Key points
- TCS on sale of goods (206C(1H)) does not apply from 1 April 2025. The Income Tax Department's TCS page says so in as many words.[1]
- TDS on purchase of goods sits in section 393(1), Table Sl. 8(ii) of the Income-tax Act 2025 from 1 April 2026: 0.1% on the sum exceeding ₹50 lakh, by a buyer.[2]
- The buyer test is turnover above ₹10 crore in the preceding year, as under 194Q.[3] Confirm with your CA how section 402 of the new Act words it. ચકાસો
- Sl. 8(ii) does not apply where tax is deductible or collectible under another provision (Note 1(a)).[2]
- TCS still applies under section 394 on scrap (2%) and on motor vehicles above ₹10 lakh (1%), among others.[4]
Who does what, year by year
| Financial year | Buyer (turnover > ₹10 Cr) | Seller (turnover > ₹10 Cr) | Law |
|---|---|---|---|
| 2023-24, 2024-25 | TDS 0.1% above ₹50 L (194Q) | TCS 0.1% above ₹50 L (206C(1H)) only if the buyer did not deduct | Income-tax Act 1961 |
| 2025-26 | TDS 0.1% above ₹50 L (194Q) | No TCS on sale of goods | 1961 Act, 206C(1H) omitted |
| 2026-27 onwards | TDS 0.1% above ₹50 L (sec 393(1) Sl. 8(ii)) | No TCS on sale of goods | Income-tax Act 2025 |
Under the old pair of rules, the buyer had "first obligation": if the buyer deducted under 194Q, the seller did not collect under 206C(1H).[3] With 206C(1H) gone, that question disappears. Old years still matter for assessments and for reconciling Form 26AS, so keep your FY 2024-25 records with their old labels.
If you are the buyer
- Check your turnover first. If FY 2025-26 sales, gross receipts or turnover from business were above ₹10 crore, you deduct in FY 2026-27.[3]
- Count per seller. Add up purchases from each seller from 1 April. Only the part above ₹50 lakh is taxed (Note 1(b)).[2]
- Deduct at credit or payment, whichever is earlier. For most traders that is the day the purchase bill is entered.[2]
- Leave out GST when you deduct at the time of credit and GST is shown separately on the bill; on an advance payment, deduct on the full amount. The Department's guidance says this for 194Q.[3] Whether a fresh circular repeats it for section 393 is not confirmed. ચકાસો
- Skip goods already under TCS. If the seller must collect TCS on the goods (for example scrap under section 394), Sl. 8(ii) does not apply to that transaction.[2]
If you are the seller
Do not add TCS for 206C(1H) to your bills: it has not applied since 1 April 2025.[1] Expect large buyers to keep back 0.1% once your sales to them cross ₹50 lakh in the year, and check that the credit appears in your Form 26AS or AIS before you mark the bill as short-paid. A bill short by exactly 0.1% of the excess over ₹50 lakh is almost always TDS, not a dispute.
You still collect TCS under section 394 if you sell goods in its table, such as scrap (2%), coal, lignite or iron ore (2%), timber and forest produce (2%), or a motor vehicle above ₹10 lakh (1%).[4] A buyer who uses scrap or minerals for manufacturing, and not for trading, can give you a declaration so that no TCS is collected on those items.[4]
Worked example, in rupees
Arihant Steel & Hardware, Nagpur (sample firm) had FY 2025-26 turnover of ₹18 Cr. In FY 2026-27 it buys pipes from Supplier P and also sells scrap to Buyer Q, a trader.
| Transaction | Value (ex-GST) | Running total | Who acts | Amount |
|---|---|---|---|---|
| Pipes from P, Apr–Aug | ₹44,00,000 | ₹44,00,000 | None yet | ₹0 |
| Pipes from P, 12-09-2026 | ₹9,00,000 | ₹53,00,000 | Arihant deducts 0.1% on ₹3,00,000 | ₹300 |
| Scrap to Q, 20-09-2026 | ₹6,00,000 | n/a | Arihant collects TCS 2% (sec 394) | ₹12,000 |
The September pipe bill. ₹9,00,000 + 18% GST ₹1,62,000 = ₹10,62,000. Arihant pays Supplier P ₹10,61,700 and keeps back ₹300.
The scrap sale. Arihant collects TCS at 2% on what Buyer Q pays. The base for TCS has its own rules; your CA will confirm whether GST is included. ચકાસો Because TCS applies to this sale, Buyer Q does not also deduct TDS under Sl. 8(ii) on it, whatever Q's turnover.[2]
Deposit, returns and certificates
Under the old Act, TDS on purchase of goods was deposited by the 7th of the next month (30 April for March) on challan ITNS 281, reported quarterly in Form 26Q, with Form 16A to the seller.[3] The Income-tax Act 2025 and its rules use new form numbers; ask your CA which forms and payment codes their software uses for FY 2026-27. ચકાસો
How Moharbill handles it
- Tracks purchases per supplier against ₹50 lakh, with a warning near the line, and keeps back 0.1% on the bill that crosses it.
- Labels FY 2026-27 deductions as sec 393(1) Sl. 8(ii) and earlier years as 194Q.
- Does not add 206C(1H) TCS to sales bills for any year from FY 2025-26.
- Shows each month's TDS payable and a quarterly summary for your CA. See the TDS tracker and the TDS calculator.
Frequently asked questions
Is TCS under section 206C(1H) applicable in FY 2026-27?
No. TCS on sale of goods under 206C(1H) is not applicable from 1 April 2025, as the Income Tax Department's TCS rates page states.
Which section replaced 194Q?
From 1 April 2026, TDS on purchase of goods is in section 393(1), Table serial number 8(ii), of the Income-tax Act 2025: 0.1% on the sum exceeding ₹50 lakh, deducted by a buyer.
Can both TDS and TCS apply to the same purchase?
Not under section 393. Note 1(a) to the table says serial 8(ii) does not apply to a transaction on which tax is deductible or collectible under any other provision of the Act.
Do sellers still collect TCS on anything?
Yes. Section 394 still requires TCS on items such as scrap, coal, lignite, iron ore, timber and forest produce, and motor vehicles above ₹10 lakh.
Is TDS deducted on GST?
For 194Q the Department's guidance said no, when tax is deducted at the time of credit and GST is shown separately; on advance payments the full amount is used. Confirm the position for section 393 with your CA.
Sources
All read on 17 Oct 2026 on the Income Tax Department's site.
- Income Tax Department, "TCS Rates" (206C(1H) not applicable w.e.f. 01-04-2025). incometaxindia.gov.in
- Income-tax Act 2025, section 393 (Table Sl. 8(ii) and Note 1; time of deduction). incometaxindia.gov.in
- Income Tax Department, "TDS on Purchase of Goods" (194Q: ₹10 crore buyer test, GST exclusion, deposit, 26Q, 194Q vs 206C(1H)). incometaxindia.gov.in
- Income-tax Act 2025, section 394 (TCS table: scrap 2%, minerals 2%, motor vehicles above ₹10 lakh 1%; manufacturing declaration). incometaxindia.gov.in
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