Section 394 — TCS Framework | ITA 2025

Section 394 — - COLLECTION OF TAX AT SOURCE

Section 394 is the substantive equivalent of 1961 s. 206C -- the TAX COLLECTED AT SOURCE (TCS) framework targeting SELLER-SIDE collection on specified goods / services. The provision establishes that SELLER must COLLECT specified percentage TAX from BUYER at time of sale; deposit to Govt; file returns. Specified categories: alcohol / tobacco / forest produce / scrap / minerals / motor vehicles > INR 10L / overseas remittance > INR 7L / overseas tour packages / etc. FA 2020 introduced TCS on FOREIGN REMITTANCE (LRS-route) at 5%; FA 2023 raised to 20% for non-medical/non-education; FA 2024 retained framework with adjustments. Critical for: bullion / commodity dealers / motor-vehicle sellers / authorised dealer banks / etc.

Statutory text — Income-tax Act, 2025

Marginal note -- Collection of tax at source

(1) Every person, as specified in column C of the Table below shall collect tax—

(a) on receipts specified in column B;

(b) at the rate as specified in column D; and

(c) at the time of debiting of the amount payable by the buyer or licensee or lessee to the account of the buyer or licensee or lessee or at the time of receipt of such amount from the said buyer or licensee or lessee in cash or by way of a cheque or a draft or any other mode, whichever is earlier.

TABLE TAX COLLECTION AT SOURCE Sl. Nature of receipt Person Rate of Tax Collect- No. ed at Source

A B C D

1. Sale of alcoholic liquor for human con- Seller. 86 [2%] sumption.

2. Sale of tendu leaves. Seller. 87 [2%]

3. Sale of timber whether obtained under Seller. 2% a forest lease or otherwise; or any other forest produce (not being timber or tendu leaves) obtained under a forest lease.

4. Sale of scrap. Seller. 88 [2%]

86. Substituted for “1%” by the Finance Act, 2026, w.e.f. 1-4-2026.

87. Substituted for “5%”, ibid.

88. Substituted for “1%”, ibid. Sl. Nature of receipt Person Rate of Tax Collect- No. ed at Source

A B C D

5. Sale of minerals, being coal or lignite or Seller. 88a [2%] iron ore.

6. Sale consideration exceeding ten lakh Seller. 1% rupees in case of—

(a) motor vehicle; or

(b) any other goods, as may be notified by the Central Government.

7. Remittance under the Liberalised Authorised (a) 88b[2%] for Remittance Scheme of an amount or dealer. purposes of aggregate of the amounts exceeding ten education lakh rupees— or medical treatment;

(b) 20% for pur- poses other than educa- tion or medi- cal treatment.

8. Sale of “overseas tour programme pack- Seller. [2%] 89 age” including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure.

9. Use of parking lot or toll plaza or mine Licensor or 2% or quarry for the purpose of business, ex- Lessor. cluding mining and quarrying of mineral oil (including petroleum and natural gas).

(2) Irrespective of anything contained in sub-section (1) (Table: Sl. Nos. 1 to 5), the collection of tax shall not to be made in respect of receipts specified in sub-section

(1) (Table: Sl. Nos. 1 to 5) in respect of the buyer, who is a resident in India, if he furnishes a written declaration in duplicate in such form and manner, as may be prescribed, to the person responsible for collecting tax, mentioning that such goods are to be utilised—

(a) for the purposes of manufacturing, processing or producing articles or things or for generating power; and

(b) not for trading purposes.

(3) Where no collection of tax is to be made under sub-section (2), the person re- sponsible for collecting tax shall deliver or cause to be delivered, one copy of the 88a. Substituted for “1%” by the Finance Act, 2026, w.e.f. 1-4-2026. 88b. Substituted for “5%”, ibid.

89. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to their substitution, clauses (a) and (b) read as under : “(a) 5% of amount or aggregate of amounts up to ten lakh rupees;

(b) 20% of amount or aggregate of amounts exceeding ten lakh rupees.” declaration referred to in that sub-section, to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, on or before the seventh day of the month following the month of receipt of that declaration.

(4) The collection of tax shall not be made by the authorised dealer in respect of receipt specified in sub-section (1) (Table: Sl. No.7),—

(a) on such amount on which tax has been collected by the seller in respect of receipt referred to in sub-section (1) (Table: Sl. No. 8);

(b) if the amount being remitted out is a loan obtained from any financial institution as defined in section 129(3)(b), for the purpose of pursuing any education.

(5) The collection of tax shall not be made by the authorised dealer or seller, in respect of receipt specified in sub-section (1) (Table: Sl. Nos. 7 and 8), if the buyer is liable to deduct tax at source under any other provisions of this Act and he has deducted such tax.

(6) For the purposes of this section, “forest produce” shall have the same meaning as defined in any State Act for the time being in force, or in the Indian Forest Act, 1927 (16 of 1927). Certificates.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 394	INCOME-TAX ACT, 1961 -- s. 206C
TCS framework Table	1961 s. 206C(1)
Alcohol / tobacco / forest / scrap categories	1961 s. 206C(1) Table
Sale of motor vehicles > INR 10L	1961 s. 206C(1F) [FA 2016]
LRS foreign remittance / tour package	1961 s. 206C(1G) [FA 2020 / FA 2023]
E-commerce / sale of goods > INR 50L (s. 206C(1H))	1961 s. 206C(1H) [FA 2020]

TCS CATEGORIES: (I) ALCOHOLIC LIQUOR / TENDU LEAVES / TIMBER / FOREST PRODUCE / SCRAP / MINERALS: typically 1%-5%; collected by seller; (II) BULLION (gold / silver) > INR 2 LAKH cash sale: 1%; (III) MOTOR VEHICLES > INR 10 LAKH (FA 2016): 1%; collected by dealer / manufacturer; (IV) LRS FOREIGN REMITTANCE (FA 2020): (a) Educational / medical: 5% above INR 7 lakh; (b) Other purposes: 20% (FA 2023 enhanced from 5%); (c) Authorised Dealer Banks collect at remittance; (V) OVERSEAS TOUR PACKAGES (FA 2020): 5% (under INR 7L) / 20% (above); (VI) SALE OF GOODS > INR 50 LAKH (FA 2020 s. 206C(1H)): 0.1% on gross consideration; for sellers with turnover > INR 10 cr; (VII) E-COMMERCE OPERATIONS: integration with 194O TDS framework.

PRACTITIONER NOTES

(i) AUTHORISED DEALER BANKS LRS -- 20% TCS on remittance > INR 7L for non-medical/non-education; substantial; recovery via Form 27D. (ii) MOTOR VEHICLE SALES > INR 10L -- dealer collects 1%; mandatory; record-keeping. (iii) GOODS SALES > INR 50L -- 0.1% TCS for large sellers; integrate with billing systems. (iv) FORM 27D -- TCS certificate; issue to buyer; enables buyer's tax-credit claim. (v) FORM 27EQ -- quarterly TCS return; e-filing mandatory.

CROSS-REFERENCES

Section 393 -- TDS framework (parallel).
Section 395 -- Certificates.
Section 397 -- Compliance / reporting (Form 27EQ).
Section 398 -- Consequences of failure.
LRS Framework -- RBI.
Form 27D / 27EQ.

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