If you run a business with turnover above ₹10 crore and one of your customers pays you more than ₹50 lakh in a financial year, Section 206C(1H) requires YOU as the seller to collect an additional 0.1% from that customer as Tax Collected at Source - on top of the invoice value. Here's exactly when this applies and how it's collected.
What Is Section 206C(1H)?
Section 206C(1H) requires a seller of goods to collect Tax Collected at Source (TCS) from a buyer at the time of receipt of consideration for sale of goods, if certain turnover and threshold conditions are satisfied. Unlike most TCS provisions (which apply to specific goods like scrap, minerals, or liquor), Section 206C(1H) is a general provision applicable to sale of goods broadly.
Who Is Required to Collect TCS Under Section 206C(1H)?
| Condition | Requirement |
|---|
| Seller's turnover/gross receipts | Must exceed ₹10 crore in the financial year immediately preceding the year of sale |
| Receipt of sale consideration from a single buyer | Must exceed ₹50 lakh in the financial year (TCS applies only on the amount received in excess of ₹50 lakh) |
| Buyer | Various categories of buyers are excluded (e.g., government, certain notified persons); also excluded if the buyer is liable to deduct TDS under 194Q on the same transaction |
TCS Rate and Collection Trigger
- Rate: 0.1% on the sale consideration received in excess of ₹50 lakh from a buyer in a financial year (a higher rate applies if the buyer's PAN is not available, typically 1%).
- Trigger: TCS is collected at the time of receipt of payment (not at the time of sale/invoicing) - this is a key distinction from TDS, which is typically deducted at the time of credit or payment, whichever is earlier.
TCS is collected on RECEIPT, not on sale. Even if you raised an invoice for ₹60 lakh in March, TCS under 206C(1H) is triggered only when you actually receive payment exceeding the ₹50 lakh threshold from that buyer during the year - and only on the portion of the receipt that exceeds ₹50 lakh (cumulatively for the year).
206C(1H) vs 194Q: Which One Applies?
Both provisions can potentially apply to the same buyer-seller transaction (seller's turnover > ₹10 crore AND buyer's turnover > ₹10 crore, with purchase/sale value > ₹50 lakh). The law resolves this overlap clearly:
If TDS under Section 194Q is deductible by the buyer, the seller does NOT collect TCS under 206C(1H) on the same transaction. This avoids double taxation/compliance on the same transaction value. As a seller, if your buyer informs you (typically via a written declaration) that they are deducting TDS under 194Q, you should not also collect TCS under 206C(1H) for that transaction.
Worked Example
| Particulars | Amount |
|---|
| Seller's turnover in preceding FY | ₹30 crore (exceeds ₹10 crore threshold - 206C(1H) applies) |
| Total receipts from Buyer Y during the year | ₹90,00,000 |
| Threshold | ₹50,00,000 |
| Amount liable for TCS (90,00,000 − 50,00,000) | ₹40,00,000 |
| TCS @ 0.1% on ₹40,00,000 | ₹4,000 |
How Is TCS Reflected and Claimed by the Buyer?
TCS collected under Section 206C(1H) is reflected in the buyer's Form 26AS/AIS as tax already collected on their behalf. The buyer can claim credit for this TCS amount against their total tax liability for the year when filing their ITR - similar to how TDS credit works, except this is "collected" rather than "deducted."
Compliance Obligations for Sellers
- Collect TCS at 0.1% on receipts exceeding ₹50 lakh from each buyer (tracked buyer-wise, cumulatively for the financial year).
- Deposit the TCS collected with the government within prescribed due dates.
- File quarterly TCS returns (Form 27EQ) reporting Section 206C(1H) collections.
- Issue a TCS certificate (Form 27D) to the buyer.
- Maintain buyer-wise records of receipts to track when the ₹50 lakh threshold is crossed during the year.
Frequently Asked Questions
We invoiced a customer for ₹55 lakh in February but received payment of only ₹30 lakh by 31 March. Is TCS applicable? ▼
Section 206C(1H) is triggered by receipt of payment, not by invoicing. If you've received only ₹30 lakh from this buyer during the financial year (below the ₹50 lakh threshold), TCS under 206C(1H) would not yet apply for that year, even though the invoice raised was for a higher amount. If the remaining ₹25 lakh is received in the next financial year, the threshold and TCS calculation would apply afresh for that subsequent year based on receipts in that year.
Do we need to collect TCS under 206C(1H) on sales to government departments or export sales? ▼
Section 206C(1H) excludes certain categories of transactions and buyers, including (subject to the specific exclusions in force) export of goods and receipts from buyers such as the Central/State Government, local authorities, and certain other notified entities. The exact list of exclusions should be checked against the current provisions, as it determines whether TCS applies to a specific buyer category.
Our turnover is ₹12 crore, but no single buyer has paid us more than ₹50 lakh this year. Do we still need to collect TCS? ▼
No. The ₹50 lakh threshold under Section 206C(1H) is applied separately for each buyer - TCS is collected only on the portion of receipts from a particular buyer that exceeds ₹50 lakh in the financial year. If no individual buyer's payments to you have crossed ₹50 lakh, there is no TCS obligation under this section for that buyer, even though your overall turnover exceeds ₹10 crore (which only determines whether you are a 'seller' to whom this section applies at all).