Direct and Indirect Taxation · Tax Deducted at Source and Tax Collected at Source

Tax Collected at Source (TCS) Provisions and Rates

Updated 10 October 2026 · Fact-checked

Tax Collected at Source (TCS) is tax that a seller, authorised dealer, licensor or lessor collects from the buyer or payer at the time of specified receipts, under section 394 of the Income-tax Act, 2025. To solve a question, identify the receipt, the collector, the threshold, the rate and the time of collection.

Understand Tax Collected at Source (TCS)

TCS works in the opposite direction to TDS. In TDS the payer deducts tax before paying. In TCS the person who receives money collects an extra amount of tax from the buyer, licensee or lessee, and deposits it with the Government. The buyer later gets credit for it.

Section 394 of the Income-tax Act, 2025 lists the cases in a table. Each row has three things: the nature of receipt, the person who collects, and the rate. You must learn all nine rows. They cover liquor, tendu leaves, timber and forest produce, scrap, coal, lignite and iron ore, high-value motor vehicles, foreign remittances, overseas tour packages, and parking lots, toll plazas, mines and quarries.

Time of collection: tax is collected at the earlier of two events: when the amount payable by the buyer is debited to the buyer's account, or when the amount is received (in cash, cheque, draft or any other mode).

Rates were revised with effect from 1 April 2026. Several items that earlier carried 1% or 5% now carry 2%. Old study notes may show older rates, so use the table in this guide.

There are exceptions. A resident buyer can avoid TCS on rows 1 to 5 by giving a written declaration in duplicate that the goods will be used for manufacturing, processing or producing articles or things, or generating power, and not for trading. The collector must send one copy of the declaration to the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner by the seventh day of the month following the month of receipt of the declaration.

Key rules to remember

Liquor, tendu leaves, scrap: Sale of alcoholic liquor for human consumption, tendu leaves, scrap: 2% by the seller; No threshold. Collected on the whole sale amount.
Timber and forest produce: Timber (forest lease or otherwise), or other forest produce obtained under a forest lease: 2% by the seller; Forest produce has the meaning in a State Act or the Indian Forest Act, 1927.
Coal, lignite, iron ore: Sale of minerals, being coal or lignite or iron ore: 2% by the seller; Rate was 1% before 1 April 2026.
Motor vehicle and notified goods: Sale consideration exceeding ₹10,00,000: 1% by the seller; Applies to a motor vehicle or other goods notified by the Central Government. The Act's wording is 'sale consideration exceeding ten lakh rupees'.
Liberalised Remittance Scheme (LRS): Remittance of amount or aggregate exceeding ₹10,00,000: education or medical treatment 2%; other purposes 20%; Collected by the authorised dealer. The rate is applied on the amount as the Act's table states it; follow the question's wording.
Overseas tour programme package: Sale of overseas tour programme package (including travel, hotel stay, boarding, lodging or similar expenses): 2% by the seller; The older split of 5% up to ₹10 lakh and 20% above is replaced from 1 April 2026.
Parking lot, toll plaza, mine, quarry: Use for business: 2% by the licensor or lessor; Mining and quarrying of mineral oil (including petroleum and natural gas) is excluded.
Declaration exemption: Rows 1 to 5: no TCS if resident buyer gives a declaration for manufacturing, processing, producing or power generation, not trading; Copy goes to the Commissioner-level authority by the 7th of the next month.
No TCS on LRS or tour package: LRS: no TCS on education loan from a financial institution, or on amounts where seller already collected TCS on tour package. LRS and tour package: no TCS if buyer deducted tax at source under another provision; These are sub-sections (4) and (5) of section 394.

How to solve Tax Collected at Source (TCS) questions

Use the same five checks for every TCS question. They keep you inside the rows of the section 394 table.

1Read the transaction and match it to a row of the section 394 table. Note who the collector is: seller, authorised dealer, or licensor or lessor.
2Check the threshold. Rows 6 and 7 apply only when the sale consideration or remittance exceeds ₹10,00,000. Other rows have no threshold.
3Check for exemption: a declaration from a resident buyer for rows 1 to 5, an education loan from a financial institution for LRS, or tax already deducted by the buyer for rows 7 and 8.
4Pick the rate from the table. For LRS, decide whether the purpose is education or medical treatment or something else.
5Compute TCS on the amount as the question states and say when it is collected: the earlier of debit to the buyer's account or receipt.
6Write a one-line conclusion naming the collector, rate and amount.

Quickest way: Row-and-rate recall method

When to use it: Use it for MCQs and short-answer questions where you must name the rate and collector in under a minute.

Remember that most rows are 2%: liquor, tendu leaves, timber and forest produce, scrap, coal, lignite, iron ore, overseas tour package, parking, toll, mine and quarry.
Remember the two odd rates: 1% for motor vehicles and notified goods above ₹10 lakh, and 2% or 20% for LRS above ₹10 lakh.
Look for a threshold word such as 'exceeding ten lakh'. If the amount is at or below ₹10,00,000, there is no TCS for rows 6 and 7.
Scan for the exemption triggers: declaration for manufacturing, education loan, or tax already deducted.
Multiply and write the answer.

Common mistakes in Tax Collected at Source (TCS)

Using old rates such as 1% on scrap or 5% on tendu leaves, or 5% on overseas tours.
Notes and books written before 1 April 2026 show the earlier rates.
Fix: Use the section 394 table in the Income-tax Act, 2025. Scrap, tendu leaves, liquor, coal, lignite and iron ore and tour packages are all 2%.
Applying the ₹10 lakh threshold to every row.
Students remember threshold for motor vehicles and LRS and generalise.
Fix: Only rows 6 and 7 have the ₹10,00,000 threshold. Scrap, liquor and the other rows have no threshold.
Treating motor vehicle at 1% when the price is exactly ₹10,00,000.
Careless reading of 'exceeding'.
Fix: The text says sale consideration exceeding ten lakh rupees. At exactly ₹10,00,000 there is no TCS.
Saying the seller deducts the tax or confusing TCS with TDS.
Both are tax at source and both are deposited with the Government.
Fix: TCS is collected by the person receiving money, at the earlier of debit to the buyer's account or receipt. TDS is deducted by the person paying.
Collecting TCS on scrap even when the buyer gave a manufacturing declaration.
Students forget the exemption in sub-section (2).
Fix: For rows 1 to 5, a resident buyer's written declaration that goods are for manufacturing, processing, producing or power generation and not trading removes TCS.
Charging TCS on LRS for an education loan from a financial institution.
Students remember the 2% education rate but not the exclusion.
Fix: No TCS if the remitted amount is a loan from a financial institution for pursuing education.

Worked examples

Example 1

Shree Metals Ltd, Kolkata sold scrap worth ₹8,40,000 to Anand Traders (a trader) on 10 July 2026. Anand Traders is a resident and did not give any declaration. Compute the TCS and state who collects it.

Show the solution

The transaction is sale of scrap, which is row 4 of the section 394 table. The seller collects.
Scrap has no threshold, so the full sale value is the base.
The rate is 2% from 1 April 2026.
Exemption by declaration is available only for manufacturing, processing, producing or power generation, and not for trading. The buyer is a trader and gave no declaration, so TCS applies.
TCS = 2% × ₹8,40,000 = ₹16,800.

Answer: Shree Metals Ltd (the seller) must collect TCS of ₹16,800 at the earlier of debit to the buyer's account or receipt of the amount.

Example 2

Meera, a resident, remits ₹14,00,000 through an authorised dealer under the Liberalised Remittance Scheme for a foreign holiday. Separately, her brother Rohan remits ₹14,00,000 for his medical treatment abroad, and neither has an education loan nor has any tax been deducted from the remittances under another provision. Compute the TCS on each remittance, taking the rates as applied to the amount in the question.

Show the solution

LRS is row 7 of the table, and the authorised dealer collects. The threshold is ₹10,00,000 and both remittances exceed it.
Neither remittance is an education loan from a financial institution, and no tax has been deducted by the buyer under another provision, so no exemption applies.
Meera: the purpose is neither education nor medical treatment, so the rate is 20%. TCS = 20% × ₹14,00,000 = ₹2,80,000.
Rohan: medical treatment attracts 2%. TCS = 2% × ₹14,00,000 = ₹28,000.

Answer: TCS on Meera's remittance is ₹2,80,000. TCS on Rohan's remittance is ₹28,000. Both are collected by the authorised dealer.

Exam tips

Write the section number (394) and name the row, collector and rate in the first line. Examiners award marks for identifying the correct provision.
Memorise the table in groups: five 2% goods, vehicles at 1%, LRS at 2% or 20%, tour package at 2%, parking, toll, mine and quarry at 2%.
In MCQs, check whether the amount is above ₹10,00,000 before choosing the rate for vehicles and LRS.
Check the date. A question on rates for transactions before 1 April 2026 would need the earlier rates, but exam questions for tax year 2026-27 use the current table.
For differences between TCS and TDS, give four points: who acts, when, direction of money flow and who gets the credit.

Practice questions from Tax Deducted at Source and Tax Collected at Source

Tax Collected 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 Collected at Source (TCS): frequently asked questions

Who is liable to collect tax at source?

It depends on the receipt. A seller collects on liquor, tendu leaves, timber, scrap, minerals, high-value motor vehicles and overseas tour packages. An authorised dealer collects on LRS remittances. A licensor or lessor collects on parking lots, toll plazas, mines and quarries used for business.

What is the TCS threshold on foreign remittance?

Under the Liberalised Remittance Scheme, TCS applies when the amount or aggregate of amounts remitted exceeds ₹10,00,000. Above that, the rate is 2% for education or medical treatment and 20% for other purposes.

What is the difference between TCS and TDS?

TDS is deducted by the payer from the amount paid, for example salary or professional fees. TCS is collected by the receiver from the buyer on top of the price, for example on sale of scrap. In both cases the amount is deposited with the Government and credit is given to the other party.

At what time must TCS be collected?

Tax is collected at the earlier of two events: when the amount payable by the buyer is debited to the buyer's account, or when the amount is received in cash, cheque, draft or any other mode.

Can a buyer avoid TCS on scrap?

Yes, in the cases covered by the declaration rule. A resident buyer can give a written declaration in duplicate that the goods will be used for manufacturing, processing or producing articles or things, or generating power, and not for trading. The seller then does not collect tax.