Tax Collected at Source (TCS): Meaning, Rates and Rules

6 min read•Updated on 21st Oct, 2026•by Team Angel One

Tax Collected at Source (TCS) is the tax a seller collects from a buyer on specified sales and deposits; it is fully adjustable against your income tax liability and refundable when you file your ITR

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There are certain taxes in India that are added at the point of sale. Tax Collected at Source (TCS) is one of them. It is a tax that a seller adds to a buyer's bill and deposits with the government on specified goods and services listed under the Income-tax Act.

It is levied on transactions as varied as scrap and liquor sales, motor vehicle and luxury-goods purchases, and money sent abroad under the Liberalised Remittance Scheme (LRS).

This article walks you through the meaning and significance of TCS, who collects it, and how to claim the amount back while filing your income-tax return.

Key Takeaways

TCS is collected by the seller at the point of sale of certain purchases as a fixed percentage of the sale value and is then deposited to the exchequer within a set timeline.
The aim of levying TCS is to catch high-value or high-risk transactions early instead of relying on the buyers to declare the purchase.
TCS on goods has been rationalised to a flat 2% from 2026-27; however, motor vehicles and 10 notified luxury goods priced above ₹10 lakh attract 1% TCS.
Foreign remittances under the Liberalised Remittance Scheme (LRS) do not carry a TCS up to ₹10 lakh a year. Beyond that, education and medical remittances attract 2%, and other remittances 20%; overseas tour packages attract a flat 2% TCS from the first rupee spent with no threshold.
TCS is not an extra cost. It is fully adjustable against your income tax liability and refundable when you file your ITR.

What is Tax Collected at Source (TCS)?

TCS is a collection-at-source mechanism built into the Income-tax Act to catch high-value or high-risk transactions early. Instead of relying solely on the buyer to declare the purchase and pay tax later, the seller is made responsible for collecting a fixed percentage of the sale value and remitting it to the exchequer within a set timeline.

It is important to note here that the buyer isn’t taxed twice. The amount collected shows up in their Form 26AS and Annual Information Statement (AIS) and can be claimed as a credit against their total tax liability when they file their income tax return (ITR).

The government levies TCS to widen its tax base, create a paper trail for big-ticket spending, and reduce the scope for under-reporting income. Goods such as scrap, liquor, and minerals were covered first. Over time, the net has expanded to motor vehicles, notified luxury items, and foreign remittances.

Legal Framework Governing TCS

TCS provisions sit in Section 206C of the Income-tax Act, 1961. From April 1, 2026, these have been consolidated without any real change in rates or thresholds into Section 394 of the new Income-tax Act, 2025. Any person required to collect TCS must first obtain a Tax Collection Account Number (TAN), without which collections cannot be made or deposited. The seller’s job ends at collecting and depositing the tax. The actual tax liability always rests with the buyer, who gets full credit for what was collected.

Who Must Collect TCS?

The obligation to collect TCS falls on specific categories of sellers, namely:

The central or a state government, and any local authority.
Statutory corporations and authorities set up under a specific law.
Companies registered under the Companies Act.
Partnership firms, limited liability partnership (LLPs), and co-operative societies.
Individuals and Hindu Undivided Families (HUFs) whose accounts were subject to a tax audit under the Income-tax Act in the immediately preceding financial year.

Notably, if your business or professional turnover crossed the tax-audit threshold last year and you deal in any TCS-notified goods or services, you are required to collect and deposit TCS this year, even if you have never done so before.

Who is Exempt From TCS?

Certain buyers are kept outside the TCS net altogether, including:

The central and state governments, embassies, high commissions, consulates, and trade representations of foreign states.
Local authorities and public sector companies engaged in the business of carrying passengers (relevant for the motor vehicle TCS).
Buyers who purchase specified goods for manufacturing, processing, or generating power (not for trading), provided they furnish a declaration in Form 27C to the seller. Once a valid Form 27C is on file, the seller is relieved of the obligation to collect TCS on that particular transaction, though the declaration itself must be retained and reported to the tax department.

TCS Rate Chart for Financial Year 2026-27

Here is the current rate chart, reflecting the changes introduced by the Finance Act 2025 and Union Budget 2026-27:

Nature of Transaction	TCS Rate	Threshold
Alcoholic liquor for human consumption	2%	No minimum limit
Tendu leaves	2%	No minimum limit
Timber and other forest produce	2%	No minimum limit
Scrap	2%	No minimum limit
Minerals (coal, lignite, iron ore)	2%	No minimum limit
Motor vehicle	1%	Above ₹10 lakh per transaction
Notified luxury goods (watches, art, collectibles, yachts, sunglasses, bags, shoes, sportswear, home theatre systems, racing/polo horses)	1%	Above ₹10 lakh per item
Parking lot, toll plaza, mining or quarrying rights	2%	No minimum limit
LRS remittance funded by an education loan from a specified institution	NIL	Not applicable
LRS remittance for education or medical treatment	2%	Above ₹10 lakh a year
LRS remittance for other purposes	20%	Above ₹10 lakh a year
Overseas tour programme package	2%	No threshold — from the first rupee

If a buyer does not furnish a valid PAN or Aadhaar, the seller must collect TCS at twice the applicable rate of the transaction, or 5%, whichever is higher (capped at 20%). Thresholds are generally calculated per seller-buyer pair over the full financial year; the ₹10 lakh limit on motor vehicles and luxury goods, however, applies per transaction or per item.

TCS on Foreign Remittances and Overseas Travel

Money sent abroad under the Reserve Bank of India’s (RBI’s) Liberalised Remittance Scheme (LRS) for education, medical treatment, investments, gifts, or travel has its own TCS structure that keeps getting revised.

Rates were pushed as high as 20% in October 2023, before a string of taxpayer-friendly changes brought them down. The Finance Act 2025 raised the TCS-free threshold from ₹7 lakh to ₹10 lakh a year and fully exempted remittances funded by an education loan from a specified financial institution.

The Union Budget 2026-27 went further, cutting the rate on education and medical remittances from 5% to 2% above the threshold, and replacing the old 5%/20% slabs on overseas tour packages with a flat 2% that applies from the very first rupee, with no minimum amount.

The ₹10 lakh threshold is cumulative across all LRS channels per individual, per financial year, and resets every April 1. It includes everything from remittances and forex card loads to tour packages. Remittances for purposes other than education or medical treatment continue to attract 20% TCS beyond the threshold.

How TCS Is Calculated: A Quick Example

A buyer purchases a motor vehicle priced at ₹12 lakh. TCS applies at 1% because the value exceeds the ₹10 lakh threshold.

TCS collected = 1% of ₹12 lakh = ₹12,000.

The buyer pays the seller ₹12.12 lakh in total, and the seller deposits ₹12,000 with the government. The buyer later claims this ₹12,000 as a tax credit while filing their ITR.

TCS Certificate: Form 27D

Every seller who collects TCS must issue a certificate in Form 27D to the buyer, capturing both parties’ names and PAN, the seller’s TAN, the transaction date, the rate applied, and the total tax collected.

This certificate must reach the buyer within 15 days of the seller filing the relevant quarterly TCS return. It serves as documentary proof of compliance during scrutiny and lets the buyer reconcile the entry against their Form 26AS or AIS before filing their return.

TDS Vs TCS: Key Differences

Aspect	TDS	TCS
Who collects it	The person making the payment (payer)	The seller, at the time of sale
Point of collection	Source of income (salary, rent, professional fees, interest)	Point of sale of specified goods, services or remittances
Typical transactions	Salary, rent, contractor payments, interest, professional fees	Scrap, liquor, motor vehicles, luxury goods, foreign remittances
Who bears the compliance	Payer deducts and deposits	Seller collects and deposits
Credit available to	Payee, against their tax liability	Buyer, against their tax liability

How To Claim TCS Credit While Filing Your ITR?

Step 1: Check Form 26AS and the AIS on the income tax portal for TCS entries recorded against your PAN.

Step 2: Match each entry with the Form 27D certificate issued by the respective seller to confirm the amount and rate.

Step 3: Report the total TCS in the tax payments or credits schedule while filling out your income tax return.

Step 4: Let the return adjust this amount against your total tax liability; any excess is processed as a refund.

Conclusion

TCS has moved well beyond being a compliance chore for sellers of liquor and scrap. With luxury goods, motor vehicles and foreign remittances now firmly inside its net, most Indian taxpayers run into TCS at some point. However, the rules have also turned friendlier in form of higher thresholds, lower rates on education and medical remittances, and one clean rate for tour packages. None of this is an extra tax. It is your money, collected early and returned to you through your income tax return.

FAQs

Does TCS Apply When I Buy Luxury Goods from a Foreign Website?

Not under the luxury-goods rule. Section 206C(1F) applies to sales made by an Indian seller. A purchase made directly from an overseas website is typically settled through foreign exchange and falls under the Liberalised Remittance Scheme instead.

I Am An NRI. Does LRS TCS Apply to My Remittances?

The LRS and the TCS attached to it is meant for resident individuals remitting funds abroad. NRIs transacting through NRO or NRE accounts are governed by separate FEMA rules and generally fall outside LRS-TCS; though banks may apply other withholding provisions depending on the transaction.

Can A Seller Choose to Absorb the TCS Instead of Billing It to the Buyer?

A seller can commercially decide to not pass on the cost, but the legal obligation to collect and deposit TCS doesn't disappear. The seller must still deposit the equivalent amount from their own funds.

Does TCS Apply to the Resale of Used Luxury Goods or Vehicles?

The rate chart doesn’t distinguish between new and used items; only the sale value matters. However, the obligation to collect TCS only attaches to sellers who qualify as notified persons, such as businesses whose accounts were tax-audited in the preceding year.

Is TCS Under the Income-Tax Act the Same as TCS Under GST?

No. The TCS discussed here flows from the Income-tax Act and targets specified goods, luxury items and remittances. GST law has an entirely separate TCS provision, which applies to e-commerce operators collecting tax on supplies made through their platform.

Does Paying TCS Reduce My Final Income Tax Bill?

TCS doesn’t lower what you owe; it is simply tax paid in advance on your behalf.

What If the Buyer Refuses to Pay the TCS Amount at the Time of Sale?

The seller remains responsible for depositing TCS with the government regardless of whether it was recovered from the buyer. Most sellers build TCS into the invoice and collect it upfront, before delivery, precisely to avoid being out of pocket on a disputed sale.