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 (TCS) on specified goods and transactions. It places the responsibility on the seller or grantor to collect tax. Understanding 206C TCS is critical because mistakes are common, and compliance errors often lead to interest and penalties.

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.

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:

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.

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.