TCS (Tax Collected at Source) Explained for Indian Sellers

TCS tax collected at source under Section 206C — scrap, timber, 0.1% on sale of goods above Rs. 50 lakh, Form 27EQ filing and rates explained.

What TCS Is and How It Differs from TDS

Tax Collected at Source (TCS) is the mirror image of TDS — instead of the buyer deducting tax, the seller collects it over and above the sale price and deposits it with the government. It is governed by Section 206C of the Income Tax Act and was originally designed for traders of scrap, timber and minerals. Over the last few years the scope has expanded dramatically — motor vehicles above Rs. 10 lakh, overseas tour packages, foreign remittances and most importantly the general "sale of goods" provision under 206C(1H). The collected tax appears in the buyer's 26AS and can be used as credit against their income tax liability.

Traditional 206C Items and Their Rates

Scrap is taxed at 1%, tendu leaves at 5%, timber obtained under a forest lease at 2.5%, other timber at 2.5%, alcoholic liquor for human consumption at 1% and minerals such as coal, lignite and iron ore at 1%. Toll plaza, parking lot and mining leases attract 2% TCS on the licence fee. If the buyer is using the goods for manufacturing (not trading) and furnishes Form 27C, the seller is exempt from collecting TCS. Always retain the original 27C declaration — assessing officers ask for it during scrutiny.

The Big One — 0.1% on Sale of Goods over Rs. 50 Lakh

Section 206C(1H) requires any seller with turnover above Rs. 10 crore in the previous year to collect 0.1% TCS on sale of goods to a single buyer where the consideration exceeds Rs. 50 lakh in a financial year. The rate becomes 1% if the buyer does not furnish a PAN. TCS is collected only on the amount above Rs. 50 lakh, not on the entire sale. Note the carve-out — if Section 194Q (buyer deducting TDS at 0.1%) applies, 206C(1H) does not, so you must check what the buyer is doing before raising the invoice.

Deposit, Form 27EQ and Form 27D

TCS collected in any month must be deposited by the 7th of the following month using challan ITNS 281, with the same 1.5% per month interest for delays. The quarterly return is Form 27EQ — due on 15th July, 15th October, 15th January and 15th May (note these are 15 days later than 26Q dates). The TCS certificate to be issued to the buyer is Form 27D, generated from TRACES within 15 days of filing 27EQ. Most disputes with buyers happen here — they will not accept the 27D if the PAN or amount is wrong, so reconcile before filing.

Automating TCS at Invoice Time in BillBabu

TCS is best handled at the point of invoicing, because once the invoice is raised at a wrong rate, correcting it requires a credit note and a fresh document. In BillBabu you can mark customers as 206C(1H) applicable and set a running buyer-wise tally — the system automatically adds the 0.1% line once cumulative sales cross Rs. 50 lakh in the year. The TCS column flows into your sales register and you can export a buyer-wise summary that matches Form 27EQ. That eliminates the most common scrutiny query — wrong TCS base.

---

Built for Indian small businesses. BillBabu is GST-compliant billing software that helps you create invoices, manage estimates, track payments and stay audit-ready — from your phone. Learn more about BillBabu or download the app.