Quick Answer
11 min read|Updated: Apr 1, 2026|Income-tax
Quick Answer
Tax Collected at Source (TCS) under the Income Tax Act 2025 requires sellers to collect tax from buyers on specified transactions. For AY 2026-27, key TCS rates include: scrap/minerals at 1%-5% (Section 206C(1)), motor vehicles above ₹10 lakh at 1% (206C(1C)), overseas tour packages at 5%/20% (206C(1F)), LRS foreign remittance at 0.5%-20% depending on purpose (206C(1G)), and sale of goods above ₹50 lakh at 0.1% (206C(1H)).
- Applies per vehicle — the ₹10 lakh threshold is checked for each vehicle, not aggregate purchases.
- Covers cars, SUVs, luxury vehicles, and commercial vehicles with value above ₹10 lakh.
- TCS is collected on the entire sale amount, not just the excess over ₹10 lakh.
- Two-wheelers and three-wheelers are generally not covered as their value rarely exceeds ₹10 lakh.
- If the buyer is a government entity, embassy, consulate, or a person buying for personal use and furnishes Form 15G/15H, TCS may not apply in certain cases.
TCS on Overseas Tour Packages — Section 206C(1F)
Any person (tour operator) selling an overseas tour package must collect TCS from the buyer. The rates for AY 2026-27 follow a tiered structure:
- Up to ₹7,00,000: 5% TCS on the package amount.
- Above ₹7,00,000: 20% TCS on the amount exceeding ₹7 lakh.
- “Overseas tour package” means any package that includes travel to a destination outside India, regardless of whether it includes accommodation, sightseeing, or other services.
- The ₹7 lakh threshold is an aggregate limit per buyer per financial year — if the same person buys multiple packages, the amounts are added together.
TCS on LRS Foreign Remittance — Section 206C(1G)
When an authorised dealer (bank) remits money outside India under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS), TCS must be collected from the remitter. The rates depend on the purpose of remittance:
| Purpose of Remittance | TCS Rate (up to ₹7L) | TCS Rate (above ₹7L) | Remarks |
|---|---|---|---|
| Education — funded by education loan from financial institution | Nil | 0.5% | Lowest rate; loan must be from recognised institution |
| Education — self-funded (no loan) | Nil | 5% | Tuition, hostel, living expenses for foreign education |
| Medical treatment abroad | Nil | 5% | Hospital fees, related travel and accommodation |
| Overseas tour package (booked through tour operator) | 5% | 20% | Covered under 206C(1F); LRS TCS is additional if routed via bank |
| Investment in foreign shares, property, deposits, bonds | Nil | 20% | Highest rate; includes foreign portfolio investment |
| Gifts / family maintenance / general transfers | Nil | 20% | All purposes not separately covered |
Important: The ₹7,00,000 threshold is an aggregate annual limit per person across all purposes. If a person remits ₹5 lakh for education and ₹3 lakh for investment, TCS on the amount above ₹7 lakh (₹1 lakh) applies at the rate applicable to each purpose. The authorised dealer (bank) tracks the aggregate amount.
TCS on Sale of Goods — Section 206C(1H)
Section 206C(1H) requires sellers with turnover exceeding ₹10 crore in the preceding financial year to collect TCS at 0.1% on sale consideration received from a buyer exceeding ₹50,00,000 in a financial year. Key rules:
- Applies to all goods (not just specified goods under 206C(1)) sold by a high-turnover seller.
- TCS is collected on the amount exceeding ₹50 lakh, not on the entire amount.
- Does not apply to goods already covered under other TCS provisions or if the buyer is liable to deduct TDS under Section 194Q.
- Export transactions, government buyers, and certain exempt categories are excluded.
- The seller must issue a TCS certificate and file quarterly returns in Form 27EQ.
TCS vs TDS Overlap — Priority Rules
When a transaction falls under both TDS provisions and TCS provisions, the Income Tax Act 2025 provides clear priority rules:
- Section 194Q vs 206C(1H): If the buyer is liable to deduct TDS at 0.1% under Section 194Q (purchase of goods above ₹50 lakh, buyer turnover > ₹10 crore), this overrides the seller’s obligation to collect TCS under 206C(1H). TDS by the buyer takes priority.
- Practical impact: When both buyer and seller have turnover above ₹10 crore and the transaction exceeds ₹50 lakh, only TDS under 194Q applies — no double taxation of TDS + TCS.
- Other TCS sections: Section 194Q does not override TCS under 206C(1), 206C(1C), 206C(1F), or 206C(1G). Those TCS provisions operate independently.
Higher TCS for Non-Filers — Section 206CCA
Parallel to Section 206AB for TDS, Section 206CCA mandates higher TCS rates for buyers who have not filed their income tax returns. The conditions are identical:
- The buyer has not filed income tax returns for both of the 2 preceding assessment years for which the due date has passed.
- The aggregate TDS and TCS in each of those 2 years exceeded ₹50,000.
- The applicable TCS rate becomes the higher of: twice the applicable rate or 5%.
- Does not apply to non-resident buyers who do not have a permanent establishment in India.
TCS Credit Mechanism for Buyers
The buyer on whom TCS has been collected receives full credit for the tax amount while filing their income tax return:
- Step 1: Verify TCS collected in your Form 26AS and AIS (Annual Information Statement) on the Income Tax e-filing portal.
- Step 2: Report the TCS amount in the appropriate schedule of your ITR form (Schedule TCS).
- Step 3: The TCS amount is added to your total tax credits (along with TDS, advance tax, and self-assessment tax).
- Step 4: If total credits exceed your tax liability, the excess is refunded.
- TCS does not increase your taxable income — it is purely a tax payment mechanism.
TCS Returns, Certificates & Penalties
| Compliance Requirement | Details | Due Date / Consequence |
|---|---|---|
| TCS deposit with government | Deposit via Challan 281 at authorised bank or e-pay tax portal | 7th of the following month; government collectors — same day |
| TCS return filing — Form 27EQ | Quarterly return with details of all TCS collected | Q1: 15 Jul | Q2: 15 Oct | Q3: 15 Jan | Q4: 15 May |
| TCS certificate — Form 27D | Issued to buyer showing TCS collected and deposited | Within 15 days of filing Form 27EQ |
| Interest for late deposit | Simple interest on TCS amount not deposited on time | 1% per month (or part thereof) from collection date to deposit date |
| Penalty for non-collection | Penalty under Section 271CA | Equal to the amount of TCS not collected |
| Late filing fee — Form 27EQ | Fee under Section 234E | ₹200 per day until filed (capped at TCS amount) |
| Penalty for incorrect statement | Penalty under Section 271H | ₹10,000 to ₹1,00,000 |
For a full overview of penalties and interest under the Income Tax Act 2025, refer to our dedicated guide.
Changes from Income Tax Act 1961
- ₹7 lakh threshold consolidated: The Budget 2023 increase of the LRS/tour package TCS threshold from nil to ₹7 lakh is now embedded in the 2025 Act as a permanent provision rather than an annual amendment.
- Rate rationalisation: TCS rates on LRS above ₹7 lakh for non-education/non-medical purposes were increased to 20% (from the original 5%) — this change, effective from October 2023 under the 1961 Act, is now part of the main code.
- 206C(1H) codification: The sale-of-goods TCS provision, introduced via Finance Act 2020, is now integrated into the 2025 Act with the same ₹50 lakh threshold and 0.1% rate.
- Priority rule clarity: The TDS-over-TCS priority rule (Section 194Q overrides 206C(1H)) is now explicitly stated in the Act rather than relying on CBDT circulars.
- Section re-numbering: While the substantive provisions are largely unchanged, section numbers and cross-references have been updated to align with the 2025 Act’s structure.
Expert Tip — CA V. Viswanathan
Parents sending money abroad for their children’s education should structure remittances through an education loan to benefit from the 0.5% TCS rate (above ₹7 lakh) instead of the 5% self-funded education rate. For remittances above ₹7 lakh for investment purposes, the 20% TCS represents a significant cash flow hit — plan your remittances early in the year and file your ITR promptly to claim the TCS refund. For complete deduction planning including education loan interest under Section 80E, consult our guide.
Key Takeaways
- TCS is collected by the seller/collector from the buyer — not deducted by the payer.
- LRS remittance above ₹7 lakh attracts 20% TCS for investment/general purposes, 5% for education/medical, and 0.5% for loan-funded education.
- Overseas tour packages: 5% up to ₹7 lakh, 20% above ₹7 lakh.
- Sale of goods above ₹50 lakh: 0.1% TCS by sellers with turnover above ₹10 crore.
- TDS under Section 194Q overrides TCS under 206C(1H) — no double taxation.
- Non-filers face double TCS (minimum 5%) under Section 206CCA.
- File Form 27EQ quarterly and issue Form 27D to buyers promptly.
- Buyers claim TCS credit in their ITR — check Form 26AS and AIS for accuracy.
For TCS compliance, return filing, or advisory services, contact Virtual Auditor. See also our complete TDS rate chart and ITR filing services.
Frequently Asked Questions
What is TCS and how is it different from TDS?
TCS (Tax Collected at Source) is collected by the seller from the buyer at the time of sale, while TDS (Tax Deducted at Source) is deducted by the payer from the payment made to the payee. In TCS, the seller adds tax to the invoice; in TDS, the payer withholds tax before making payment. Both amounts are deposited with the government and the recipient claims credit in their ITR.
What is the TCS rate on foreign remittance under LRS for AY 2026-27?
No TCS up to ₹7 lakh aggregate per year. Above ₹7 lakh: 0.5% for education funded by loan, 5% for self-funded education and medical treatment, and 20% for all other purposes (investment, gifts, general remittance). The ₹7 lakh is an annual aggregate limit across all purposes — the bank tracks cumulative remittances.
How do I claim credit for TCS collected from me?
TCS collected from you appears in your Form 26AS and Annual Information Statement (AIS) on the Income Tax e-filing portal. When filing your ITR, report the TCS amount in the Schedule TCS section. The amount is credited against your total tax liability. If TCS exceeds your tax liability, the excess is refunded after processing your return.
Is TCS applicable on motor vehicles below ₹10 lakh?
No. TCS under Section 206C(1C) applies only on motor vehicles where the sale consideration exceeds ₹10,00,000. Vehicles priced at ₹10 lakh or below are not subject to TCS. The threshold is per vehicle, not aggregate — buying two vehicles of ₹8 lakh each does not trigger TCS.
What happens if both TDS under 194Q and TCS under 206C(1H) apply to the same transaction?
TDS under Section 194Q takes priority. If the buyer is liable to deduct TDS at 0.1% on purchase of goods above ₹50 lakh (and the buyer’s turnover exceeds ₹10 crore), the seller need not collect TCS under 206C(1H) on that transaction. This prevents double taxation on the same transaction.
What are the penalties for not collecting TCS?
A seller who fails to collect TCS is deemed an assessee in default. Consequences include: interest at 1% per month from the due date to actual deposit, penalty under Section 271CA equal to the TCS amount not collected, late filing fee of ₹200/day under Section 234E (capped at TCS amount) for delayed Form 27EQ, and potential prosecution for wilful default.
What is the due date for filing TCS returns (Form 27EQ)?
Form 27EQ is filed quarterly: Q1 (April-June) by 15 July, Q2 (July-September) by 15 October, Q3 (October-December) by 15 January, and Q4 (January-March) by 15 May. These are earlier than TDS return due dates by about 2 weeks. The collector must issue Form 27D (TCS certificate) to the buyer within 15 days of filing Form 27EQ.
Does the ₹7 lakh LRS threshold apply per transaction or per year?
The ₹7,00,000 threshold under Section 206C(1G) is an annual aggregate limit per person across all LRS remittances. If you remit ₹4 lakh in April and ₹5 lakh in September (total ₹9 lakh), TCS applies on ₹2 lakh (the amount above ₹7 lakh). The authorised dealer (bank) tracks cumulative remittances for each remitter during the financial year.
