What is TCS (Tax Collected at Source)?
Tax Collected at Source (TCS) is a tax that the seller collects from the buyer at the time of sale of specified goods or services. Unlike TDS (Tax Deducted at Source), where the payer deducts tax before making payment, TCS is an additional amount collected by the seller on top of the sale price. The seller then deposits this collected tax with the government on behalf of the buyer.
TCS is governed by Section 206C of the Income Tax Act, 1961. The Income Tax Department mandates TCS on specific categories of transactions, including sale of motor vehicles above ₹10 lakh, foreign remittance under the Liberalised Remittance Scheme (LRS), sale of scrap and minerals, overseas tour packages, and sale of goods exceeding ₹50 lakh to a single buyer.
- TCS is collected by the seller from the buyer at the point of sale, unlike TDS which is deducted by the payer
- Rates vary from 0.1% to 20% depending on the type of goods or services and the buyer's PAN status
- The buyer can claim TCS as a tax credit when filing their income tax return, and any excess is refundable
- TCS applies to both resident and non-resident buyers, with higher rates applicable when the buyer does not furnish PAN
How is TCS Calculated?
TCS is calculated by applying the applicable TCS rate to the transaction amount. For certain categories, TCS applies only on the amount exceeding a threshold limit. The rate depends on the type of goods or services, the purpose of the transaction, and whether the buyer has provided PAN.
TCS Amount = Taxable Amount x Applicable TCS Rate
Here is the step-by-step process:
Step 1: Identify the type of transaction (motor vehicle, scrap, foreign remittance, overseas tour, sale of goods, etc.)
Step 2: Determine the applicable threshold limit, if any. For example, ₹10 lakh for motor vehicles, ₹7 lakh for foreign remittance, ₹50 lakh for sale of goods
Step 3: Calculate the taxable amount (total amount minus threshold, where applicable)
Step 4: Check if the buyer has provided PAN. No PAN means a higher TCS rate applies
Step 5: Apply the TCS rate to the taxable amount to get the TCS payable
Step 6: The total amount payable by the buyer = Transaction amount + TCS amount
TCS Calculation with Example
Let us calculate TCS for three common scenarios to understand how the rates and thresholds work in practice.
Example 1: Sale of Motor Vehicle
Transaction Amount: ₹15,00,000
Threshold: ₹10,00,000
Taxable Amount: ₹15,00,000 - ₹10,00,000 = ₹5,00,000
TCS Rate (with PAN): 1%
TCS Amount: ₹5,00,000 x 1% = ₹5,000
Total Payable by Buyer: ₹15,05,000
Example 2: Foreign Remittance (Other Purpose)
Remittance Amount: ₹12,00,000
Threshold: ₹7,00,000
Amount up to ₹7L: TCS at 5% = ₹0 (within threshold)
Amount above ₹7L: ₹5,00,000 x 20% = ₹1,00,000
Total TCS: ₹1,00,000
Example 3: Sale of Goods (above ₹50 lakh)
Sale Amount: ₹75,00,000
Threshold: ₹50,00,000
Taxable Amount: ₹75,00,000 - ₹50,00,000 = ₹25,00,000
TCS Rate (with PAN): 0.1%
TCS Amount: ₹25,00,000 x 0.1% = ₹2,500
TCS Rate Chart for FY 2025-26
The following table lists the TCS rates applicable for different categories of goods and services under Section 206C for the financial year 2025-26. Rates increase when the buyer does not provide PAN or Aadhaar.
| Category | Section | Rate (with PAN) | Rate (without PAN) |
|---|
| Motor Vehicle (above ₹10L) | 206C(1F) | 1% | 5% |
| Timber / Forest Produce | 206C(1) | 2.5% | 5% |
| Scrap | 206C(1) | 1% | 5% |
| Minerals (coal, lignite, iron ore) | 206C(1) | 1% | 5% |
| Tendu Leaves | 206C(1) | 5% | 10% |
| Foreign Remittance - Education (loan) | 206C(1G) | 0.5% above ₹7L | 5% |
| Foreign Remittance - Education (self) | 206C(1G) | 5% above ₹7L | 10% |
| Foreign Remittance - Other | 206C(1G) | 5% up to ₹7L, 20% above | 20% |
| Overseas Tour Package | 206C(1G) | 5% up to ₹7L, 20% above | 20% |
| Sale of Goods (above ₹50L) | 206C(1H) | 0.1% | 1% |
| E-commerce Operator | 206C(1-I) | 1% | 5% |
Note: These rates are subject to changes through Finance Act amendments. Businesses filing GST returns should track TCS obligations separately as they fall under the Income Tax Act, not the GST framework.
Why is TCS Important for Businesses?
TCS compliance is a critical obligation for businesses dealing in specified goods and services. Non-compliance can lead to penalties, interest charges, and legal consequences. Here is why TCS matters for your business:
- Legal compliance: Sellers dealing in specified goods are legally required to collect TCS. Failure to collect results in the seller being liable to pay the tax from their own pocket, along with interest at 1% per month
- Invoice accuracy: TCS must be correctly computed and reflected in invoices. Businesses using e-invoicing systems can automate TCS computation to avoid manual errors
- Quarterly filing: TCS returns must be filed quarterly using Form 27EQ. Delayed filing attracts a late fee of ₹200 per day, subject to the TCS amount
- Buyer trust: Accurate TCS collection and timely deposit with the government ensures that buyers can claim credit in their income tax returns without issues
- Avoiding penalties: Penalty for non-collection of TCS can equal the TCS amount itself. Additionally, prosecution proceedings may be initiated for willful default
How to Use This TCS Calculator
This free TCS calculator computes the exact Tax Collected at Source for any transaction type under Section 206C. Here is how to use it:
- Step 1: Select the transaction type from the dropdown. Choose from motor vehicle, timber, scrap, minerals, tendu leaves, foreign remittance, overseas tour package, sale of goods, or e-commerce operator payment
- Step 2: Enter the total transaction amount in rupees. This is the full value of the sale or remittance
- Step 3: If you selected "Foreign Remittance under LRS," choose the purpose: education with loan, education (self-funded), or other purpose. Each has a different TCS rate
- Step 4: Indicate whether the buyer has provided PAN. Without PAN, TCS is collected at a significantly higher rate
- Step 5: Click "Calculate TCS" to see the TCS amount, applicable rate, threshold details, and total amount payable by the buyer
Download the PDF for a complete TCS breakup including threshold analysis and compliance notes. For businesses that need to collect TCS on invoices, Petpooja Invoice automates TCS computation and adds it directly to your sales invoices. You can also use our GST Return Filing Checklist to stay on top of quarterly compliance.
TCS on Foreign Remittance under LRS
Foreign remittance under the Liberalised Remittance Scheme (LRS) is one of the most common TCS scenarios. The rules vary based on the purpose of remittance and the amount being sent abroad.
Education with Loan: If the remittance is for education and funded through a loan from a financial institution, TCS is charged at 0.5% on the amount exceeding ₹7 lakh. This is the lowest rate available for foreign remittance.
Education (Self-funded): If education expenses are paid without a loan, the TCS rate is 5% on the amount exceeding ₹7 lakh per financial year.
Other Purposes: For all other remittances (investment abroad, gift to NRI relatives, medical treatment, etc.), TCS is 5% up to ₹7 lakh and 20% on the amount exceeding ₹7 lakh.
The ₹7 lakh threshold is calculated per financial year and applies cumulatively across all remittances by the same individual. Banks and authorized dealers are responsible for collecting TCS at the time of processing the remittance. The buyer can claim this TCS as a credit against their total advance tax liability when filing their income tax return.
Difference Between TCS and TDS
TCS and TDS are both advance tax collection mechanisms under the Income Tax Act, but they work differently. Understanding the distinction is important for businesses that may need to comply with both.
| Parameter | TCS (Tax Collected at Source) | TDS (Tax Deducted at Source) |
|---|
| Collected/Deducted by | Seller collects from buyer | Payer deducts from payee |
| Impact on buyer/payee | Buyer pays more (sale price + TCS) | Payee receives less (payment minus TDS) |
| Applicable on | Sale of specified goods/services | Payments such as salary, rent, professional fees, interest |
| Governed by | Section 206C | Sections 192 to 206AA |
| Return form | Form 27EQ (quarterly) | Form 26Q / 24Q (quarterly) |
| Certificate issued | Form 27D | Form 16 / 16A |
In some transactions, both TCS and TDS may apply. For example, if a seller collects TCS on scrap sale and the buyer also deducts TDS on the payment, the higher of the two rates is typically applied to avoid double taxation. For a detailed understanding of salary deductions including TDS, refer to our guide on gross salary, CTC, and net salary components.
