Taxation · Tax Deduction or Collection at Source and Advance Tax

Tax Collection at Source (TCS): Provisions, Rates and Thresholds

Updated 5 October 2026 · Fact-checked

Tax Collection at Source (TCS) means a seller collects tax from the buyer at the time of sale, then deposits it with the government. It applies only to listed items, such as scrap, minerals, motor vehicles above ₹10 lakh and overseas remittances. To solve: identify the item, check the threshold, apply the rate, compute.

Understand Tax Collection at Source (TCS)

TCS is the mirror image of TDS. In TDS, the payer deducts tax before paying. In TCS, the seller or receiver adds the tax to the amount it takes from the buyer. The seller then deposits it with the government. The buyer gets credit for it against their own tax liability.

TCS applies only to specified items, not to every sale. The main ones are: alcoholic liquor for human consumption, tendu leaves, timber and other forest produce, scrap, minerals such as coal, lignite and iron ore, motor vehicles above a value limit, overseas remittances under the Liberalised Remittance Scheme (LRS), overseas tour packages, and certain licences or leases such as parking lots, toll plazas and mining and quarrying. Rates for some items, especially LRS and overseas tour packages, have been changing. Learn the rate table from the current ICAI study material for your attempt. Do not rely on rates from old notes or videos.

Each item has its own rate and, for some, a threshold. For a motor vehicle, TCS applies only if the consideration exceeds ₹10 lakh, and then it is on the whole consideration. For LRS, the threshold is ₹10 lakh per person per year. For every purpose except education funded by a specified loan, the rate applies only on the excess above ₹10 lakh. For education funded by a specified loan, the rate is nil on the whole amount, so the ₹10 lakh threshold does not matter. The rate depends on the purpose. The rates usually seen in questions are:

Education funded by a loan from a specified financial institution: nil on the whole amount, whatever the size of the remittance.
Education (otherwise) and medical purposes: 2% on the excess over ₹10 lakh.
Other purposes, such as investment abroad: 20% on the excess over ₹10 lakh.

Treat these as a guide only. LRS rates have been revised before. Use the rate given in the question or in the current ICAI study material for your attempt.

The collector is the seller or receiver, not the buyer. If the buyer does not give a PAN, a higher rate applies under the Income-tax Act, 2025. The rule is the higher of twice the specified rate and 5%. It applies to every TCS item unless the provision or the question expressly excludes it. Apply it to the rate of the item in the question. For a motor vehicle at 1%, twice the rate is 2%, so the higher rate is 5%. For an item at 20%, twice the rate is 40%, so the higher rate is 40%.

For certain items, such as LRS and overseas tour packages, TCS is not collected where the buyer is liable to deduct TDS under the Act and has deducted it. This keeps the same receipt from being taxed twice. It is not a blanket rule for all TCS items, so check the provision for each item.

The sale of goods above ₹50 lakh TCS (0.1% on the excess) was withdrawn from 1 October 2024. It is no longer collected. Do not apply it in answers for May 2027 onwards.

Key rules to remember

Basic TCS: TCS = Rate × Amount received or debited; Use the rate for the specific item. Identify the item before touching the rate.
Motor vehicle: If sale consideration > ₹10,00,000: TCS = 1% × total consideration; Applies on the full amount, not just the excess. No TCS if the consideration is ₹10 lakh or less.
Overseas remittance (LRS): TCS = Rate for the purpose × (Total remittances in the year − ₹10,00,000), for every purpose except education funded by a specified loan; The ₹10 lakh threshold is per person per year, counted across all remittances by the same person. For education funded by a specified loan, the rate is nil on the whole amount, so the threshold does not matter. Rates commonly seen are nil for that loan-funded education, 2% for education (otherwise) and medical, and 20% for other purposes. Use the rate given in the question or in the current ICAI study material for your attempt.
Overseas tour package: TCS = Rate given in the question or study material × tour package amount; The rate has changed over time, so do not memorise it from old notes. Use the rate given in the question or in the current study material.
No PAN: Higher rate = the greater of 2 × specified rate and 5%; Applies to every TCS item when the buyer does not furnish a PAN, under the Income-tax Act, 2025, unless the provision or the question expressly excludes the item. For a 1% item, the higher rate is 5%. For a 20% item, it is 40%.

How to solve Tax Collection at Source (TCS) questions

Use the same order every time. It keeps you from using a wrong rate or threshold.

1Identify the item sold or the nature of the receipt. Only the specified items attract TCS.
2Identify the buyer and the purpose. For LRS, the purpose decides the rate. For a tour package, check that it is an overseas tour.
3Check the threshold. Motor vehicle: more than ₹10 lakh. LRS: ₹10 lakh per person per year, with earlier remittances in the year counted. For LRS education funded by a specified loan, the rate is nil on the whole amount, so the threshold does not matter.
4Decide the base on which the rate applies: the whole amount or only the excess over the threshold.
5Apply the rate for that item. If the buyer has not given a PAN, use the greater of twice the specified rate and 5%, unless the question or the provision expressly excludes the item.
6Check for exceptions, for example where the buyer is deducting TDS on the same amount, or a nil-rate purpose.
7Write the answer as 'TCS to be collected = ₹...' with the working. Add the timing and deposit points only if the question asks for them.

Quickest way: Item, threshold, base, rate: four-line check

When to use it: Use this for both MCQs and written answers when time is short.

MCQs: eliminate options with a wrong base first. A common trap is applying 1% on the excess over ₹10 lakh for a motor vehicle.
MCQs: for LRS, subtract the ₹10 lakh threshold first, then multiply by the rate. Add earlier remittances before subtracting.
MCQs: if an option shows TCS on sale of goods above ₹50 lakh, reject it. That provision no longer applies.
Written: use four lines: Item, Threshold, Base, Rate, then 'TCS = ₹...'. This earns step marks even if the final figure slips.
Written: state the rule in one sentence ('Seller of motor vehicle must collect 1% if consideration exceeds ₹10 lakh') before the working.

Common mistakes in Tax Collection at Source (TCS)

Applying TCS on motor vehicle only to the amount above ₹10 lakh.
Students mix this with LRS, where the threshold works as an exemption slab.
Fix: For motor vehicles, the ₹10 lakh is a trigger. Once crossed, 1% applies on the whole consideration.
Applying TCS on sale of goods above ₹50 lakh at 0.1%.
Old notes and videos still carry this provision.
Fix: This TCS was withdrawn from 1 October 2024. Do not use it.
Ignoring earlier remittances under LRS in the same year.
Students treat each remittance separately and apply the ₹10 lakh threshold again each time.
Fix: The ₹10 lakh threshold is per person per year. Add all remittances, then tax only the portion above the limit that has not yet been taxed.
Using one LRS rate for all purposes, or applying the ₹10 lakh threshold to every purpose.
Students memorise a single 'LRS rate' and a single threshold rule.
Fix: Read the purpose in the question. Education funded by a specified loan is usually nil on the whole amount, so the threshold does not matter. Education (otherwise) and medical are usually 2% on the excess over ₹10 lakh. Other purposes are usually 20% on the excess over ₹10 lakh. Use the rate given in the question or the current study material for your attempt, as these have been revised before.
Confusing the collector with the payer, saying the buyer collects the tax.
TDS and TCS look similar.
Fix: In TCS, the seller or receiver collects. The buyer pays the extra amount and later claims credit.
Forgetting the higher rate when no PAN is furnished, or applying 'twice the rate' alone.
The question mentions this only in one line, and students remember only half the rule.
Fix: Scan the question for 'PAN not furnished'. If present, use the greater of twice the specified rate and 5%, unless the question or the provision expressly excludes the item. For a 1% item such as a motor vehicle, that is 5%. For a 20% item, it is 40%.

Worked examples

Example 1

Arjun, a resident individual, buys a car from a dealer for a total consideration of ₹18,50,000 and has furnished his PAN. Compute the TCS to be collected by the dealer.

Show the solution

Item: sale of a motor vehicle. This is a specified item.
Threshold: consideration is ₹18,50,000, which exceeds ₹10,00,000. TCS applies.
Base: the whole consideration of ₹18,50,000, not just the excess.
Rate: 1% (PAN furnished).
TCS = 1% × ₹18,50,000 = ₹18,500.

Answer: The dealer must collect TCS of ₹18,500. Arjun can claim this as credit against his tax liability.

Example 2

During the tax year 2026-27, Meera, a resident individual, remitted ₹7,00,000 under LRS for investment in overseas shares in the first quarter. She now remits another ₹8,00,000 for the same purpose. She has furnished her PAN. Compute the TCS on the second remittance. The purpose is neither education nor medical, and the TCS rate for this purpose is given in this question as 20%.

Show the solution

Item: remittance under LRS for investment (not education or medical). The rate given in the question is 20%.
Total remittances in the year including the new one = ₹7,00,000 + ₹8,00,000 = ₹15,00,000.
Threshold: ₹10,00,000 per person per year.
Earlier remittance of ₹7,00,000 was below the threshold, so no TCS was collected.
Excess over threshold = ₹15,00,000 − ₹10,00,000 = ₹5,00,000. This falls entirely in the second remittance.
TCS = 20% × ₹5,00,000 = ₹1,00,000.

Answer: The authorised dealer or bank must collect TCS of ₹1,00,000 on the second remittance.

Example 3

Rohan, a resident individual, buys a car from a dealer for a total consideration of ₹18,50,000. He does not furnish his PAN. The specified TCS rate on a motor vehicle is 1%. Compute the TCS to be collected by the dealer.

Show the solution

Item: sale of a motor vehicle. This is a specified item.
Threshold: consideration is ₹18,50,000, which exceeds ₹10,00,000. TCS applies on the whole consideration.
PAN not furnished, so the higher rate applies: the greater of twice the specified rate and 5%.
Twice the specified rate = 2 × 1% = 2%. Compare with 5%. The greater is 5%.
TCS = 5% × ₹18,50,000 = ₹92,500.

Answer: The dealer must collect TCS of ₹92,500. With a PAN it would have been ₹18,500.

Exam tips

Learn one table: item, threshold, base, rate. Revise it from the current study material just before the exam, since rates for some items have been revised.
If a question mentions LRS, the first thing to check is the purpose. The rate depends on it.
Always add earlier remittances or earlier receipts from the same buyer before applying a threshold.
If an MCQ offers TCS on sale of goods above ₹50 lakh, it is a trap. That provision no longer exists.
In written answers, state who collects, what the rate is and what the base is. Do not give only a final figure.

Practice questions from Tax Deduction or Collection at Source and Advance Tax

Tax Collection at Source (TCS) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Tax Collection at Source (TCS): frequently asked questions

Is TCS on sale of goods above ₹50 lakh still applicable?

No. That provision was withdrawn from 1 October 2024. For May 2027 onwards, do not apply it in answers.

What is the TCS rate on sale of a motor vehicle?

It is 1% of the sale consideration, and it applies only if the consideration exceeds ₹10 lakh. The 1% is on the whole amount, not just the excess.

How does TCS work on foreign remittance under LRS?

A ₹10 lakh threshold applies per person per year. For every purpose except education funded by a specified loan, TCS is collected only on the amount above it. For education funded by a specified loan, the rate is nil on the whole amount, so the threshold does not matter. Commonly seen rates are nil for that loan-funded education, 2% for education (otherwise) and medical, and 20% for other purposes. Use the rate given in the question or in the current ICAI study material for your attempt.

What is the TCS on overseas tour packages?

The rate for overseas tour packages has changed over time, so do not rely on a figure from memory. Use the rate given in the question or in the current ICAI study material for your attempt. The rate applies to the package amount.

Can I claim credit for TCS paid?

Yes. The buyer can claim TCS as credit against their tax liability for the year, based on the TCS certificate and the tax credit statement.