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Updated On : April 10, 2026

Tax Collected at Source (TCS) – Complete Guide as per New Income Tax Act (w.e.f. April 1, 2026) | Finance Act 2026 Amendments

Tax Collected at Source (TCS) under Section 394 of the new Income Tax Act, 2025 (effective from April 1, 2026), read with Finance Act 2026 amendments, is a critical mechanism where sellers collect tax from buyers on specified goods, leases, luxury assets, and foreign remittances. This comprehensive guide has been completely rewritten to reflect the new statutory framework, including updated TCS rates, threshold changes, and compliance procedures. Whether you're a seller, buyer, taxpayer, or tax professional, this guide provides you with the latest TCS provisions as per the recodified Act.

        Major Updates – New Act (w.e.f. 1-4-2026) 
        Key Amendments under Finance Act 2026 & New Tax Code:

        ✓ Alcoholic liquor TCS rate increased from 1% to 2%

        ✓ Tendu leaves TCS rate reduced from 5% to 2%

        ✓ Scrap TCS rate increased from 1% to 2%

        ✓ Minerals (coal/lignite/iron ore) TCS rate increased from 1% to 2%

        ✓ LRS remittance for education/medical treatment – TCS rate reduced from 5% to 2% (on amount exceeding ₹10 lakh)

        ✓ Overseas tour package – uniform TCS rate of 2% (no slabs)

        ✓ Section 206C(1H) (sale of goods) – permanently omitted (not part of new Act)

        ✓ Sections 206AB & 206CCA (higher TCS for non-filers) – not reproduced in new Act

        ✓ New time limit for correction statements: 2 years from end of tax year

        ✓ Certificate for lower/nil collection now available under Section 395(3)

📌 How TCS Works – Complete Mechanism (Section 394)

1. Identification of Specified Transaction: Seller identifies whether the transaction falls under the Table under Section 394(1) (alcoholic liquor, scrap, timber, LRS remittance, luxury goods, parking lease, etc.).

2. Collection of Tax: At the time of debiting the buyer's account or receipt of consideration (whichever is earlier), the seller collects TCS at the prescribed rate from the buyer.

3. Deposit with Government: The collected TCS must be deposited with the Central Government using prescribed challan by the 7th of the following month (Section 397(3)(a)).

4. Filing of TCS Statement: The collector files quarterly TCS statements in Form 27EQ (or Form 24G for government collectors without challan) as per Section 397(3)(b).

5. Issuance of TCS Certificate: The collector must issue a TCS certificate in Form 27D to the buyer within the prescribed time (Section 395(4)(a)).

6. Claiming TCS Credit: The buyer can claim credit for TCS in their Income Tax Return; such credit is deemed as income received under Section 396.

👥 Who Collects TCS & From Whom?

Collector (Seller) – Section 394(1)

The following persons are required to collect TCS (as specified in column C of the Table):
• Seller (for goods: liquor, tendu leaves, timber, scrap, minerals, motor vehicles, luxury goods, overseas tour packages)
• Licensor or Lessor (for parking lot, toll plaza, mine or quarry)
• Authorised Dealer (for LRS remittances)
• Central/State Government, local authority, company, firm, co-operative society, Individual/HUF (if turnover exceeds prescribed limits)

Buyer (Collectee) – Exemptions

TCS is not collected from the following buyers:
• Public Sector Undertakings (PSU)
• Central/State Government
• Embassy, consulate, or foreign trade representation
• Clubs
• Persons buying goods for personal use (retail)
• Non-residents without a Permanent Establishment (PE) in India (Section 397(2)(d))
• Where buyer has deducted TDS under other provisions (Section 394(5))

📋 Official TCS Rates & Thresholds (New Act w.e.f. April 1, 2026)

The table below presents the complete TCS rates as per the Table under Section 394(1) of the new Income Tax Act, incorporating all amendments made by the Finance Act, 2026. These rates supersede all previous provisions under the old Act.

Sl. No.	Nature of Receipt / Goods	Person responsible to collect	TCS Rate	Threshold / Remarks
1	Alcoholic liquor for human consumption	Seller	2%	No threshold – on full consideration
2	Tendu leaves	Seller	2%	No threshold – on full consideration
3	Sale of timber (whether obtained under forest lease or otherwise) or any other forest produce obtained under forest lease	Seller	2%	On full consideration
4	Sale of scrap	Seller	2%	No threshold – on full consideration
5	Sale of minerals, being coal or lignite or iron ore	Seller	2%	No threshold – on full consideration
6	Sale consideration exceeding ₹10 lakh in case of – (a) motor vehicle; (b) any other notified goods	Seller	1%	On full consideration if value > ₹10 lakh per item
7	Remittance under LRS of amount/aggregate exceeding ₹10 lakh – for education or medical treatment	Authorised dealer	2%	On amount exceeding ₹10 lakh per FY
8	Remittance under LRS of amount/aggregate exceeding ₹10 lakh – for purposes other than education/medical	Authorised dealer	20%	On amount exceeding ₹10 lakh per FY
9	Sale of “overseas tour programme package” (including travel, hotel, boarding, lodging, etc.)	Seller	2%	Uniform rate – no threshold
10	Use of parking lot or toll plaza or mine or quarry for business purpose (excluding mineral oil)	Licensor or Lessor	2%	On entire amount received from licensee/lessee

📌 Important Notes as per New Act:
• TCS is calculated on the full consideration including GST, cess, and other charges.
• The ₹10 lakh threshold for LRS remittances is cumulative across all LRS transactions in a financial year on a first-come-first-serve basis.
• If the buyer does not furnish PAN/Aadhaar, TCS is collected at the higher of – twice the specified rate or 5% (capped at 20%) under Section 397(2)(b)(ii).
• International credit card usage while overseas is not LRS – no TCS (as per Ministry of Finance clarification).
• No TCS on LRS remittance if the amount is a loan from a financial institution for education (Section 394(4)(b)).
• No TCS under LRS or tour package if buyer has deducted TDS on the same income under other provisions (Section 394(5)).

⚙️ Detailed Analysis as per New Act Provisions

🍾 Alcoholic Liquor, Tendu Leaves, Scrap, Minerals [Section 394(1) Sl. 1,2,4,5]

Who collects TCS? Seller (as defined under the Act).
From whom? Any buyer except those exempted under Section 394(2) (declaration for manufacturing/power generation) or government/PSU/etc.
Rate: 2% for liquor, tendu leaves, scrap, and minerals (increased from previous 1% for liquor/scrap/minerals and reduced from 5% for tendu leaves).
No threshold – TCS on full consideration.

🌲 Timber & Forest Produce [Section 394(1) Sl. 3]

Rate: 2% on full consideration. “Forest produce” has the same meaning as under the Indian Forest Act, 1927 or any State Act (Section 394(6)).

🚗 Motor Vehicle / Notified Luxury Goods [Section 394(1) Sl. 6]

Who collects TCS? Seller (any person selling such goods).
Threshold: Only when sale consideration exceeds ₹10 lakh per item.
Rate: 1% on full consideration (including GST).
Notified goods: As per CBDT notification (e.g., wristwatches, art pieces, yachts, helicopters, handbags, shoes, sportswear, home theatre systems, horses for racing/polo, etc.).
Exemption: No TCS if buyer is Central/State Government, Embassy, local authority, PSU engaged in passenger transport, RBI, or registered motor vehicle dealer.

🌏 Remittance under LRS [Section 394(1) Sl. 7 & 8]

Who collects TCS? Authorised Dealer (bank).
Threshold increased to ₹10 lakh (cumulative per financial year).
Rates (w.e.f. 1-4-2026):
- Education or medical treatment: 2% on amount exceeding ₹10 lakh (reduced from earlier 5%).
- All other purposes (gift, investment, donation, etc.): 20% on amount exceeding ₹10 lakh.
Exemptions:
- Remittance out of education loan from a financial institution – Nil TCS (Section 394(4)(b)).
- Where TCS already collected on overseas tour package (Section 394(4)(a)).
- Where buyer has deducted TDS on same income (Section 394(5)).

✈️ Overseas Tour Programme Package [Section 394(1) Sl. 9]

Who collects TCS? Seller of the package (travel agent, tour operator, etc.).
Rate: Uniform 2% on full package cost (no threshold, no slab rates). The earlier slab of 5% up to ₹10 lakh and 20% above ₹10 lakh has been removed.
Inclusions: Travel, hotel, boarding, lodging, and any similar or related expenditure.

🅿️ Parking, Toll Plaza, Mine or Quarry Lease [Section 394(1) Sl. 10]

Who collects TCS? Licensor or Lessor.
Rate: 2% on entire amount received from licensee/lessee.
Exclusion: Mining and quarrying of mineral oil (including petroleum and natural gas) is excluded.

📝 Declaration for Nil TCS (Manufacturing / Power Generation) – Section 394(2)

Resident buyers can furnish a written declaration in duplicate to the seller (in prescribed form) stating that the goods (covered under Sl. Nos. 1 to 5 of the Table) are to be utilized –
(a) for manufacturing, processing, or producing articles/things or for generating power; and
(b) not for trading purposes.
Upon receipt of such declaration, the seller shall not collect TCS. The seller must deliver one copy of the declaration to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner by the 7th of the month following the month of receipt (Section 394(3)).

📅 TCS Deposit & Return Filing – Due Dates (Section 397)

Deposit of TCS – Section 397(3)(a)

Due Date: TCS collected during a month must be deposited by the 7th of the following month.
Government collectors (without challan): Same day + Form 24G submission (Section 397(3)(e)).
Mode of Payment: Electronic payment through prescribed challan.

Quarterly TCS Statement (Form 27EQ) – Section 397(3)(b)

Due Dates for Filing:
Q1 (April-June): July 15
Q2 (July-September): October 15
Q3 (October-December): January 15
Q4 (January-March): May 15 (next FY)
Correction statement: Can be filed within 2 years from the end of the tax year in which the original statement was due (Section 397(3)(f)).

📄 TCS Certificate (Form 27D) & Credit Rules – Section 395(4) & Section 396

Issuance of TCS Certificate: The collector must issue a certificate in Form 27D to the buyer within the prescribed period (generally 15 days from due date of filing quarterly statement). The certificate must specify – amount of tax collected, rate, and other particulars (Section 395(4)(a)).

Deemed income: Under Section 396, TCS collected is deemed as income received by the buyer for computing their total income.

Credit of TCS: The buyer can claim credit in their ITR, which will be reflected in Form 26AS/AIS. No separate credit transfer provision in new Act (old TCS credit transfer rule w.e.f. 1-10-2024 continues to be applicable until superseded).

📑 Certificate for Collection at Lower Rate (Section 395(3))

The buyer, licensee, or lessee may apply to the Assessing Officer (or prescribed income-tax authority) for a certificate to collect TCS at a lower rate or nil rate. The application must be made in Form 13 online using Digital Signature or EVC.

Eligible sections: All TCS provisions under Section 394(1) (including goods, leases, LRS, tour packages). The Assessing Officer, on satisfaction that the total income of the applicant justifies lower collection, shall issue a certificate. The certificate remains valid till its validity period (Section 395(3)(c)).

Note: For LRS and tour packages, lower certificate may be granted only in exceptional circumstances (as per CBDT guidelines).

⚠️ Consequences of Non-Compliance – Section 398

Nature of Default	Consequence (under new Act)
Failure to collect TCS	Deemed assessee-in-default (Section 398(1)). Interest @1% per month from the date TCS was collectible to date of actual collection (Section 398(3)(a)(i)).
Failure to deposit TCS after collection	Interest @1.5% per month from date of collection to date of deposit (Section 398(3)(a)(ii)). Charge on all assets (Section 398(4)).
Late filing of TCS statement	Late fee as per Section 427(1) & (2) (₹200 per day up to TCS amount) – Section 399(1)(c).
Penalty for false statement	Penalty under Section 412 (₹10,000 to ₹1,00,000) – Section 398(7) provides that no penalty shall be levied without good and sufficient reasons.
Prosecution under Section 276BB (old Act) – new Act equivalent	Rigorous imprisonment from 3 months to 7 years, along with fine.

⏰ Time limit for deeming assessee-in-default: No order under Section 398(1) shall be made after – (a) 6 years from end of tax year in which tax was deductible/collectible, or (b) 2 years from end of tax year in which correction statement is delivered, whichever is later (Section 398(5)).

✅ Key Simplifications under the New Act

Major reliefs and simplifications:
• Section 206C(1H) (0.1% TCS on sale of goods > ₹50 lakh) – Permanently omitted. Not carried forward into the new Act.
• Sections 206AB & 206CCA (higher TDS/TCS for non-filers) – Not reproduced. No need to check buyer's ITR filing status for TCS purposes.
• Uniform rates for many categories (e.g., scrap, minerals, tendu leaves all at 2%) reducing complexity.
• Correction statement time limit now clearly defined as 2 years (earlier no time limit).
• Certificate for lower/nil collection explicitly allowed under Section 395(3) with electronic processing option (Section 395(6) for TDS, analogous for TCS).

🧮 Interactive TCS Calculator (New Act Rates w.e.f. 1-4-2026)

Select Transaction Type: Transaction Value (₹): PAN/Aadhaar furnished?

📊 Practical Examples – TCS Calculation (New Act Rules)

Example 1 – Alcoholic liquor: Purchase of liquor worth ₹5,00,000. TCS @2% = ₹10,000 (increased from 1%).

Example 2 – Scrap sale: Company sells scrap worth ₹30,00,000. TCS @2% = ₹60,000 (increased from 1%).

Example 3 – Motor vehicle (>₹10 lakh): Car worth ₹18,00,000. TCS @1% = ₹18,000. If PAN not furnished, TCS @5% = ₹90,000 (capped at 20%).

Example 4 – LRS for self-funded education: Remittance of ₹15,00,000. Threshold ₹10 lakh. TCS @2% on ₹5,00,000 = ₹10,000 (reduced from earlier 5%).

Example 5 – Overseas tour package: Package cost ₹12,00,000. TCS @2% = ₹24,000 (uniform rate, no slabs).

Example 6 – LRS for investment: Remittance of ₹25,00,000 for foreign investment. TCS @20% on ₹15,00,000 = ₹3,00,000.

❓ Frequently Asked Questions on TCS (New Act Context)

Q1: Is TCS applicable on GST amount?
A: Yes, TCS is calculated on the full sales consideration including GST, cess, and other charges.

Q2: Can TCS be adjusted against advance tax?
A: Yes, TCS credit claimed in ITR is adjusted against final tax liability and reflected in Form 26AS/AIS.

Q3: What if the seller does not deposit TCS?
A: The buyer will not get credit. The buyer can follow up or report to the Income Tax Department. The seller is deemed an assessee-in-default under Section 398(1).

Q4: Is TCS applicable on second-hand motor vehicles?
A: Yes, if the value exceeds ₹10 lakh, TCS applies regardless of new/used.

Q5: How to get a TCS refund if excess TCS is collected?
A: Claim excess TCS as credit in your ITR. If total tax payable is less than TCS credit, the excess will be refunded.

Q6: Is TCS applicable on international credit card usage while overseas?
A: No, as per Ministry of Finance clarification, international credit card usage while overseas is not considered LRS, hence no TCS.

Q7: What is the cumulative limit for LRS remittances?
A: ₹10 lakh per financial year, cumulative across all LRS transactions on a first-come-first-serve basis.

Q8: Is TCS applicable on education remittances funded through loans?
A: No, remittances out of education loans from financial institutions are fully exempt under Section 394(4)(b).

Q9: What is the TCS rate for overseas tour packages under the new Act?
A: Uniform 2% (no threshold, no slab rates) w.e.f. April 1, 2026.

Q10: Is Section 206C(1H) still applicable?
A: No, Section 206C(1H) (TCS on sale of goods exceeding ₹50 lakh) has been permanently omitted and is not part of the new Income Tax Act.

Q11: Are Sections 206AB & 206CCA applicable under the new Act?
A: No, those sections have not been reproduced. Deductors/collectors are no longer required to check ITR filing status for higher TDS/TCS.

        📢 Key Takeaways – TCS Compliance under New Act (w.e.f. 1-4-2026):

        • ✓ Alcoholic liquor, tendu leaves, scrap, minerals: 2% TCS

        • ✓ Motor vehicle / luxury goods > ₹10 lakh: 1% TCS

        • ✓ LRS for education/medical: 2% on amount exceeding ₹10 lakh (Nil for loan-funded)

        • ✓ LRS for other purposes: 20% on amount exceeding ₹10 lakh

        • ✓ Overseas tour package: 2% uniform TCS (no threshold)

        • ✓ Parking/toll/mine lease: 2% TCS

        • ✓ Section 206C(1H) and Sections 206AB/206CCA omitted

        • ✓ Declaration for manufacturing/power generation (Form 27C) exempts TCS on goods (Sl. 1-5)

        • ✓ Certificate for lower/nil collection available under Section 395(3)

        • ✓ Always verify TCS credit in Form 26AS/AIS before filing ITR

📌 Disclaimer: This guide is based on the new Income Tax Act, 2025 as amended by the Finance Act, 2026, effective from April 1, 2026. It is for informational purposes only and does not constitute legal or professional tax advice. Readers are advised to consult a qualified tax professional or refer to the official Income Tax Department website (incometaxindia.gov.in) for the most current guidance.