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Key takeaways
- Section 206C(1H) required sellers with turnover above INR 10 crore to collect 0.1 percent TCS on sale proceeds above INR 50 lakh from one buyer.
- The Income Tax Department states that it is not applicable from 1 April 2025. Section 194Q TDS governs the sale of goods.
- Check ERP tax masters, customer invoices and credit notes for TCS lines that should now be switched off for new sales.
- A separate TCS rule on certain luxury goods above INR 10 lakh was brought in by notification on 22 April 2025.
Free PDF and Excel: TCS sale-of-goods clean-up checklist. Get it below
What the rule was
Section 206C(1H) was a tax collected at source rule. A seller whose turnover in the previous year exceeded INR 10 crore collected 0.1 percent on receipts above INR 50 lakh from a single buyer in a financial year.
It mirrored section 194Q. Where the buyer's TDS under 194Q applied, the buyer deducted and the seller did not collect. Many sellers in practice built TCS into the invoice line and watched the buyer's PAN to decide whether to charge it.
A chemical supplier invoiced a distributor INR 70,00,000 in total. Under the old rule, if the distributor had not deducted TDS, the supplier would have collected 0.1 percent on INR 20,00,000, which is INR 2,000, on top of the invoice.
From 1 April 2025 the supplier no longer adds that line. The buyer deducts 194Q TDS when it is itself covered.
Where it stands now
The Income Tax Department page on TDS on purchase of goods states that section 206C(1H) is not applicable from 1 April 2025. Tax publications explained the change as flowing from the Finance Bill 2025 proposal to insert a proviso to 206C(1H). If you sold goods before that date, collected TCS and filed Form 27EQ, the filings for those quarters remain valid, and any TCS credit in the buyer's Form 26AS or AIS stays as it was.
| Question | Answer today |
|---|---|
| Does a seller collect TCS on sale of goods above INR 50 lakh? | No, section 206C(1H) does not apply from 1 April 2025 |
| Who handles tax at source on large goods purchases? | The buyer, under section 194Q, if it meets the turnover test |
| Does the rule appear in the new Act? | Check with your adviser. The Income-tax Act 2025 is in force from 1 April 2026 |
Free PDF and Excel
TCS sale-of-goods clean-up checklist
A checklist to switch off the retired TCS line in your ERP and invoices, with a log of what you changed and when.
- ERP and invoice clean-up checklist
- Before and after rule summary
- Change log layout
- Excel log of tax codes reviewed
A different TCS rule is live: certain luxury goods
A KPMG tax flash on notifications 35 and 36 of 22 April 2025 explains that the Finance (No. 2) Act 2024 extended section 206C(1F), previously about motor vehicles, to other goods the Central Government notifies. A one percent TCS applies to ten notified categories of luxury goods above INR 10 lakh. It does not cover everyday trade goods. If you sell watches, handbags or similar items at that value, check the list.
What to clean up
- Turn off the 206C(1H) tax code in customer masters for sales after 31 March 2025.
- Stop collecting on advance receipts received after that date.
- Reconcile 27EQ quarters up to March 2025, then stop filing for this section.
- Keep TCS certificates you issued as evidence.
- Update the sales invoice format and customer communications. Reference TDS on purchase of goods for the buyer's side.
- Tax code for 206C(1H) is blocked for new documents.
- Advance receipt and sales-order templates no longer calculate it.
- Sales team knows customers might ask why TCS has gone.
- The 27EQ filing calendar for this section is closed out.
- Credit notes against old invoices still reverse the original tax.
Last checked: 19 October 2026. Checked against the Income Tax Department page on TDS on purchase of goods, a taxguru summary of the Finance Bill 2025 proposal and a KPMG tax flash. Confirm the treatment of old transactions with your chartered accountant.
Frequently asked questions
Is TCS on sale of goods still applicable?
The Income Tax Department says section 206C(1H) is not applicable from 1 April 2025. Section 194Q TDS applies instead to buyers who meet its conditions.
What was the rate under 206C(1H)?
0.1 percent on the amount above INR 50 lakh received from a buyer in a financial year, with a temporary reduced rate in 2020 and 2021.
Do I still file Form 27EQ?
If you collect TCS under any other section, yes. For 206C(1H) after the cut-off, no new collection arises.
What about sales before April 2025?
Collections made and reported for those periods remain on record. Your adviser can tell you whether any correction statements are needed.
Does the luxury goods TCS affect industrial buyers?
Only if you sell the specific notified items above the value limit. It is separate from the retired sale-of-goods rule.