Section 206C Income Tax Act: TCS Rules, Rates and 2026 Update
Section 206C of the Income-tax Act, 1961 governed tax collection at source (TCS) on specified sales, leases, remittances and other transactions. From 1 April 2026, TCS on new transactions is governed principally by Section 394 of the Income-tax Act, 2025. The former Section 206C remains relevant to transactions and compliance periods governed by the 1961 Act.
Meaning and purpose of TCS
Tax collected at source is income tax collected by a specified seller, lessor or authorised dealer from a buyer, lessee or remitter when a transaction covered by law occurs. The collector deposits the tax with the Central Government and reports it; the collectee ordinarily receives credit subject to applicable rules.
Current law: Section 394 of the Income-tax Act, 2025
Section 394(1) identifies the person responsible for collection, the taxable receipt, the applicable rate and generally the earlier of debit or receipt as the collection point. The official consolidated provision, as amended by the Finance Act, 2026, specifies the following rates:
| Receipt or transaction | Standard TCS rate from 1 April 2026 |
|---|---|
| Alcoholic liquor for human consumption | 2% |
| Tendu leaves | 2% |
| Timber (under forest lease or otherwise); other forest produce other than timber/tendu leaves obtained under a forest lease | 2% |
| Scrap | 2% |
| Coal, lignite or iron ore | 2% |
| Motor vehicle or other notified goods with sale consideration exceeding Rs. 10 lakh | 1% |
| LRS remittance exceeding Rs. 10 lakh: education or medical treatment | 2% on the covered amount |
| LRS remittance exceeding Rs. 10 lakh: other purposes | 20% on the covered amount |
| Overseas tour programme package | 2% |
| Business rights in parking lot, toll plaza, mine or quarry (excluding mineral oil) | 2% |
These are base statutory rates. Special rules concerning PAN, exclusions, the chargeable portion of a remittance and other statutory conditions can affect the amount actually collected. For the exact legal wording see official Section 394.
Section 206C under the 1961 Act: scope and historical rates
For periods governed by the 1961 Act, Section 206C(1) covered alcoholic liquor (1%), tendu leaves (5%), timber and qualifying other forest produce (2% following the amendment effective 1 April 2025), scrap (1%) and specified minerals (1%). Section 206C(1C) covered parking lots, toll plazas and mining or quarrying rights at 2%; Section 206C(1F) covered motor vehicles exceeding Rs. 10 lakh at 1%, with subsequent extensions for notified goods. Section 206C(1G) dealt with LRS remittances and overseas tour packages.
2025 changes: Finance Act, 2025 narrowed the forest-produce category, defined forest produce by reference to applicable State legislation or the Indian Forest Act, 1927, and reduced specified timber/forest produce TCS from 2.5% to 2%. Section 206C(1H), formerly covering certain general sales of goods, ceased to apply from 1 April 2025. The higher-rate non-filer rule in Section 206CCA was also omitted from that date.
Declarations, exemptions and definitions
Manufacturing or power-generation declaration
Under former Section 206C(1A), a resident buyer could provide a prescribed declaration for specified goods used in manufacturing, processing, production or power generation rather than trading. Section 394(2) of the 2025 Act preserves a corresponding exception for the goods listed at serial numbers 1 to 5; Section 394(3) addresses forwarding the declaration. Verify the prescribed form and filing procedure before relying on it.
Meaning of forest produce, scrap, buyer and seller
Forest produce: Section 394(6) adopts the meaning in the applicable State Act or the Indian Forest Act, 1927. Scrap: Under the former Section 206C Explanation, this generally referred to waste and scrap from manufacture or mechanical working that is not usable as such due to breakage, cutting, wear or similar causes. Buyer and seller: These are statutory expressions, subject to specific inclusions, exclusions and transaction-based definitions; the ordinary commercial meaning alone is not conclusive.
Collection, payment, statements and certificates
Under the former Section 206C, collectors were required to deposit TCS, submit prescribed periodic statements and furnish certificates, subject to the applicable rules. These included quarterly Form 27EQ and Form 27D certificates, with corrections where permitted. The 2025 Act places collection obligations in Section 394 and related payment, credit and reporting rules in connected provisions including Sections 395 and 397. Collectors should verify current due dates, forms and procedures on the official portal.
Failure to collect or deposit TCS
The former Section 206C(6) and (6A) addressed collector liability and treatment as an assessee in default; subsection (7) provided for interest, and subsection (8) addressed a charge on assets. Relief from default could be available in prescribed circumstances when the resident collectee had reported the transaction, paid tax and the collector obtained an accountant's certificate. Section 398 of the 2025 Act addresses consequences of failure to deduct or pay, or collect or pay, under the new framework. Interest, penalties and relief must be checked for the applicable tax period.
Legislative history
Section 206C was introduced in 1988 and amended repeatedly, including changes in 1992, 2003, 2004, 2006, 2012, 2016 and 2017. Later changes introduced TCS for motor vehicles, remittances and overseas tours, altered reporting requirements and amended the scope of forest produce. Finance Act, 2025 removed the general sale-of-goods TCS under subsection (1H), and the Income-tax Act, 2025 reorganised TCS into Section 394 with effect from 1 April 2026. Finance Act, 2026 revised several rates under Section 394.
Official law and guidance
- Section 394, Income-tax Act, 2025 (official text)
- Section 206C, Income-tax Act, 1961 (official historical text)
- Income Tax Department: TDS and TCS transition guidance
- Budget 2025 official FAQs: forest produce and TCS
Updated 27 October 2026. This is general legal information. Check the current statute, notifications and rules for the relevant date before making a compliance decision.