TCS (Tax Collected at Source)
Tax collected by the seller at the point of sale on specified goods and transactions — scrap, timber, tendu leaves, liquor, minerals, and overseas remittances. Section 206C of the Income Tax Act. Different from TDS, which is deducted by the buyer.
TCS (Tax Collected at Source) is a mechanism under Section 206C of the Income Tax Act where the seller collects a prescribed percentage of tax from the buyer at the point of sale on specified transactions, then deposits it with the government. The tax collected is credited against the buyer's final income tax liability when they file their return.
TCS is the mirror of TDS — but the compliance obligation sits with the seller, not the buyer, and the collected amount is added to the sale price rather than deducted from a payment. The practical effect on the buyer is that they pay slightly more than the sale price; they later recover the excess via tax credit.
Who it applies to
- Sellers of specified goods: scrap metal (1%), timber from forest lease (2.5%), tendu leaves (5%), alcoholic liquor (1%), minerals including coal and iron ore (1%)
- E-commerce operators paying sellers through their platform (1% on net sales exceeding ₹5 lakh per seller per year)
- Banks and authorised dealers processing overseas remittances under the Liberalised Remittance Scheme (5–20%)
- Sellers of motor vehicles above ₹10 lakh (1%)
Most software, SaaS, or services startups have no TCS obligation on their revenues. TCS is primarily relevant for manufacturing, trading, and e-commerce platform businesses.
Key TCS rates under Section 206C
| Transaction | Section | Rate | Threshold |
|---|---|---|---|
| Sale of scrap | 206C(1) | 1% | No threshold |
| Timber from forest lease | 206C(1) | 2.5% | No threshold |
| Tendu leaves | 206C(1) | 5% | No threshold |
| Alcoholic liquor for human consumption | 206C(1) | 1% | No threshold |
| Minerals (coal, lignite, iron ore) | 206C(1) | 1% | No threshold |
| Motor vehicle sale (excluding two-wheelers) | 206C(1F) | 1% | ₹10 lakh per vehicle |
| E-commerce operator payment to seller | 206C(1H) | 1% | ₹5 lakh gross sales through platform per year |
| LRS remittance (general) | 206C(1G) | 5% | Remittances above ₹7 lakh per year |
| LRS overseas tour package | 206C(1G) | 20% | No threshold |
Higher rate for non-PAN/non-Aadhaar buyers: If the buyer does not furnish a PAN or Aadhaar, TCS is collected at twice the applicable rate or 5%, whichever is higher.
Compliance calendar for TCS collectors
| Obligation | Deadline |
|---|---|
| Deposit TCS to government | 7th of the following month (March TCS: 30 April) |
| Quarterly TCS return (Form 27EQ) | 15th of month following quarter end |
| TCS certificate to buyer (Form 27D) | 15th of month following quarter end |
| TAN registration | Before first collection |
TCS vs TDS — when each applies
The same transaction can attract either TCS or TDS depending on which party bears the compliance obligation:
Seller's obligation (TCS): When the seller is collecting from the buyer on specified goods or transactions (Section 206C). The seller adds TCS to the invoice.
Buyer's obligation (TDS): When the buyer is deducting from a payment to the seller on specified services or goods (Section 194Q, which covers purchase of goods above ₹50 lakh per year from a single seller). If both Section 194Q (TDS by buyer) and Section 206C(1H) (TCS by seller) could apply to the same transaction, TDS takes precedence and TCS is not collected.
E-commerce TCS in practice
For a marketplace-model startup (a platform where third-party sellers list products), TCS compliance under Section 206C(1H) is a live obligation once the platform begins collecting payments on behalf of sellers. The platform must:
- Register for TAN
- Collect 1% TCS when releasing payment to sellers whose gross receipts through the platform exceed ₹5 lakh in the financial year
- Issue Form 27D to each seller quarterly so they can claim TCS credit in their return
- File quarterly Form 27EQ
This is separate from the GST TCS obligation under CGST Section 52, which requires e-commerce operators to collect 1% GST TCS on supplies made through their platform by other registered sellers.
What founders commonly miss
GST TCS and income tax TCS are separate obligations. A marketplace platform typically faces both. Failing to comply with either creates liability for the platform, not the seller — the platform is responsible for depositing both.
LRS TCS affects founders making personal foreign investments. A founder remitting funds abroad under LRS — for foreign stocks, education, property, or foreign startup investments — faces 5% TCS on the amount above ₹7 lakh in a financial year. This is collected by the bank, not by the startup itself, but it does affect personal tax planning. The 20% rate for overseas tour packages is a common surprise for founders booking international travel through a travel agent.
Credit recovery requires filing. TCS amounts collected from a buyer only become recoverable when the buyer files their income tax return and claims credit. If a business is the buyer and has TCS collected on scrap purchases or platform sales, that TCS appears in Form 26AS and must be included in the advance tax and return computations to avoid overpaying tax.
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