TCS (Tax Collected at Source) Rates and Who Collects It: Income Tax Act 2025

Tax collected at source (TCS) is tax that a seller, licensor or authorised dealer adds to the amount the buyer pays and deposits with the government. Under the Income Tax Act, 2025 it sits in section 394(1), which lists nine kinds of receipts. The rates are 2% for most items, 1% for motor vehicles above ten lakh rupees, and 2% or 20% on Liberalised Remittance Scheme (LRS) remittances above ten lakh rupees, depending on the purpose. The buyer then claims the TCS as credit against their own tax.

This guide covers the rate table, who is a collector, when the tax is collected and deposited, the exceptions, and what happens on a miss. Every figure is from the Act as amended by the Finance Act, 2026 (rates effective 1 April 2026, tax year 2026-27) and the Income-tax Rules, 2026. Reviewed on 10 November 2026.

What is the TCS rate under section 394 of the Income Tax Act, 2025?

Sl. No.	Nature of receipt	Collected by	Rate
1	Sale of alcoholic liquor for human consumption	Seller	2%
2	Sale of tendu leaves	Seller	2%
3	Sale of timber (under a forest lease or otherwise), or other forest produce (not timber or tendu leaves) obtained under a forest lease	Seller	2%
4	Sale of scrap	Seller	2%
5	Sale of coal, lignite or iron ore	Seller	2%
6	Sale consideration exceeding Rs 10 lakh for a motor vehicle, or other goods the Central Government notifies	Seller	1%
7	Remittance under the Liberalised Remittance Scheme, of an amount or aggregate exceeding Rs 10 lakh	Authorised dealer	2% for education or medical treatment; 20% for other purposes
8	Sale of an "overseas tour programme package" (including travel, hotel stay, boarding, lodging or similar related expenses)	Seller	2%
9	Use of a parking lot, toll plaza, mine or quarry for business (excluding mining and quarrying of mineral oil, including petroleum and natural gas)	Licensor or lessor	2%

The Finance Act, 2026 changed several of these. Liquor, scrap, coal, lignite and iron ore moved from 1% to 2%. Tendu leaves moved from 5% to 2%. LRS remittances for education or medical treatment moved from 5% to 2%. Overseas tour packages moved to a flat 2%; before 1 April 2026 they had 5% on amounts up to ten lakh rupees and 20% on amounts above that. If you work with older invoices, check which date applies.

"Forest produce" in row 3 has the meaning given in any State Act in force or in the Indian Forest Act, 1927 (section 394(6)), so check the State definition for items such as bamboo or lac.

Who has to collect TCS?

Section 394(1) names the person: the "seller" for Sl. Nos. 1 to 6 and 8, the "authorised dealer" for Sl. No. 7, and the "licensor or lessor" for Sl. No. 9. Section 402(33) defines a seller for Sl. Nos. 1 to 6. It is any of these:

• the Central Government or a State Government;
• a local authority, or a corporation or authority set up by a Central, State or Provincial Act;
• a company, firm or co-operative society; or
• an individual or HUF whose total sales, gross receipts or turnover from business or profession in the immediately preceding tax year exceeded Rs 1 crore (business) or Rs 50 lakh (profession).

For Sl. No. 8, the seller is simply whoever sells the overseas tour programme package (section 402(33)(b)). A small individual trader below the Rs 1 crore limit is therefore not a seller for scrap or timber, but a travel company is always a seller of tour packages.

The Table in section 402 also lists who counts as a buyer for each serial number and who is left out. For goods in Sl. Nos. 1 to 5, a buyer who obtains goods by auction, tender or any other mode is covered, but public sector companies, the Central and State Governments, embassies and consulates of foreign states, clubs, and retail buyers purchasing for personal consumption are not. For motor vehicles and other goods under Sl. No. 6, local authorities and public sector companies carrying passengers are left out, along with the Central and State Governments and the embassies and consulates of foreign states. Check section 402 before applying TCS to a government or institutional buyer.

When is TCS collected?

Section 394(1)(c) fixes the moment as the earlier of two events: when the amount payable by the buyer is debited to the buyer's account, or when the amount is received, in cash, cheque, draft or any other mode. So if a seller raises an invoice on 5 January and the buyer pays on 20 January, the TCS point is 5 January.

When and how is TCS deposited?

Under rule 218(2), a collector who is not a government office deposits the tax by 7 days from the end of the month in which it was collected, that is the 7th of the next month. For amounts debited or received in March, the due date is 30 April. Government offices have their own timing in rule 218(1). Rule 218(3), which brings in Form 141 within 30 days, applies to rent, property, contract and similar deductions of tax. It does not list section 394 collections.

What returns and certificates does a collector file?

What	Form	Due date	Rule
Quarterly statement of tax collected (section 394(1))	Form 143	Quarter ending 30 June: 31 July 30 September: 31 October 31 December: 31 January 31 March: 31 May of the next financial year	219(1), 219(4)
TCS certificate to the buyer, licensee or lessee	Form 133	Within 15 days from the due date of the quarterly statement	215(1), Sl. No. 4
Declaration by a manufacturing buyer for no collection (Sl. Nos. 1 to 5)	Form 127, in duplicate	Collector sends a copy to the Chief Commissioner or Commissioner by the 7th of the following month	212
Accountant's certificate for non-collection or short collection	Form 150	Furnished to the Director General of Income-tax (Systems)	221
Duplicate certificate, if the buyer lost the original	Form 133, marked duplicate	On the buyer's request	215(3)

A collector also needs a tax deduction and collection account number (TAN), under section 397(1)(a), and must quote it on challans, statements and certificates.

When is TCS not collected?

• Manufacturing use (section 394(2)). For Sl. Nos. 1 to 5, no tax is collected from a resident buyer who gives a written declaration in duplicate (Form 127, rule 212) that the goods will be used to manufacture, process or produce articles or generate power, and not for trading.
• Education loan remittances (section 394(4)(b)). The authorised dealer does not collect on an LRS remittance that is a loan from a financial institution, as defined in section 129(3)(b), taken to pursue education.
• Tour package already taxed (section 394(4)(a)). The dealer does not collect on an LRS amount on which the seller has already collected tax as an overseas tour package.
• Buyer already deducts TDS (section 394(5)). For Sl. Nos. 7 and 8, no TCS if the buyer is liable to deduct tax at source under another provision of the Act and has deducted it.

A buyer who expects a lower tax liability can apply to the Assessing Officer for collection at a lower rate. If the officer is satisfied that the buyer's total income justifies it, a certificate is issued and the collector must follow the certificate rate until it expires (section 395(3)).

How is TCS calculated? Two worked examples

Assumptions: tax year 2026-27, the seller is a company, all amounts are the receipt on which TCS applies, and the buyer has a valid PAN.

	Example 1: scrap sale	Example 2: overseas tour package
Section 394(1) row	Sl. No. 4	Sl. No. 8
Amount debited to the buyer	Rs 8,50,000 on 12 January 2027	Rs 4,80,000 on 9 March 2027
Rate	2%	2%
TCS	8,50,000 x 2% = Rs 17,000	4,80,000 x 2% = Rs 9,600
Total buyer pays	8,50,000 + 17,000 = Rs 8,67,000	4,80,000 + 9,600 = Rs 4,89,600
Deposit due	7 February 2027	30 April 2027 (March)
Reported in	Form 143 for the quarter ending 31 March 2027 (12 January falls in it), due 31 May 2027	Form 143 for the quarter ending 31 March 2027, due 31 May 2027

What if the buyer does not give a PAN?

Under section 397(2)(a), a person paying an amount on which tax is collectible must furnish a valid PAN to the collector. If not, section 397(2)(b)(ii) says tax is collected at the higher of twice the rate in the relevant provision, or 5%, not exceeding 20%. For a 2% item, twice the rate is 4%, so 5% applies. This higher rate does not apply to a non-resident who has no permanent establishment in India (section 397(2)(d)).

Applying that to Example 2: 4,80,000 x 5% = Rs 24,000 instead of Rs 9,600. If the declaration under section 394(2) or an application under section 395(3) is made without a valid PAN, the declaration is invalid and no lower-rate certificate is granted (section 397(2)(f)).

Real-life scenarios

Meena, a foundry owner. Meena buys scrap from a listed company to melt and cast machine parts. She gives the seller a Form 127 declaration saying the scrap is for manufacturing and not for trading. The seller does not collect TCS and sends a copy of the declaration to the Commissioner by the 7th of the next month. If Meena later sells the scrap on instead of melting it, the declaration no longer matches her use, so keep records that show where the scrap went.

Ravi, a parent. Ravi's daughter has been admitted to a university abroad. He remits more than ten lakh rupees under the LRS, funded by an education loan from a financial institution. Section 394(4)(b) means the authorised dealer does not collect TCS on that remittance. If Ravi had paid the same amount from savings for the same purpose, the dealer would collect at 2% under Sl. No. 7(a).

Anita, a tour operator. Anita's firm sells overseas tour packages. Every month she debits clients and collects 2% on each package, deposits it by the 7th, and reports it in the quarterly Form 143. If a buyer is liable to deduct tax at source on the same payment under another provision and has deducted it, section 394(5) removes the TCS.

How does the buyer claim credit for TCS?

The buyer's credit is given on the basis of the information the collector reports, and the collector issues Form 133 to the buyer (rule 203(1)(b), rule 215). For Sl. Nos. 6, 7 and 8 of section 394(1), rule 203(7) gives credit to the person from whose account tax is collected, for the tax year in which the collection is made. Credit is granted on the basis of the reported information and the claim in the return, subject to verification under the Board's risk management strategy (rule 203(8)). A buyer should therefore match Form 133 against the credit that appears in their tax statement.

What happens if TCS is not collected or deposited?

• Assessee in default. A person who does not collect, or collects and does not pay, is deemed an assessee in default (section 398(1)).
• Interest. Simple interest at 1% per month or part of a month from the date the tax was collectible to the date it is collected, and 1.5% per month or part of a month from the date it was collected to the date it is paid (section 398(3)(a)). The interest must be paid before the quarterly statement is filed (section 398(3)(b)).
• Tax is still payable. Even if the collector failed to collect, they remain liable to pay the tax to the government (section 397(3)(h)).
• Relief for Sl. Nos. 1 to 5 and 9. A collector is not treated as an assessee in default if the buyer has filed a return under section 263, included the amount in income and paid the tax, and the collector furnishes an accountant's certificate (Form 150, rule 221). Interest under section 398(3)(a)(i) then runs only until the buyer files the return.
• Time limit. An order for failure to collect cannot be made after six years from the end of the tax year in which the tax was collectible (section 398(5)(a)), or two years after the end of the tax year in which a correction statement is delivered, whichever is later (section 398(5)(b)).

Example: a seller collects Rs 17,000 on 20 January 2027 but deposits it on 12 February 2027, after the 7 February due date. The late payment spans part of one month, so interest is 17,000 x 1.5% x 1 = Rs 255.

Common mistakes

• Collecting only on receipt. The TCS point is the earlier of debit or receipt. An invoice raised in March triggers TCS even if payment comes in April.
• Using old rates. Scrap, liquor, coal, tendu leaves and tour packages were at different rates before 1 April 2026. Update your billing software.
• Assuming every seller must collect. An individual or HUF seller under the Rs 1 crore or Rs 50 lakh limit is not a seller for Sl. Nos. 1 to 6.
• Missing the 30 April date. TCS collected in March is deposited by 30 April, not 7 April.
• Collecting despite a valid Form 127. For Sl. Nos. 1 to 5, a proper declaration removes the collection requirement. The collector must still pass a copy to the Commissioner.
• Ignoring the no-PAN rate. Without a PAN, TCS goes up to the higher of twice the rate or 5%, capped at 20%.

Where this is in the Act

• Section 394(1): the Table of nine receipts, rates, and the time of collection.
• Section 394(2) and (3): declaration for manufacturing use and the copy to the Commissioner.
• Section 394(4) and (5): exceptions for LRS and tour packages.
• Section 395(3) and (4): lower collection certificate and the TCS certificate.
• Section 397: TAN, PAN, higher rate on no PAN, and statements.
• Section 398: failure to collect, interest and time limit.
• Section 402(33) and the Table in section 402: who is a seller and who is excluded.
• Rules 203, 212, 215, 218, 219 and 221 of the Income-tax Rules, 2026.

For deduction rates in the same Chapter, see our TDS rates chart under section 393 and the guide to TDS on rent.

How do CA firms track TCS across clients?

A CA firm with clients who sell scrap, timber or tour packages has the same job each month: confirm who is a seller this year, track the 7th and 30 April deposits, and keep the quarterly Form 143 and Form 133 dates in view. Finexo's practice management software tracks these deadlines across your client book and reminds you before they pass. It does not compute TCS or file the forms for you.

This article explains the Income Tax Act, 2025 (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026. It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.