Quick Answer
For tax year 2026-27 (1 April 2026 to 31 March 2027), Tax Collected at Source (TCS) is governed by Chapter XIX of the Income-tax Act, 2025 (30 of 2025) — the first tax year under the new Act. Key headline rates are: LRS remittance free up to ₹10 lakh per year per remitter then 20% (0.5% for education via loan; 5% for self-funded education/medical); overseas tour package 5%/20%; motor vehicle > ₹10 lakh at 1%; sale of goods (turnover > ₹10 cr) at 0.1% on consideration > ₹50 lakh; alcohol 1%; scrap 1%; tendu leaves 5%; timber 2.5%; coal/lignite/iron ore 1%. Non-filers and non-PAN collectees pay higher of twice the rate or 5%.
Last Updated: 15 April 2026 | Applicable From: Tax Year 2026-27 (1 April 2026 onwards) | Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026
This guide is written for collectors of Tax Collected at Source (TCS) under the Income-tax Act, 2025 — car dealerships, scrap merchants, liquor traders, iron-ore exporters, forest-lease holders, tour operators, Authorised Dealer banks, e-commerce operators, and any manufacturer or trader whose preceding-year turnover exceeds ₹10 crore and who must collect 0.1% TCS on large goods sales. It is also written for the collectees — parents sending children abroad to study, families paying for foreign tours, corporate buyers of expensive cars, and investors remitting money under the Liberalised Remittance Scheme (LRS) — who need to know how much TCS will be deducted upfront and how to claim it back as a tax credit. The Income-tax Act, 2025 (30 of 2025) received Presidential assent on 21 August 2025 and commences on 1 April 2026 as a single unconditional commencement. Every TCS collection on or after 1 April 2026 is governed by the 2025 Act; the repealed Income-tax Act, 1961 continues to govern collections up to 31 March 2026. This article sets out the full rate chart, the rationalised LRS structure (the headline change), the Sec 206C(1H) sale-of-goods provision and its interaction with Sec 194Q TDS, quarterly Form 27EQ return filing, Form 27D certificate issuance, non-filer higher rate, interest on late payment, and refund/adjustment mechanics through the TRACES portal.
Definition — Tax Collected at Source (TCS): TCS is the mechanism under Chapter XIX of the Income-tax Act, 2025 by which a seller of specified goods, an Authorised Dealer bank, a tour operator or a specified e-commerce operator collects a prescribed percentage of tax from the buyer/remitter at the time of receipt of consideration (or debit to the buyer’s account) and deposits it with the Central Government. The buyer claims the TCS as a tax credit in the annual income tax return.
Three substantive changes matter. First, the LRS threshold for TCS has been rationalised to ₹10 lakh per remitter per financial year, up from ₹7 lakh — the first ₹10 lakh of any LRS remittance is now free of TCS. Above that, 0.5% for education financed by loan, 5% for self-funded education or medical, 20% for all other purposes, and 5%/20% for overseas tour packages (split at the same ₹10 lakh line). Second, the interaction between Sec 194Q TDS and Sec 206C(1H) TCS on sale of goods has been clarified in favour of the buyer — where both can apply, TDS prevails and TCS is not collected. Third, the non-filer higher-rate mechanism has been unified: the collector applies the higher of twice the prescribed rate or 5% whenever the collectee is either without PAN or on the non-filer list maintained on the e-filing portal’s Compliance Check. All other TCS rates — alcohol (1%), scrap (1%), minerals (1%), forest produce (2.5%), tendu leaves (5%), motor vehicles above ₹10 lakh (1%) — are carried forward unchanged from the 1961 Act regime.
The Income-tax Act, 2025 (30 of 2025) became law on 21 August 2025 and, by the operation of Sec 1(3), commences on 1 April 2026. There is no chapter-wise notification and no phased rollout. Chapter XIX of the Act consolidates every collection and recovery provision — TDS (Sec 380 range), TCS (carrying forward the Sec 206C numbering as practitioner shorthand), advance tax (old Sec 207-211 equivalents), interest on default (234A/B/C/D equivalents) and tax recovery. The TCS provisions capture three broad classes of transaction: (a) sales of specified goods (alcohol, forest produce, scrap, minerals, motor vehicles above ₹10 lakh, any goods above ₹50 lakh by a large-turnover seller), (b) LRS foreign remittance and overseas tour packages through Authorised Dealer banks / tour operators, and (c) specified services routed through marketplace operators (the Sec 206C(1J) range).
The “tax year” concept replaces the old “previous year” / “assessment year” pair. Tax year 2026-27 runs from 1 April 2026 to 31 March 2027 and is the first tax year under the 2025 Act. Every reference to “financial year” in the TCS provisions continues to mean 1 April to 31 March and, for practical purposes, is synonymous with “tax year”. Collections on or before 31 March 2026 are governed by the repealed Income-tax Act, 1961.
| Provision | Nature | Threshold | Rate |
|---|---|---|---|
| 206C(1) | Alcoholic liquor for human consumption | Nil | 1% |
| 206C(1) | Tendu leaves | Nil | 5% |
| 206C(1) | Timber (forest lease) | Nil | 2.5% |
| 206C(1) | Timber (other mode) | Nil | 2.5% |
| 206C(1) | Other forest produce (not timber/tendu) | Nil | 2.5% |
| 206C(1) | Scrap | Nil | 1% |
| 206C(1) | Minerals — coal, lignite, iron ore | Nil | 1% |
| 206C(1C) | Parking lot / toll plaza / mine lease | Nil | 2% |
| 206C(1F) | Motor vehicle | Above ₹10,00,000 per vehicle | 1% |
| 206C(1G) | LRS — education via loan | Above ₹10,00,000 p.a. | 0.5% |
| 206C(1G) | LRS — education (self-funded) / medical | Above ₹10,00,000 p.a. | 5% |
| 206C(1G) | LRS — other purposes | Above ₹10,00,000 p.a. | 20% |
| 206C(1G) | Overseas tour programme package | Up to ₹10,00,000 / Above ₹10,00,000 | 5% / 20% |
| 206C(1H) | Sale of goods (seller turnover > ₹10 cr) | Above ₹50,00,000 per buyer p.a. | 0.1% |
The Liberalised Remittance Scheme (LRS) permits a resident individual to remit up to USD 2,50,000 per financial year for permissible current and capital account transactions — investments in overseas stocks, property, children’s education, medical treatment, gifts and maintenance of close relatives. The TCS chapter taxes this remittance at the Authorised Dealer bank (typically the remitter’s own bank) at the time of remittance. The critical change under the 2025 Act regime is that the first ₹10,00,000 of aggregate LRS remittance in a financial year is fully exempt from TCS — up from the earlier ₹7,00,000.
Above ₹10,00,000, the rate depends on the purpose declared on Form A2 (FEMA remittance form):
The aggregation is per remitter per financial year across all Authorised Dealers — a remitter cannot split remittance across three banks to claim three ₹10 lakh thresholds. The Authorised Dealer must obtain a self-declaration from the remitter disclosing any LRS remittance through other banks during the same financial year, and TCS is applied accordingly. The TCS is remitted using Challan ITNS 281 with a dedicated TCS section code and flows into the remitter’s Form 26AS / AIS within 4–6 weeks.
An overseas tour programme package means any tour package offering international travel, including to Nepal and Bhutan, with any two or more of the following components: travel ticket, accommodation, boarding, lodging or any other expenditure of a similar nature. The tour operator collecting payment must collect TCS as follows:
Unlike the general LRS exemption, overseas tour packages do not enjoy the ₹10 lakh free threshold — TCS at 5% kicks in from the very first rupee of a qualifying package. The 20% rate kicks in only when the aggregate of overseas tour package purchases from one or more tour operators by the same buyer crosses ₹10 lakh in the same financial year. A self-declaration from the buyer about other package purchases is expected.
Under the Sec 206C(1F) equivalent, every seller of a motor vehicle must collect TCS at 1% from the buyer where the sale consideration exceeds ₹10,00,000 for any one vehicle. The threshold is vehicle-by-vehicle, not aggregate — a fleet buyer purchasing five cars at ₹12 lakh each triggers TCS on each car, not only after the aggregate crosses ₹10 lakh. The TCS applies only to motor vehicles as defined in the Motor Vehicles Act, 1988 — it does not extend to plant, machinery or construction equipment even if priced above ₹10 lakh. Electric vehicles are within the scope. Dealers must ensure that their DMS (dealer management system) flags the 1% TCS at the time of booking and prints it on the invoice.
The Sec 206C(1H) equivalent is the big-ticket commercial provision. Every seller whose total sales / gross receipts / turnover in the tax year immediately preceding the current tax year exceeded ₹10 crore must collect TCS at 0.1% on the amount received in the current tax year from any buyer, to the extent that such amount exceeds ₹50,00,000. The TCS is collected at the time of receipt (not at invoice), so it is GST-exclusive and applies only on the amount actually received.
The provision overlaps with the Sec 194Q TDS regime, which requires a buyer with turnover above ₹10 crore to deduct 0.1% TDS on purchases above ₹50 lakh. When both apply to the same transaction, the buyer’s TDS obligation prevails and the seller is not required to collect TCS. In practice:
Excluded categories: exports, goods already covered under Sec 206C(1), (1F) or (1G) (alcohol, motor vehicles, LRS, overseas tours), and transactions with Central/State Government, local authorities, RBI or specified institutions.
The 2025 Act preserves the old Sec 206CC (non-PAN) and 206CCA (non-filer) higher-rate regime through a consolidated provision. Where the collectee has not furnished PAN, or is identified as a specified non-filer (no return filed for the preceding tax year despite aggregate TDS/TCS of ₹50,000 or more in that year), the collector must apply TCS at the higher of (a) twice the specified rate or (b) 5%. The e-filing portal’s Compliance Check utility returns a binary flag against a PAN — collectors are expected to run a bulk check at the start of each quarter and re-check individual PANs before large invoices.
TCS collectors file Form 27EQ each quarter. For tax year 2026-27:
Note that the TCS return due dates are earlier by 16 days than the corresponding TDS return due dates. Late filing attracts a fee of ₹200 per day capped at the TCS amount, under the Sec 234E equivalent. Form 27EQ is prepared using the NSDL Return Preparation Utility (RPU), validated via the File Validation Utility (FVU), and uploaded on TRACES / e-filing portal.
The TCS collector must issue Form 27D to each collectee within 15 days of the quarterly return due date. For tax year 2026-27, Form 27D issuance deadlines are: Q1 by 30 July 2026, Q2 by 30 October 2026, Q3 by 30 January 2027, Q4 by 30 May 2027. Form 27D is generated only from the TRACES portal after the Form 27EQ has been successfully processed and the default check is clear. Manual or Excel-prepared TCS certificates are not valid. The buyer uses Form 27D and the AIS to claim credit for the TCS in his annual income tax return.
Two distinct interest provisions apply to TCS defaults:
Penalty for failure to collect TCS — equal to the amount not collected, plus the underlying tax if the collectee has not paid as advance tax or self-assessment. Penalty for late filing of Form 27EQ — ₹200 per day under Sec 234E, plus ₹10,000 to ₹1,00,000 under the Chapter XXI penalty provisions for continuing default beyond one year.
Because TCS is a prepaid tax, the collectee usually claims it as a credit in the annual income tax return. Where the collectee anticipates no tax liability or a significantly lower tax liability than the TCS being collected — for example, a student remitting self-funded education money but with no taxable income in India, or a car buyer who is a loss-making startup — the collectee can apply to the jurisdictional Assessing Officer under the Sec 206C(9) equivalent for a lower-rate or nil-rate certificate. The application is filed in Form 13 on TRACES, and once granted, the collector applies the certificate rate instead of the statutory rate. If TCS has been collected in excess, the collector can file a correction statement on TRACES to adjust future deposits or request a refund through the CPC-TDS refund channel.
Example 1 — LRS education remittance with loan: Ms. A takes a ₹30 lakh education loan from a scheduled bank and remits the full ₹30,00,000 in July 2026 to her daughter’s US university through her bank. First ₹10 lakh — NIL. Balance ₹20 lakh — 0.5% → TCS ₹10,000. The bank reports the collection to TRACES; Ms. A receives Form 27D by 30 October 2026; the ₹10,000 becomes a prepaid tax credit in her return for tax year 2026-27.
Example 2 — LRS investment remittance: Mr. B remits ₹25,00,000 in May 2026 to buy US equities. First ₹10 lakh — NIL. Balance ₹15 lakh — 20% → TCS ₹3,00,000. This is a significant upfront cash-flow impact; Mr. B can recover it only through the annual return, typically refunded by October 2027.
Example 3 — Overseas tour package: Family C buys a European honeymoon package for ₹12,00,000 in June 2026. First ₹10 lakh — 5% → ₹50,000. Balance ₹2 lakh — 20% → ₹40,000. Total TCS ₹90,000. Note that unlike LRS, overseas tour packages start at 5% from ₹1, not after ₹10 lakh.
Example 4 — Sale of goods (206C(1H)) with TDS interaction: M/s XYZ Steel Ltd (preceding-year turnover ₹150 crore) sells TMT bars worth ₹2,00,00,000 during tax year 2026-27 to ABC Constructions (preceding-year turnover ₹12 crore). Since the buyer’s turnover > ₹10 crore, the buyer is liable under Sec 194Q to deduct 0.1% TDS on amounts above ₹50 lakh. The buyer’s TDS prevails → XYZ Steel does not collect TCS. Buyer deducts ₹15,000 (₹1.5 cr × 0.1%). If instead ABC had turnover ₹8 crore (below threshold), XYZ Steel would collect ₹15,000 TCS on receipts above ₹50 lakh.
Example 5 — Motor vehicle: A family buys an SUV on 10 June 2026 with ex-showroom price ₹18,00,000. The dealer collects TCS at 1% → ₹18,000 at the time of invoice. The buyer sees it in AIS within 6-8 weeks and claims it as a credit in his annual return.
CA V. Viswanathan: I have spent many client meetings explaining why a ₹30 lakh LRS remittance for an investment in a US ETF suddenly costs the remitter ₹4 lakh upfront — and the client’s reaction is invariably surprise, followed by questions about cash flow and refund timing. The rationalisation to a ₹10 lakh threshold in the 2025 Act is welcome but still leaves a 20% sting for investment remittance above that line. My practical guidance to HNI clients is: plan LRS remittances at the start of the financial year, know your purpose code before you walk into the bank, and keep careful track of any LRS remittance made through other banks — the declaration you sign is legally binding and a false declaration can attract prosecution. For corporate clients, the Sec 206C(1H) sale-of-goods provision is the quieter but bigger operational headache because it interacts with Sec 194Q. I recommend that every seller with turnover above ₹10 crore obtain a written declaration at the start of the tax year from each buyer confirming whether the buyer is itself above the ₹10 crore turnover line — this one-page form is the cleanest way to decide whether TCS or TDS applies. For motor vehicle and scrap dealers, the ₹10 lakh and the 1% rates have been stable for years, and the only real audit risk is non-collection from retail buyers who pay in cash or by multiple part-payments just under the threshold — ensure your DMS is configured to aggregate part-payments per vehicle. Finally, run Form 27EQ earlier rather than later: the 15-day window for Form 27D issuance is tight if you wait for the last day of the return deadline, and customers notice missing Form 27D at the end of the year when they reconcile Form 26AS before filing their own returns.
When do the TCS provisions under the Income-tax Act, 2025 take effect?
The Income-tax Act, 2025 (30 of 2025) received Presidential assent on 21 August 2025 and commences on 1 April 2026 as a single unconditional commencement. Chapter XIX of the Act, which houses the TCS provisions (the Sec 206C equivalent), therefore applies to every collection on or after 1 April 2026 — the first day of tax year 2026-27. Collections made on or before 31 March 2026 continue to be governed by the Income-tax Act, 1961.
What is the TCS rate on foreign remittance under LRS for tax year 2026-27?
Under the rationalised LRS TCS structure in the Income-tax Act, 2025, outward remittance under the Liberalised Remittance Scheme is free of TCS up to ₹10,00,000 per financial year per remitter. Remittance above ₹10,00,000 attracts TCS at 20%. Two carve-outs apply: (a) education loan-funded education remittance — 0.5% above ₹10,00,000; (b) other education or medical remittance — 5% above ₹10,00,000. Overseas tour programme packages continue at 5% up to ₹10,00,000 and 20% beyond.
What is the TCS rate on sale of motor vehicles?
Under the Sec 206C(1F) equivalent, the seller of a motor vehicle must collect TCS at 1% of the sale consideration from the buyer where the sale value exceeds ₹10,00,000 per vehicle. The threshold is per vehicle — not aggregate per buyer — so each qualifying sale triggers its own TCS. The TCS is collected at the time of receipt of consideration and is reflected in Form 26AS of the buyer as a prepaid tax credit.
What is TCS under the sale of goods provision?
The Sec 206C(1H) equivalent requires a seller whose turnover in the immediately preceding tax year exceeded ₹10 crore to collect TCS at 0.1% on sale consideration in excess of ₹50 lakh received from any buyer in the tax year. If the buyer is liable to deduct TDS at 0.1% under Sec 194Q (equivalent) on the same transaction, the buyer’s TDS obligation prevails and the seller is not required to collect TCS on that transaction.
Which form is used for TCS quarterly returns?
TCS returns are filed quarterly in Form 27EQ on the TRACES portal. The due dates for tax year 2026-27 are: Q1 — 15 July 2026; Q2 — 15 October 2026; Q3 — 15 January 2027; Q4 — 15 May 2027. Note that TCS return due dates are earlier than TDS return due dates by 16 days.
What is Form 27D?
Form 27D is the TCS certificate that the collector must issue to the collectee within 15 days of the quarterly return due date. It contains the name and PAN of collector and collectee, nature of goods, amount received, TCS amount, and challan details. Form 27D is generated from the TRACES portal after the Form 27EQ return is successfully processed. The collectee uses Form 27D to claim the TCS credit in the income tax return.
What is the TCS rate on scrap, forest produce and minerals?
Under the Sec 206C(1) equivalent, alcoholic liquor for human consumption attracts 1%; tendu leaves 5%; timber (forest lease or other mode) 2.5%; other forest produce 2.5%; scrap 1%; and minerals (coal, lignite, iron ore) 1%. These rates apply on gross sale consideration at the time of debiting the buyer’s account or receipt, whichever is earlier.
How does TCS interact with TDS on the same transaction?
Under the 2025 Act, where a transaction potentially attracts both TDS under Sec 194Q and TCS under Sec 206C(1H) — both at 0.1% on sale of goods — the buyer’s TDS obligation takes precedence. The seller is relieved of its TCS duty on that transaction. In practice, the buyer should issue a declaration to the seller confirming TDS status, which the seller preserves for audit trail.
Can the collectee claim a refund if TCS exceeds their final tax liability?
Yes. TCS is a prepaid tax — the collectee claims it as a tax credit in the annual income tax return. If total prepaid tax (advance tax + TDS + TCS) exceeds the final tax liability, the excess is refunded by the Centralised Processing Centre after the return is processed. Where the collectee expects nil or low final tax, a lower/nil rate certificate can be obtained from the AO in Form 13 on TRACES.
What is the non-filer higher rate for TCS?
Under the 2025 Act, the higher-rate mechanism of the old Sec 206CCA applies where the collectee has not filed returns for the preceding tax year despite aggregate TDS/TCS of ₹50,000 or more in that year. In such cases the TCS rate is the higher of twice the rate specified or 5%. The Compliance Check utility on the e-filing portal is used to verify non-filer status.
What is the interest on late payment of TCS?
Interest at 1% per month or part of a month is payable from the date on which TCS was collectible till the date of actual collection. Once collected, interest at 1% per month or part of a month also runs from the date of collection till the date of deposit. Late filing of Form 27EQ attracts a fee of ₹200 per day capped at the TCS amount in the statement.
Do individuals buying a car or sending money overseas need a TAN?
No — the collector (the car dealer, the Authorised Dealer bank, the tour operator) needs a TAN, not the individual buyer or remitter. The buyer/remitter simply quotes his PAN and receives Form 27D at the end of the quarter. The TCS amount is visible in the buyer’s Annual Information Statement (AIS) and Form 26AS, and becomes a tax credit claimable in the annual income tax return.
Are there any categories of LRS remittance fully exempt from TCS?
All LRS remittances up to ₹10,00,000 per financial year per individual remitter are fully exempt from TCS. Above ₹10,00,000, carve-outs are: education loan-funded education remittance at 0.5%, other education or medical remittance at 5%, overseas tour programme packages at 20%, and all other LRS purposes at 20%. The ₹10 lakh threshold is aggregated across all authorised dealers the remitter uses in a financial year.
How should businesses reconcile TCS in their books?
Collectors should maintain a TCS register by section and by collectee PAN. Reconciliation involves matching book TCS with challans deposited, reconciling Form 27EQ with challan credits on TRACES, downloading Justification Reports for defaults, and issuing Form 27D to all collectees by the due date. Buyers reconcile Form 27D received with the tax credit claimed in the return — AIS is the authoritative source.
What is the penalty for non-collection of TCS?
Where TCS ought to have been collected but was not collected, the collector is liable to pay the tax equal to the amount not collected, plus interest at 1% per month, plus a penalty equal to the amount not collected under the Chapter XXI penalty provisions. Persistent defaults can result in prosecution with imprisonment from three months to seven years. If the collectee has already paid the tax as advance tax or self-assessment, only the interest component survives for the collector.
Need help with TCS compliance, LRS remittance planning or Form 27EQ filing? Virtual Auditor’s team supports car dealers, scrap traders, exporters, tour operators, Authorised Dealer banks and HNI remitters across India. Call +91 99622 60333 or email support@virtualauditor.in.