Tax Collected at Source (TCS) — Section 206C, Sale of Goods, and Certificates

Learning Objectives

• Understand the fundamental difference between TCS and TDS — who collects, at what point
• Know the specific goods and activities that attract TCS under Section 206C
• Apply Section 206C(1H) correctly — the turnover-based TCS on sale of goods
• Know when Section 206CCA imposes higher TCS on non-filers
• Issue Form 27D and file Form 27EQ for TCS compliance
• Determine whether Sunrise Retail has any TCS obligation in FY 2025-26

TCS vs TDS — The Fundamental Difference

In TDS, the payer is the agent of the government — they collect tax from the payment. In TCS, the seller is the agent — they collect tax from the buyer and deposit it with the government. The buyer eventually claims this as a tax credit when filing their income tax return.

Section 206C — TCS on Specified Goods and Activities

Section 206C is the primary TCS section. It specifies categories of goods and activities where the seller must collect tax from the buyer.

TCS Rates Under Section 206C

Key Points About 206C(1)

• The seller collects TCS at the time of receipt of sale consideration — not at the time of invoicing
• TCS is collected from the buyer's payment — the buyer pays ₹1,01,000 for scrap worth ₹1,00,000 (₹1,000 TCS at 1%)
• The TCS amount is deposited by the seller to the government and shows up as a credit in the buyer's Form 26AS
• The buyer then claims this TCS credit when filing their income tax return

Section 206C and Sunrise Retail

Sunrise Retail trades in electronics — not scrap, timber, tendu leaves, forest produce, minerals, or motor vehicles. Section 206C(1) does not apply to Sunrise Retail as a seller.

However, if Sunrise Retail buys scrap from a scrap dealer for any reason (e.g., disposing of damaged electronics, buying scrap components), the scrap dealer is required to collect 1% TCS from Sunrise Retail. Sunrise Retail pays the invoice value plus 1% TCS, and claims that 1% as a credit in its income tax return.

Example: Sunrise Retail sells damaged electronics to Metro Scrap Traders for ₹50,000. Metro Scrap is the buyer of scrap. Metro Scrap Traders would pay Sunrise Retail — but wait: in this transaction, Sunrise Retail is the seller of scrap, so Sunrise Retail collects TCS at 1% from Metro Scrap Traders.

Sale of scrap by Sunrise Retail:    ₹50,000
TCS @ 1% (Section 206C):            ₹500
Invoice amount to Metro Scrap:      ₹50,500
Amount received from Metro Scrap:   ₹50,500
TCS deposited to government:        ₹500

In this scenario, Sunrise Retail must obtain a TAN for TCS purposes (same TAN used for TDS) and file Form 27EQ for TCS collected.

Section 206C(1H) — TCS on Sale of Goods (Turnover-Based)

Section 206C(1H) was introduced from 1 October 2020. It extends TCS beyond the specific categories in 206C(1) to cover any sale of goods by large sellers.

Applicability Conditions

Both conditions must be met:

1. Seller's turnover in the immediately preceding financial year exceeded ₹10 crore
2. Receipt from a single buyer in the current year exceeds ₹50 lakh in aggregate

Rate

0.1% of the amount received from the buyer in excess of ₹50 lakh.

How It Works

If Ananya Electronics (a large electronics distributor with ₹80 crore turnover) sells goods to Sunrise Retail, and Sunrise Retail has already paid ₹55 lakh in the year, Ananya must collect 0.1% TCS on each subsequent receipt:

Ananya Electronics' turnover (FY 2024-25): ₹80 crore → exceeds ₹10 crore trigger
Sunrise Retail's cumulative payments in FY 2025-26: ₹55 lakh → exceeds ₹50 lakh
TCS applies on receipts beyond ₹50 lakh
Next payment by Sunrise Retail: ₹5,00,000
TCS @ 0.1%: ₹500
Sunrise Retail pays: ₹5,00,500
Ananya deposits ₹500 TCS → appears in Sunrise Retail's 26AS as TCS credit

Does 206C(1H) Apply to Sunrise Retail as a Seller?

Sunrise Retail's turnover in FY 2025-26 is approximately ₹1.2 crore. This is well below the ₹10 crore threshold. Section 206C(1H) does not apply to Sunrise Retail as a seller in FY 2025-26.

However, some of Sunrise Retail's suppliers (large national distributors, electronics manufacturers) may have turnovers above ₹10 crore. If Sunrise Retail's cumulative purchases from any single such supplier exceed ₹50 lakh, that supplier will collect 0.1% TCS from Sunrise Retail. Sunrise Retail claims this as a tax credit.

194Q vs 206C(1H) — Interaction

These two sections address the same transaction from opposite sides:

• 194Q: Buyer deducts TDS if buyer's turnover > ₹10 crore and payments to seller > ₹50L
• 206C(1H): Seller collects TCS if seller's turnover > ₹10 crore and receipts from buyer > ₹50L

If both conditions are met for a single transaction (both buyer and seller have >₹10Cr turnover), only 194Q (buyer TDS) applies. The seller's TCS obligation under 206C(1H) is waived.

Section 206CCA — Higher TCS for Non-Filers

Section 206CCA imposes a higher TCS rate on buyers who have not filed income tax returns for the past two preceding assessment years, AND for whom the aggregate TCS/TDS deducted in each of those two years exceeded ₹50,000.

Higher Rate

Twice the applicable TCS rate, or 5%, whichever is higher.

Example: Standard TCS on scrap is 1%. If the buyer hasn't filed returns for two years and their TDS/TCS was >₹50,000 per year, the seller must collect TCS at 2% (2 × 1%) instead of 1%.

How Sellers Verify Non-Filer Status

The Income Tax portal provides a functionality to check whether a buyer's PAN falls in the "specified person" (non-filer) category. Large sellers check this at the start of the year for all major buyers.

Form 27D — TCS Certificate

Form 27D is the TCS certificate issued by the collector (seller) to the buyer. It is the TCS equivalent of Form 16A.

What Form 27D Contains

• Collector's TAN and PAN
• Buyer's PAN and name
• Nature of goods/activity and section code
• Amount collected / TCS collected
• Challan details
• TRACES-generated certificate number

When Must Form 27D Be Issued?

Within 15 days from the TCS return due date (same rule as Form 16A). For annual Form 27EQ, it would be issued by 15 June.

Who Downloads Form 27D?

Like Form 16A, Form 27D is downloaded from the TRACES portal by the collector using their TAN. The buyer receives it as evidence of the TCS credit that should appear in their Form 26AS.

Form 27EQ — Quarterly TCS Return

Form 27EQ is the quarterly TCS return, similar to Form 26Q for TDS. It is filed by any person who has collected TCS during the quarter.

Filing Details

Content of Form 27EQ:

• Collector's TAN and PAN
• Each buyer's PAN and name
• Nature of TCS (section and goods category)
• Amount collected
• TCS rate and amount
• Challan details (BSR code, date, serial number, amount)

Late filing penalty: Same as TDS returns — ₹200/day under Section 234E, capped at the TCS amount.

Sunrise Retail Case Study — TCS Analysis

As a Seller (Does Sunrise Retail Collect TCS?)

Sunrise Retail sells electronics. The company's TCS analysis for FY 2025-26:

Conclusion: Sunrise Retail has no TCS collection obligation as a seller for FY 2025-26, unless it sells scrap (damaged electronics) exceeding ₹0 — even ₹1 of scrap sale attracts 1% TCS because Section 206C(1) on scrap has no threshold.

As a Buyer (Does Sunrise Retail Pay TCS?)

Sunrise Retail buys electronics from national distributors. If any distributor has annual turnover > ₹10 crore and Sunrise Retail's cumulative purchases from them exceed ₹50 lakh, that distributor collects 0.1% TCS.

Example scenario:

• Sunrise Retail buys ₹60 lakh of mobile phones from TechWorld India (turnover ₹200 crore)
• TechWorld India's turnover > ₹10Cr and Sunrise Retail's payments exceed ₹50L
• TechWorld collects TCS at 0.1% on receipts above ₹50L
• TCS = ₹10L × 0.1% = ₹1,000

This ₹1,000 TCS appears in Sunrise Retail's Form 26AS as a tax credit, reducing their advance tax/self-assessment tax liability for the year.

Scrap Sale Scenario

In December 2025, Sunrise Retail decides to dispose of 40 damaged mobile phones and sells them as scrap to a local dealer for ₹18,000.

Scrap sale value:                ₹18,000
TCS @ 1% (Section 206C(1)):      ₹180
Invoice raised on scrap dealer:  ₹18,180
Amount received:                 ₹18,180
TDS deposited to government:     ₹180

Sunrise Retail must:

1. Collect ₹180 TCS from the scrap buyer
2. Deposit ₹180 via Challan ITNS 281 by 7 January 2026
3. Report in Form 27EQ for Q3 (due 15 January 2026)
4. Issue Form 27D to the scrap dealer

Practice Exercises

Key Terms

Module Summary

Check each item — this is the final lesson in the TDS & TCS course:

• I can explain the core difference between TCS and TDS: seller collects vs buyer deducts
• I know the Section 206C(1) categories and rates: scrap (1%), minerals (1%), motor vehicles >₹10L (1%), timber (2.5%), tendu leaves (5%)
• I know the Section 206C(1H) conditions: seller's turnover > ₹10Cr and receipts from one buyer > ₹50L — rate 0.1%
• I can explain why Sunrise Retail is exempt from 206C(1H) as a seller (turnover ≈ ₹1.2Cr < ₹10Cr)
• I know that scrap sales by Sunrise Retail attract 1% TCS with no threshold — even ₹18,000 of damaged electronics sold as scrap triggers ₹180 TCS
• I understand the 194Q vs 206C(1H) interaction: when the buyer deducts TDS under 194Q, the seller's TCS obligation is waived
• I know Section 206CCA: double the rate (or 5%, whichever higher) for buyers who haven't filed returns for two consecutive years
• I know that Form 27D is the TCS certificate (downloaded from TRACES) and Form 27EQ is the quarterly TCS return

Summary

• TCS is collected by the seller from the buyer — the opposite mechanism from TDS
• Section 206C(1) covers specific goods: scrap (1%), minerals (1%), motor vehicles >₹10L (1%), timber (2.5%), tendu leaves (5%)
• Section 206C(1H) covers any goods sale where seller's turnover >₹10 crore and receipts from a single buyer >₹50L — rate 0.1%
• Sunrise Retail is exempt from 206C(1H) as a seller because its turnover is below ₹10 crore
• If Sunrise Retail sells scrap (e.g., damaged electronics), it must collect 1% TCS from the scrap buyer
• TCS credit appears in the buyer's Form 26AS and reduces their income tax liability
• Form 27D is the TCS certificate (downloaded from TRACES); Form 27EQ is the quarterly TCS return

Quick Quiz

1. Who collects TCS — the buyer or the seller?

   • A) The buyer, from the seller's payment
   • B) The seller, from the buyer's payment
   • C) The government, directly from both
   • D) The bank, when the transaction is processed Answer: B — The seller collects TCS from the buyer at the time of receiving payment and deposits it with the government.

2. Sunrise Retail sells 50 damaged laptops as scrap for ₹40,000. What TCS applies?

   • A) No TCS — electronic scrap is not covered
   • B) 1% under Section 206C(1) — scrap = ₹400
   • C) 0.1% under Section 206C(1H) — ₹40
   • D) 5% under Section 206C — ₹2,000 Answer: B — Scrap is specifically listed under Section 206C(1) at 1%. There is no threshold for scrap. TCS = ₹40,000 × 1% = ₹400.

3. What is the quarterly TCS return form number?

   • A) Form 26Q
   • B) Form 24Q
   • C) Form 27EQ
   • D) Form 27D Answer: C — Form 27EQ is the quarterly TCS return. Form 27D is the TCS certificate issued to the buyer.

4. Under Section 206C(1H), a seller with ₹25 crore turnover and a buyer with ₹80 crore turnover make a transaction. Which section takes priority?

   • A) 206C(1H) — seller's obligation always prevails
   • B) 194Q — buyer's TDS obligation takes priority, waiving seller's 206C(1H) obligation
   • C) Both apply — 0.1% TCS + 0.1% TDS = 0.2% total
   • D) Neither applies — both parties are exempt when both exceed ₹10Cr Answer: B — When both conditions for 194Q (buyer's turnover >₹10Cr, payments >₹50L) and 206C(1H) are met, Section 194Q takes precedence. The buyer deducts TDS and the seller's TCS obligation is waived.

5. A buyer who has not filed income tax returns for the past two years and had TDS/TCS > ₹50,000 each year buys scrap. What TCS rate applies under Section 206CCA?

   • A) 1% (standard rate)
   • B) 2% (double the standard 1%)
   • C) 5% (higher of 2× or 5%)
   • D) 20% (maximum penal rate) Answer: C — Section 206CCA requires TCS at the higher of (twice the applicable rate) or 5%. For scrap: 2 × 1% = 2%. Since 2% < 5%, the rate is 5%.

TDS course complete. You have covered the full TDS/TCS lifecycle — from TAN registration to quarterly returns and certificates. Continue with Income Tax & ITR to see how TDS credits flow into the final tax computation, or return to the Training home.