Section 206C of Income Tax Act : TCS on Sale of Goods, Rates & Limits

Section 206C of Income Tax Act deals with Tax Collected at Source on specified goods and transactions. It places the responsibility on the seller or grantor to collect tax at the time of receipt and deposit it with the government. Understanding 206C TCS is critical because mistakes are common, and compliance errors often lead to interest and penalties.

Key Takeaways

• 206C means tax collected at source on specified goods, rights and transactions.
• Section 206C applicability and section 206C limits differ across sub-sections.
• TCS under 206C(1H) on sale of goods exceeding ₹50 lakh has been removed from 1 April 2025.
• Budget 2026 proposes to rationalise section 206C rates to a uniform structure. Not yet in force.

What is Section 206C of the Income Tax Act?

Section 206C of Income Tax Act is the provision that governs TCS. It requires a seller or specified person to collect tax from the buyer or licensee at the time of receipt of money for notified goods, rights or transactions and deposit that amount with the government.

If you are selling certain goods, granting a mining lease, or transferring toll collection rights, you do not just receive the amount. You collect TCS as well.

The responsibility sits with the collector. Not the buyer. If you fail to collect or deposit TCS under section 206C correctly, monthly interest at 1%-1.5% per month applies. In some cases, penalty proceedings follow.

Classification of TCS Under Section 206C

Section 206C of Income Tax Act is divided into multiple sub-sections. Each one applies to a different category of transaction. The rates and thresholds are not uniform.

Here is a quick classification of tcs section 206c:

Section 206C(1C) is often ignored in practice. Mining contracts and toll rights are high-value transactions. Missing TCS here creates significant exposure.

Applicability of TCS Under Section 206C

At a high level, TCS under section 206C applies when:

• A seller or specified person receives consideration for notified goods or rights; and
• The conditions prescribed under the relevant sub-section are satisfied.

For example:

• Under 206C(1), TCS applies on sale of specified goods.
• Under 206C(1C), TCS applies when a person grants a lease or licence for parking lots, toll plazas, mining or quarrying.
• Under 206C(1F), TCS applies on sale of motor vehicles exceeding ₹10 lakh.

Seller turnover mattered for 206C(1H), which applied only if turnover exceeded ₹10 crore. That provision is now removed.

Section 206C applicability depends entirely on which sub-section you fall under. There is no one-size-fits-all rule.

When TCS Does Not Apply

TCS under section 206C generally does not apply when:

• The buyer is required to deduct TDS under another provision for the same transaction.
• The transaction does not fall within the notified goods or specified rights.
• The monetary threshold under that sub-section is not crossed.

For example, if a mining lease is not covered under 206C(1C) conditions, TCS would not apply. The nature of rights granted matters.

Threshold Limits Under Section 206C

Section 206C limits vary by sub-section:

• 206C(1) goods: No aggregate annual threshold. TCS applies on specified goods.
• 206C(1C) rights and licences: No turnover threshold. TCS applies on amount received for lease or licence of parking, toll, mining or quarrying.
• 206C(1F) motor vehicles: Invoice value above ₹10 lakh.
• 206C(1G) foreign remittance under LRS: Threshold of ₹10 lakh.
• 206C(1H) sale of goods exceeding ₹50 lakh: Removed from 1 April 2025.

Section 206C limits are frequently misunderstood. Especially in rights-based transactions.

TCS Rates Under Section 206C

If the buyer or licensee does not furnish PAN or Aadhaar, higher TCS may apply as per the law. Many businesses forget to validate PAN before collection. That leads to short collection notices.

Proposed in Budget 2026

Budget 2026 has proposed rationalisation of 206C TCS rates.

The proposal includes:

• Streamlining multiple rates into a 2% uniform rate for certain goods currently covered under 206C(1).
• Simplifying rate structures to reduce compliance complexity.

Until enacted, current section 206C rates continue to apply.

Exemptions Under Section 206C

Common exemptions include:

• Cases where TDS is applicable instead of TCS.
• Government bodies and specified entities, subject to conditions.
• Certain LRS remittances where relief is proposed in Budget 2026.

Under 206C(1C), if the grant of rights does not fall within the specified categories like parking, toll, mining or quarrying, TCS may not apply. Classification matters.

Penalties and Consequences of Non-Compliance

Getting 206C wrong can be expensive.

• Interest at 1% per month for non-collection and at 1.5% for non-deposit.
• Penalty equal to the amount of TCS in certain cases.
• Prosecution provisions may apply in serious cases.

Most defaults do not arise from rates. They arise from timing and incorrect classification.

Forms Applicable under Section 206C

• Form 27EQ – Quarterly TCS return.
• TCS Certificate (Form 27D) – Issued to buyer or licensee for credit claim.