TCS (tax collected at source): meaning and key changes
TCS is income tax a seller collects from the buyer on specified sales and remittances. Under the Income-tax Act 2025 it is in section 394.
Short answer
TCS (tax collected at source) is income tax that a seller or specified person collects from the buyer at the time of a specified sale or receipt, and deposits with the government to the buyer's credit. Under the Income-tax Act, 2025, TCS provisions are consolidated in section 394, replacing section 206C of the 1961 Act.
- Provision
- Section 394, Income-tax Act 2025 (formerly 206C)
- Collected by
- Seller or specified receiver
- Credit
- Appears in buyer's annual tax statement
- Removed
- TCS on sale of goods above ₹50 lakh, from 1 April 2025
Where TCS applies
TCS applies to a defined list of transactions, and the list has been narrowed in recent years. Categories have included sale of alcoholic liquor for human consumption, tendu leaves, forest produce, scrap and certain minerals, sale of motor vehicles above a value threshold, and foreign remittances under the Liberalised Remittance Scheme and overseas tour packages through authorised dealers and tour operators.
The general TCS on sale of goods by large sellers, formerly section 206C(1H), was removed with effect from 1 April 2025, leaving buyers to deduct TDS on such purchases where applicable.
How TCS is collected and reported
The seller collects TCS when it receives payment or debits the buyer's account, whichever applies under the provision, and deposits it like TDS. Quarterly TCS statements are filed and certificates issued to buyers. The buyer can claim credit for the TCS in its tax return, and it appears in Form 168, the annual statement that replaced Form 26AS. Rates are specified by the Finance Act and can change, so check them for the year.
Why it matters for startups
Most tech startups are more likely to suffer TCS than collect it, for example on foreign remittances by founders or employees for travel. Businesses in scrap, motor vehicles or other covered sectors must collect it. Do not confuse income-tax TCS with GST TCS, which e-commerce operators collect from sellers under the CGST Act.
Related services
Sources
- Taxmann: TDS and TCS under the Income-tax Act 2025
- TaxGuru: 25 major tax, GST and company law reforms of 2025
- EZTax: Income-tax Act 1961 vs 2025 section mapping
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Is TCS an additional tax?
No. TCS is an advance collection of the buyer's income tax, which the buyer can claim as credit when filing the return.
Is TCS on sale of goods still applicable?
No. The general TCS on sale of goods above ₹50 lakh was removed from 1 April 2025.
What is the difference between income-tax TCS and GST TCS?
Income-tax TCS is collected on specified sales and remittances under section 394. GST TCS is collected by e-commerce operators on supplies made through their platforms under section 52 of the CGST Act.