TCS is tax collected at source — the seller collects a small percentage of tax from the buyer on specified transactions, such as sale of scrap or high-value motor vehicles, and deposits it against the buyer's PAN. The buyer claims it as credit when filing their return, exactly like TDS, via Form 26AS.
TCS applies to a specific list of transactions: sale of scrap, timber and certain forest produce, sale of motor vehicles above ₹10 lakh, and foreign remittances or overseas tour packages under the LRS route above the prescribed threshold. The seller or authorised dealer collects the tax at the time of receipt, deposits it, and files quarterly TCS returns so the credit reflects against the buyer's PAN.
One change many businesses still miss: TCS on general sale of goods under the old section 206C(1H) was withdrawn from 1 April 2025. If a customer's turnover crosses ₹50 lakh in purchases from you, the compliance now sits entirely on the buyer's side as TDS under 194Q at their end — you should not be collecting TCS on ordinary goods sales anymore. Sellers still collecting it are creating reconciliation headaches for their buyers.
For an MSME owner the practical checklist is short: if you deal in scrap or vehicles above ₹10 lakh, register the obligation and collect; if you send money abroad or buy foreign tour packages, expect TCS to be collected from you and claim it in your return. Always verify collected amounts appear in your 26AS before filing — missing credit means chasing the collector for a correction.
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Reviewed to the law in force in FY 2026-27. General information, not advice — confirm the position for your facts before acting.