covered under the earlier income-tax law. It required specified sellers and other persons to collect tax from buyers on transactions involving scrap, timber, tendu leaves, minerals, motor vehicles, notified luxury goods, foreign remittances and overseas tour packages.

This blog explains the earlier applicability of Section 206C, its transaction-specific provisions, the omission of Section 206C(1H) and the compliance requirements applicable to periods up to 31 March 2026.

What Is Section 206C of the Income Tax Act?

Section 206C of the Income tax Act required tax to be collected from the buyer at a prescribed rate on specified transactions. The seller or collector had to:

• Collect TCS from the buyer;
• Deposit the amount with the Central Government;
• File the prescribed TCS statement;
• Issue a TCS certificate to the buyer; and
• Quote the correct PAN and TAN in the relevant records.

Businesses responsible for collecting TCS must obtain and quote a valid TAN. Eligible applicants can use Ebizfiling’s TAN Application Online service.

The applicable rate, threshold, and time of collection depended on the nature of the transaction.

Section 206C governed TCS under the earlier law. For the current rates, exemptions, and compliance rules applicable from 1 April 2026, read our detailed guide on Section 394 of the Income Tax Act, 2025.

Important Update on Section 206C(1H)

Section 206C(1H) earlier required eligible sellers to collect TCS at 0.1% on sale consideration exceeding ₹50 lakh received from a buyer during a financial year. It generally applied where the seller’s business turnover exceeded ₹10 crore in the immediately preceding financial year.

However, the Finance Act, 2025 inserted a proviso stating that Section 206C(1H) would not apply from 1 April 2025. Therefore, sellers were no longer required to collect TCS under this sub-section for sales made on or after that date. TDS under Section 194Q continued to apply to eligible buyers, subject to its prescribed conditions.

To understand how these provisions interacted before the omission, read our comparison of Section 194Q and Section 206C(1H).

Transactions Covered Under Section 206C

Section 206C of the Income tax Act, 1961 covered several transactions through its different sub-sections.

Sale of Specified Goods

TCS applied to the sale of goods such as:

• Alcoholic liquor for human consumption;
• Tendu leaves;
• Timber;
• Eligible forest produce;
• Scrap; and
• Minerals such as coal, lignite, and iron ore.

Parking Lots, Toll Plazas and Mining

A person granting a lease, licence or contract relating to a parking lot, toll plaza, mine or quarry was generally required to collect TCS at the prescribed rate.

Sale of Motor Vehicles and Notified Luxury Goods

TCS at 1% applied where the sale value of a motor vehicle exceeded ₹10 lakh. The tax was generally collected when the seller received the consideration from the buyer.

Foreign Remittances

Authorised dealers were required to collect TCS on qualifying remittances made under the Liberalised Remittance Scheme.

The applicable rate depended on the purpose of the remittance, the amount remitted, and whether the payment related to education, medical treatment, or another purpose.

For purpose-wise thresholds and rates under the earlier framework, read our guide on TCS on foreign remittances under LRS.

Overseas Tour Programme Packages

A seller of an overseas tour programme package was also required to collect TCS. The prescribed rate depended on the transaction value and the law applicable during the relevant financial year.

Sale of Motor Vehicles and Notified Luxury Goods

TCS at 1% applied where the value of an individual motor vehicle or notified luxury item exceeded ₹10 lakh. From 22 April 2025, the notified goods included wristwatches, art pieces, collectibles, yachts, boats, helicopters, sunglasses, handbags, shoes, specified sportswear and equipment, home theatre systems, and horses used for racing or polo. TCS was generally collected when the seller received the consideration.

Exemption for Manufacturing or Processing

A resident buyer could obtain specified goods without TCS where the goods were purchased for:

• Manufacturing;
• Processing;
• Producing articles or things; or
• Generating power.

This exemption was not available when the goods were purchased for trading.

The buyer had to provide the prescribed declaration to the seller stating that the goods would be used for an eligible purpose. The seller was then required to submit the declaration to the prescribed income tax authority within the applicable time.

Merely operating a manufacturing business did not automatically provide an exemption. The declaration and other statutory conditions had to be satisfied.

Lower TCS Certificate

A buyer, licensee or lessee could apply in Form 13 for a lower TCS certificate in eligible cases covered under Section 206C(1) or Section 206C(1C). A lower-rate certificate was not available for motor vehicles or notified goods under Section 206C(1F), or for foreign remittances and overseas tour packages under Section 206C(1G).

Time of TCS Collection

For specified goods, TCS was generally collected at the earlier of:

• Debiting the amount payable by the buyer; or
• Receiving the payment from the buyer.

Different collection rules applied to transactions such as motor vehicles, overseas tour packages and foreign remittances.

TCS Deposit and Return Filing

After collecting TCS, a non-government collector was generally required to deposit the amount with the Central Government within seven days from the end of the month in which the tax was collected.

The quarterly TCS statement was filed in Form 27EQ under the Income-tax Rules applicable to the Income tax Act, 1961.

The collector was also required to issue the prescribed TCS certificate to the buyer. The buyer should verify whether the TCS credit appears correctly in the tax records.

The collector was required to issue the TCS certificate in Form 27D within 15 days from the due date for filing Form 27EQ. Accordingly, the general certificate due dates were 30 July, 30 October, 30 January and 30 May.

For deadlines applicable from FY 2026-27, refer to our TDS and TCS Compliance Calendar FY 2026-27.

Consequences of Non-Compliance

Failure to comply with Section 206C of the Income tax Act could result in the following consequences:

Failure to Collect TCS

A person who failed to collect TCS could be treated as an assessee in default. A penalty equal to the amount that should have been collected could also apply.

Interest

Interest could generally apply at:

• 1% per month or part of a month from the date TCS was collectible until the date it was actually collected; and
• 1.5% per month or part of a month from the date TCS was collected until the date it was deposited with the Central Government.

Late Filing Fee

A late filing fee of ₹200 per day could apply under Section 234E for delay in filing the TCS statement. The total fee could not exceed the amount of TCS required to be reported.

Penalty for TCS Statement Default

A penalty ranging from ₹10,000 to ₹1 lakh could apply for failure to file the prescribed statement or for furnishing an incorrect statement, subject to statutory conditions.

Serious failure to deposit tax already collected could also lead to prosecution.

Professional Support for TCS Compliance

Ebizfiling helps businesses manage their TCS requirements accurately and on time. Our experts can assist with:

• Checking TCS applicability, thresholds and rates;
• Calculating and depositing TCS within the due date;
• Filing quarterly TCS statements and issuing certificates; and
• Correcting previously filed returns and resolving TCS mismatches.

Conclusion

Section 206C of the Income Tax Act contained separate TCS requirements for specified goods, motor vehicles, notified luxury goods, leases, foreign remittances and overseas tour packages. Businesses should identify the exact transaction before determining the applicable threshold, rate, exemption, and reporting requirement.

Section 206C(1H), which earlier covered sale consideration exceeding ₹50 lakh, ceased to apply from 1 April 2025 after the Finance Act, 2025 inserted a specific proviso making the sub-section inapplicable from that date.

Frequently Asked Questions