TCS Under Section 206C(1H): Seller's Obligation on Sale of Goods Above Rs. 50 Lakh
TL;DR
- Section 206C(1H) requires sellers with previous-year turnover exceeding Rs. 10 crore to collect 0.1 percent TCS on sale receipts.
- The Rs. 50 lakh threshold is computed buyer-wise for the financial year; TCS applies to receipts in excess of Rs. 50 lakh.
- TCS is collected at the time of receipt of consideration, not at the time of sale or invoicing.
- If the buyer is liable to deduct under Section 194Q (turnover above Rs. 10 crore), 194Q takes priority and 206C(1H) does not apply.
- TCS is reported quarterly in Form 27EQ and certified to the buyer via Form 27D.
What this means in plain terms
Section 206C(1H) was introduced in October 2020 to bring large B2B transactions of goods under the tax data net from the seller's side. If your business sells goods and your turnover is above Rs. 10 crore, you must collect 0.1 percent extra from any buyer once your annual receipts from them cross Rs. 50 lakh.
This is collection at source, not deduction. The seller adds 0.1 percent to the buyer's invoice or collects it separately, deposits it with the government, and reports it on the buyer's PAN. The buyer sees this credit in their Form 26AS and adjusts it against their tax liability in their return.
Scope and applicability
Who must collect
A seller whose total business turnover in the previous financial year exceeded Rs. 10 crore. The seller can be a company, LLP, firm, HUF, or individual - the form of business does not matter, only the turnover.
What sale is covered
Sale of any goods - raw materials, finished products, capital equipment - is covered. Excluded categories include exports, motor vehicles (covered under a separate 206C provision), and goods covered by other TCS sections like alcoholic liquor, scrap, etc.
Per-buyer threshold
The Rs. 50 lakh threshold is calculated separately for each buyer over the financial year. Receipts from Buyer A and Buyer B are not added together to test the threshold.
Rate and computation
Standard rate
0.1 percent of the receipt amount in excess of Rs. 50 lakh, collected at the time of receipt of consideration. So if your buyer pays Rs. 30 lakh in May and Rs. 35 lakh in October, the threshold is crossed on the October payment, and TCS applies on Rs. 15 lakh of that payment.
Without PAN
If the buyer does not provide PAN, the rate becomes 1 percent under Section 206CC. This is a tenfold jump, so collecting PAN is critical.
GST treatment
Like 194Q, TCS is computed on the base value if GST is shown separately. If GST is consolidated into the invoice, TCS applies on the full amount.
Timing and reporting
Time of collection
TCS is collected at the time of receipt of consideration, not at the time of sale or raising the invoice. This is the key distinction from most TDS sections, which deduct at the earlier of credit or payment.
Monthly deposit
Deposit by the 7th of the following month via challan ITNS 281. Code the challan as TCS (not TDS) and use the appropriate section code (6CR for 206C(1H)).
Quarterly Form 27EQ
File Form 27EQ on TRACES every quarter, listing each buyer's PAN, total receipts, and TCS collected. Issue Form 27D to each buyer within 15 days of the return due date.
Interaction with Section 194Q
Priority rule
If the buyer is liable under Section 194Q (their turnover exceeded Rs. 10 crore), and they actually deduct under 194Q on the transaction, then the seller does not need to collect under 206C(1H). The buyer's deduction takes priority.
Communication
Sellers typically request confirmation from buyers about whether they will deduct under 194Q. If yes, the seller maintains records of the deduction and skips TCS collection. If no (buyer below the Rs. 10 crore turnover), the seller collects TCS.
Avoiding double withholding
Both buyer and seller should agree in writing on who is doing the withholding for the transaction to prevent double taxation on the same payment - which can happen if both parties claim coverage.
A real example
Anjali, 42, runs a chemical manufacturing firm in Vadodara with annual turnover of Rs. 28 crore. She sells industrial dyes to Rahul's textile printing unit. Total sales to Rahul in FY 2026-27 = Rs. 90 lakh across 8 invoices.
Step 1: Anjali's turnover exceeds Rs. 10 crore, so 206C(1H) applies.
Step 2: Rahul's textile unit has a turnover of Rs. 7 crore (below Rs. 10 crore), so he is not liable under 194Q.
Step 3: Anjali tracks her cumulative receipts from Rahul. The first Rs. 50 lakh has no TCS. Once Rahul's cumulative payments cross Rs. 50 lakh in September 2026, TCS starts.
Step 4: TCS rate = 0.1 percent on excess. By March 2027, excess = Rs. 90,00,000 - Rs. 50,00,000 = Rs. 40,00,000. TCS = Rs. 4,000.
Step 5: Anjali adds 0.1 percent to invoices after the threshold or collects separately and deposits monthly via challan ITNS 281 with section code 6CR.
Step 6: She files Form 27EQ each quarter and issues Form 27D to Rahul within 15 days of each filing.
Step 7: Rahul sees Rs. 4,000 credit in his Form 26AS and reduces his final tax liability accordingly when filing.
If Rahul had been a Rs. 15 crore-turnover buyer, he would have deducted Rs. 4,000 under 194Q instead, and Anjali would not have collected TCS.
What to do this week
- Check your previous year's turnover and confirm 206C(1H) applicability for your sales.
- Build a buyer-side cumulative receipt tracker for each customer to know when Rs. 50 lakh is approached.
- Request 194Q declarations from large buyers to know if you need to collect TCS on their account.
- Ensure PAN is on file for every buyer to avoid the 1 percent default rate.
- Run the 6-step assessment at https://myfinancial.in to see your old-vs-new regime delta, unused deductions, and insurance gap in under 10 minutes.
FAQ
Is TCS collected on the invoice or on the payment?
On the payment (receipt of consideration), not on the invoice or sale event. This is different from TDS which is generally at the earlier of credit or payment.
What if I collect TCS but the buyer was actually liable under 194Q?
You will face a double-withholding scenario. Best practice is to seek a written declaration from large buyers about whether they will deduct under 194Q before each fiscal year begins.
Does 206C(1H) apply to exports?
No. Exports of goods outside India are specifically excluded from Section 206C(1H). Other export-related compliance like FEMA and GST refunds apply instead.
Are intra-group sales covered?
Yes. Even sales between subsidiaries or sister concerns are covered by 206C(1H) if the seller's turnover and the threshold conditions are met. There is no related-party exemption.
What is the GST treatment under 206C(1H)?
If GST is shown separately on the invoice, TCS is computed only on the base value. If consolidated, TCS applies on the full amount. CBDT circular clarifies this.
Do I need to collect TCS on advances received?
Yes. Advances are receipts of consideration. If cumulative receipts including advances from a buyer cross Rs. 50 lakh, TCS applies on the excess advance payments too.
Is there a refund mechanism for TCS collected?
The buyer claims the TCS credit in their ITR. There is no direct refund to the buyer - only adjustment against tax liability or refund from the department after filing.
Sources
- Income Tax Department, Section 206C(1H): https://incometaxindia.gov.in/
- TRACES portal for TCS reporting: https://www.tdscpc.gov.in/
- Finance Ministry, TCS circulars: https://finmin.nic.in/
- CBDT clarifications on 194Q and 206C(1H): https://incometaxindia.gov.in/
This is general information, not personalised advice. For your situation, consult a Certified Financial Planner.
