TCS (Tax Collected at Source)

What it means

TCS (Tax Collected at Source) is tax that a seller or service provider collects from the buyer, over and above the price, on certain specified transactions, and deposits with the government. It is not an extra cost in the end: it is an advance tax payment on the buyer’s behalf, which the buyer adjusts against their own tax or gets back as a refund when filing the return.

How it works

The seller collects TCS at the time of receiving payment or raising the bill, deposits it by the 7th of the next month, files quarterly TCS returns and issues a TCS certificate. The amount appears in the buyer’s annual tax statement (Form 26AS / AIS). Key rates from 1 April 2026, after Budget 2026:

• Overseas tour packages: 2% from the first rupee (earlier 5% and 20%).

• Foreign remittances under LRS for education or medical treatment: 2% on the amount above ₹10 lakh in a year. Nil where education is funded by an education loan from a financial institution.

• Other LRS remittances (investment, gifts to relatives abroad and similar): 20% on the amount above ₹10 lakh in a year.

• Motor vehicles (and certain notified luxury goods) of value above ₹10 lakh: 1%.

• Scrap and liquor: 2%. Other specified goods such as certain minerals and forest produce have their own rates.

• TCS on general sale of goods above ₹50 lakh was removed from 1 April 2025.

• If the buyer has no PAN, a higher rate applies.

Example

Rohan, a salaried employee, makes three transactions in a year:

1. Books a Europe tour package for ₹3,00,000. TCS at 2% = ₹6,000. He pays ₹3,06,000.

2. Sends ₹15,00,000 abroad to invest in US shares under LRS. TCS at 20% on the amount above ₹10 lakh = ₹5,00,000 x 20% = ₹1,00,000.

3. Buys a car for ₹12,00,000. TCS at 1% = ₹12,000.

Total TCS = ₹6,000 + ₹1,00,000 + ₹12,000 = ₹1,18,000. If his total tax for the year is ₹2,50,000 and his employer deducts TDS of ₹2,00,000, the TCS fully covers the balance of ₹50,000, and he can claim a refund of ₹68,000 in his return.

Key points to remember

• Always check that TCS appears in your Form 26AS / AIS before filing. If it is missing, ask the seller or bank to correct their TCS return.

• Salaried people can ask their employer to take TCS into account while computing TDS, which avoids locking up money until the refund.

• The ₹10 lakh LRS threshold is per person per year, across all banks.

• TCS rates were changed by Budget 2026, so older quotes from travel agents or banks may be outdated.

• Sellers who fail to collect or deposit TCS are liable to interest and penalties.