FAQs on Tax Collected at Source (TCS) under the Income Tax Act, 2025, as amended by the Finance Bill, 2026, including Draft Income Tax Rules, 2026
The document explains the provisions relating to Tax Collected at Source (TCS) under the Income Tax Act, 2025, as amended by the Finance Bill, 2026, along with relevant draft rules. It outlines the transactions on which TCS is applicable, the prescribed rates, and the persons responsible for collection. It covers exemptions for manufacturing use and specified remittances, procedure for lower or nil collection certificates, due dates for payment and filing of quarterly statements, issuance of TCS certificates, correction of statements, and PAN requirements. It also details consequences of failure to collect or deposit TCS, including interest, penalty, late filing fee, and processing of statements by the Income-tax Department.
1. What are the TCS rates prescribed under New Income Tax Act?
Sec 394 (equivalent to section 206C) prescribes various TCS rate to be collected by the person on receipt of certain amount while debiting such amount payable by the Buyer/ Licensee / Lessee or at the time of receipt of such amount, whichever is earlier.
The nature of transactions attracting TCS and the relevant rates are given in a Table as given below:
| Sl. No | Nature of Transaction | Person responsible for collecting Tax (TCS) | Rate* |
| 1 | Sale of alcoholic liquor for human consumption. | Seller | 2% |
| 2 | Sale of tendu leaves | Seller | 2% |
| 3 | Sale of timber whether obtained under a forest lease or otherwise; or any other forest produce (not being timber or tendu leaves) obtained under a forest lease. | Seller | 2% |
| 4 | Sale of scrap | Seller | 2% |
| 5 | Sale of minerals, being coal or lignite or iron ore | Seller | 2% |
| 6 | Sale consideration exceeding Rs.10 Lakhs in case of— (a)motor vehicle; or (b) any other goods, as may be notified by Central Government. | Seller | 1% |
| 7 | Remittance under the Liberalised Remittance Scheme of an amount or aggregate of the amounts exceeding Rs.10 Lakhs | Authorised dealer. | (a) 2% for purposes of education or medical treatment;
(b) 20% for others. |
| 8 | Sale of “overseas tour programme package” including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure. | Seller. | 2% |
| 9 | Use of parking lot or toll plaza or mine or quarry for the purpose of business, excluding mining and quarrying of mineral oil (including petroleum and natural gas) | Licensor or Lessor | 2% |
* The Rates are as amended in the Finance Bill, 2026.
2. Is there any exemptions available for TCS on purchase of items which are used for manufacturing process?
Yes, Tax need not be collected for transaction specified in Sl. No.1 to 5 in the above table, if the Buyer, who is Resident in India gives a declaration[1] in duplicate to the Seller mentioning that goods are to be utilised by the Buyer–
(a) for the purposes of manufacturing, processing or producing articles or things or for generating power; and
(b) not for trading purposes.
[1] As per Rule 212 of the Draft Income Tax Rules, 2026:
The declaration should be given in Form No 127 and the Seller shall deliver or cause to be delivered to the Chief Commissioner of Income-tax or Commissioner of Income-tax, one copy of the declaration on or before the 7th of next following the month in which the declaration is furnished to him.
For this purpose, the Chief Commissioner of Income-tax or Commissioner of Income-tax means the Chief Commissioner or Commissioner to whom the Assessing Officer, having jurisdiction to assess the Seller is subordinate.
[Please note that the above Rule is published in Draft Income Tax Rules, 2026. The readers may refer to final Income Tax Rules, once it is notified].
3. Is there any exemptions available for TCS on Remittance under the Liberalised Remittance Scheme?
Yes, TCS on Remittance under the Liberalised Remittance Scheme is not applicable [the Authorised Dealer need not collect Tax], if –
(a) on such amount on which tax has been collected by the seller in respect of receipt referred to Table: Sl. No.8 (overseas tour package) (or)
(b) if the amount being remitted out is a loan obtained from any financial institution for the purpose of pursuing any education.
4. Whether the Buyer can submit “Lower” / “Nil” deduction certificate to the Seller for lower / Nil deduction of TCS?
Yes, as per Sec 395 (3), Where tax is required to be collected on any amount, then subject to the rules made under this Act,–
(a) the buyer or licensee or lessee may make an application before the Assessing Officer for collection of tax at a lower rate;
(b) the Assessing Officer on being satisfied that the total income of the buyer or licensee or lessee justifies collection of tax at a lower rate, shall issue to him a certificate as may be appropriate; and
(c) when a certificate is issued under clause (b), the person responsible for collecting tax shall collect it at the rates specified in such certificate till its validity.
5. What is the due date for making payment to the Central Government of the Tax Collected at source?
| where the income or amount is credited/paid or debited/received in the month of | Due Date |
| March | 30th April |
| Any other Month | 7th day of the subsequent month in which the deduction or collection is made. |
6. What is the certificate to be issued to the Collectee and what is the time period for issue of such certificate?
Under Sec 395(4), every person collecting the tax hall issue a certificate to the Collectee in Form 133 (as per draft Rule 215) within 15 days from the due date for furnishing statement of tax collected at source under rule 219.
7. What is the due date for furnishing statement of tax collected at source under rule 219 to the Income-tax Department?
Every person responsible for collection of tax at source under Sec 394 shall deliver to the Director General of Income-tax, in Form 143 on quarterly basis, on or before the dates as given below:
| Sl. No. (A) | Date of ending of quarter of financial year (B) | Due date (C) |
|---|---|---|
| 1 | 30th June | 31st July of the financial year |
| 2 | 30th September | 31st October of the financial year |
| 3 | 31st December | 31st January of the financial year |
| 4 | 31st March | 31st May of the financial year immediately following the tax year in which the deduction is required to be made. |
8. If there is any error(s) in the quarterly statements furnished under rule 219, can it be rectified? What is the time limit for such rectification?
Yes, as per Sec 397(3)(f), the statement furnished under rule 219 can be rectified, by delivering a correction statement. Such correction statement should be filed within 2 years from the end of the tax year in which such statement is required to be delivered under the said clauses.
9. Whether the Collectee is required to furnish PAN to the person responsible for collection of tax at source? What is the consequences of failure to furnish the PAN?
Yes, Sec 397(2) requires every Collectee to furnish PAN to the person responsible for collection of tax at source.
If there is a failure to furnish a valid PAN, then tax shall be collected at the higher of the following rates, not exceeding 20%—
(a) at twice the rate specified in the relevant provision of this Act; or
(b) at the rate of 5%;
However, this provision is not applicable to a non-resident who does not have permanent establishment in India.
10. Is it required to quote PAN in the Invoice(s) and other correspondences by the Collectee?
Yes, as per Sec 397(2)(h), the deductee or collectee shall furnish his valid Permanent Account Number to the deductor or collector, as the case may be, and the same shall be indicated in all bills, vouchers, correspondence and other documents which are sent to each other.
11. What are the consequences of failure to collect the tax at source?
a. As per Sec 397(3)(h), any person responsible for collecting the tax who fails to collect the tax as per the provisions of section 394, shall, irrespective of such failure, be liable to pay the tax to the credit of the Central Government.
b. The person responsible for collecting the tax who fails to collect the tax, shall be deemed to be an assessee in default in respect of such tax.
c. Interest shall be payable under Sec 398(3)(a)(i) at 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible or collectible to the date on which such tax is deducted or collected.
d. Once the person is declared as an assessee in default or deemed to be an assessee in default, he shall be liable to pay a penalty under Sec 412, which can be an amount not exceeding the amount of tax in arrears. The quantum of penalty shall be at the discretion of the Assessing Officer.
12. Is there any way to avoid interest / penalty for failure to collect TCS?
A. Penalty U/s. 412:
Yes, if it is proved that the Collectee has furnished the Return of Income, in which he has taken into account the amount, (for which TCS was not collected) for computing income in that return and paid the tax due on that amount, then the person responsible for collecting the tax who fails to collect the tax, shall not be deemed to be an assessee in default and hence the penalty shall not be levied. [Sec 398(2)].
B. Interest U/s.393(a)
Because of the Collectee filed his return, offered the amount in computing his total income and paid the tax, person responsible for collecting the tax who fails to collect the tax, shall be liable to pay interest at 1% from the date on which that tax was deductible or collectible to the date of furnishing of return of income by the concerned Collectee. [Sec 397(3)(c)].
13. Is there any charges / fees payable, if the statement required to be filed under rule 219 is not filed or filed belatedly?
Yes, as per Sec 427, where a person fails to deliver or cause to be delivered a statement within the time prescribed under rule 219, he shall be liable to pay a fee of ₹ 200 for every day during which the failure continues. However, this cannot exceed the amount of tax deductible or collectible.
14. Will there be any checking / assessment of the statement filed under rule 219 by the Income-tax Department?
Yes, all statements of tax deducted at source or tax collected at source including a correction statement shall be processed by the CPC (Centralised Processing Center) of the Income-tax Department and an intimation shall be sent under Sec 399 specifying the amount determined to be payable by the person the amount of refund due to him.
Please note that the intimation under Sec 399 should be sent within 1 year from the end of the tax year in which the statement is filed.
Author Bio
