What is TCS (Tax Collected at Source)?
Last updated: 27 June 2026
TCS (Tax Collected at Source) is a mechanism under the Income Tax Act where the seller of specified goods or services collects a prescribed percentage of tax from the buyer at the time of sale and deposits it with the Income Tax department on the buyer's behalf.
TCS is the mirror image of TDS: in TDS the payer deducts; in TCS the receiver (seller) collects from the buyer. The collected amount is credited to the buyer's Form 26AS and can be claimed as advance tax credit when the buyer files their return.
Key TCS sections relevant to SMBs (FY 2025-26)
| Section | Nature | Rate | Notes |
|---|---|---|---|
| 206C(1) | Timber, forest produce, scrap, minerals | 1–2.5% | Long-standing categories |
| 206C(1G) | Overseas remittances under LRS (above ₹7 lakh) | 20% (general); 5% for education/medical with loan | Applies to authorised dealers |
| 206C(1H) | Sale of goods above ₹50 lakh | ABOLISHED w.e.f. 1 April 2025 | Replaced by TDS u/s 194Q at buyer's end |
Fact box. TCS on sale of goods — Section 206C(1H) — was abolished from 1 April 2025. Sellers who were collecting 0.1% TCS on goods sales above ₹50 lakh must stop doing so for FY 2025-26 onward. The equivalent obligation now falls on the buyer under TDS Section 194Q.
TCS on foreign remittances — 206C(1G)
For businesses or individuals remitting money abroad under the Liberalised Remittance Scheme (LRS), the authorised bank or dealer collects TCS at 20% on amounts above ₹7 lakh per financial year (for most purposes). Remittances for overseas education with an education loan and medical treatment attract a lower 5% rate. This TCS is fully creditable against the remitter's tax liability.
E-commerce TCS — Section 52 of CGST Act (separate)
GST also has its own TCS for e-commerce operators (Section 52 of CGST Act) — this is entirely separate from income tax TCS and requires e-commerce platforms to collect 1% GST TCS from sellers on each transaction.
Frequently asked questions
How does a buyer claim TCS credit? TCS collected by the seller appears in the buyer's Form 26AS and Annual Information Statement (AIS). The buyer claims it as advance tax paid when filing their income tax return (ITR).
Does TCS apply to the GST component of an invoice? No. Income tax TCS is calculated on the invoice value excluding GST, since GST is not income to the buyer or seller.
Sources: Income Tax Department — incometax.gov.in; CBDT TDS/TCS Rate Chart FY 2025-26
General information, not professional advice. Verify on the official portal for your case. Reviewed by a Chartered Accountant; last updated 27 June 2026.
Related: TDS (Tax Deducted at Source) · Advance Tax · GSTR-3B