Section 206C of the Income-tax Act, 1961 mandates the seller of specified goods to collect tax from the buyer at the time of sale. This is known as Tax Collected at Source (TCS) and is applicable to businesses dealing in certain goods or transactions that are prone to tax evasion or unreported income.
The rationale behind this provision is to track business profits from the trade of goods like alcoholic liquor for human consumption, forest produce, scrap, tendu leaves, etc., and to ensure advance tax collection from buyers.
🔹 Who is Required to Collect TCS?
✅ “Seller” includes:
As per Explanation (c) to Section 206C(11), the term “seller” means:
- Central Government
- State Government
- Any local authority
- Corporation or authority established by or under a Central, State or Provincial Act
- Any company
- Firm
- Co-operative society
- Individual or HUF whose total sales, gross receipts, or turnover exceeds ₹1 crore in case of business or ₹50 lakhs in case of profession during the financial year immediately preceding the financial year in which goods are sold.
✅ “Buyer” excludes:
As per Explanation (a) to Section 206C:
The term “buyer”does not include:
- Public sector companies
- Central/State Government
- Embassy/High Commission/Consulate/Trade Representation of a foreign State
- Local authority
- Any person importing goods into India
Goods/Transactions Covered under Section 206C(1)
| S. No | Nature of Goods or Transactions | Rate of TCS | Time of Collection |
| 1 | Alcoholic liquor for human consumption | 1% | At the time of debiting the amount or receiving payment, whichever is earlier |
| 2 | Tendu leaves | 5% | Same as above |
| 3 | Timber obtained under a forest lease | 2.5% | Same as above |
| 4 | Timber obtained by any other mode | 2.5% | Same as above |
| 5 | Any other forest produce (excluding timber and tendu leaves) | 2.5% | Same as above |
| 6 | Scrap (as defined below) | 1% | Same as above |
| 7 | Minerals (coal, lignite, iron ore) – Section 206C(1F) | 1% | Same as above |
Definition of Scrap
As per Explanation (b) to Section 206C:
“Scrap” means waste and scrap from the manufacture or mechanical working of materials which is not usable as such because of breakage, cutting up, wear and other reasons.
Additional Provisions Under Section 206C
1️⃣ Section 206C(1C) – TCS on Lease or License
TCS is also applicable on granting lease or license or contract for:
- Parking lot
- Toll plaza
- Mining and quarrying
📌Rate: 2%
📌Collected from: Licensee/lessee
Section 206C(1F) – TCS on Sale of Motor Vehicles
Applicable when:
- Seller sells a motor vehicle > ₹10 lakhs to a buyer.
📌Rate: 1% of sale consideration
📌Collected at: Time of receipt of amount
Section 206C(1G) – TCS on Foreign Remittance and Tour Packages
| Type of Transaction | Rate | Threshold |
| Foreign remittance under LRS (excl. for education/medical) | 20% | No threshold |
| For education (funded by loan) | 0.5% | > ₹7 lakhs |
| For other education/medical | 5% | > ₹7 lakhs |
| Overseas tour packages | 5% | No threshold |
Section 206C(1H) – TCS on Sale of Goods (General Business TCS)
Applicable when:
- Seller’s turnover in previous FY exceeds ₹10 crores
- Sale consideration received from a buyer exceeds ₹50 lakhs in a FY
📌Rate: 0.1% (5% if PAN not provided)
📌Collected on: Amount received in excess of ₹50 lakhs
Time of Collection of TCS
TCS is to be collected at the time of debiting the amount payable by the buyer or at the time of receipt of such amount, whichever is earlier.
Return and Payment of TCS
| Aspect | Details |
| Deposit of TCS | Within 7 days from the end of the month in which tax is collected |
| TCS Return (Form 27EQ) | Quarterly |
| Due Dates | Q1 – 15 July, Q2 – 15 Oct, Q3 – 15 Jan, Q4 – 15 May |
| TCS Certificate | Form 27D issued to buyer within 15 days of filing return |
Consequences of Non-Compliance
| Non-Compliance | Consequences |
| Failure to collect TCS | Assessee deemed as “assessee in default” – liability to pay TCS + interest |
| Late payment of TCS | Interest @ 1% per month or part thereof under Section 206C(7) |
| Failure to file return | Late fees of ₹200 per day u/s 234E, maximum up to TCS amount |
| Penalty | Penalty u/s 271CA for failure to collect TCS = amount of TCS not collected |
Exemption from TCS
TCS is not applicable if the buyer furnishes a declaration in Form 27C stating that the goods are to be used for manufacturing, processing, or production and not for trading purposes.
📌 This declaration must be furnished in duplicate and must be verified by the collector.
Key Judicial Precedents
- CIT vs. Bharti Auto Products – TCS is applicable even if the goods are used in the business of the buyer, provided conditions are satisfied.
- CIT vs. Adisankara Spinning Mills – Declaration in Form 27C is necessary to claim exemption from TCS.
Summary Table – TCS under Section 206C
| Section | Transaction Type | Rate | Threshold/Condition |
| 206C(1) | Sale of alcohol, forest produce, scrap | 1–5% | No threshold |
| 206C(1C) | Lease/license for parking, toll, mining | 2% | No threshold |
| 206C(1F) | Sale of motor vehicle > ₹10 lakh | 1% | ₹10 lakh |
| 206C(1G) | Foreign remittance / Tour packages | 0.5–20% | Varies |
| 206C(1H) | Sale of goods exceeding ₹50L | 0.1% | Seller turnover > ₹10Cr |
Practical Examples
Example 1:
A trader sells scrap to a buyer for ₹5 lakhs. TCS @1% i.e. ₹5,000 must be collected from the buyer and deposited with the government.
Example 2:
A person buys a luxury car worth ₹12 lakhs. The dealer must collect ₹12,000 (1%) as TCS under Section 206C(1F).
Conclusion
Section 206C is a crucial tax collection mechanism aimed at bringing certain high-risk transactions within the tax net. Businesses must ensure timely and accurate compliance with TCS provisions to avoid interest, penalties, and litigation. It is advisable to maintain proper records of TCS collections, declarations, and returns.