New IT Act 2025 — Knowledge Bank

Collection of tax at source

Section 394 — Collection of tax at source

Old Act equivalent: Section 206C of IT Act 1961 Sub-part: B.—Deduction and collection at source

Statutory Text

  1. (1) Every person, as specified in column C of the Table below shall collect tax— (a) on receipts specified in column B; (b) at the rate as specified in column D; and (c) at the time of debiting of the amount payable by the buyer or licensee or lessee to the account of the buyer or licensee or lessee or at the time of receipt of such amount from the said buyer or licensee or lessee in cash or by way of a cheque or a draft or any other mode, whichever is earlier.

(2) No collection from resident buyer who furnishes declaration that goods are for manufacturing/processing/producing/power generation, not trading. Declaration in duplicate in prescribed form.

(3) Copy of declaration to be delivered to PCIT/CIT/PCCIT within 7th of following month.

(4) No TCS by authorised dealer for LRS (Sl. No. 7) on amount where TCS already collected by seller under Sl. No. 8; or if amount is education loan from financial institution per section 129(3)(b).

(5) No TCS for LRS/tour (Sl. Nos. 7-8) if buyer liable to deduct TDS under other provisions and has done so.

(6) “forest produce” as defined in any State Act or Indian Forest Act, 1927.

Sub-sections

Sub-section (1)

Every person specified in column C of the Table shall collect tax on receipts in column B at the rate in column D, at the time of debiting the buyer/licensee/lessee account or at the time of receipt, whichever is earlier.

Sub-section (2)

No TCS from a resident buyer who furnishes a declaration that goods purchased are for manufacturing, processing, producing, or power generation and not for trading purposes. Declaration to be in duplicate in prescribed form.

Sub-section (3)

Copy of the declaration under sub-section (2) to be delivered to PCIT/CIT/PCCIT within 7th of the month following the month in which declaration is furnished.

Sub-section (4)

Authorised dealer exempted from TCS under Sl. No. 7 (LRS) where TCS already collected by seller under Sl. No. 8 (overseas tour package), or where amount is out of education loan from a financial institution under section 129(3)(b).

Sub-section (5)

No TCS under Sl. Nos. 7-8 (LRS and overseas tour) if the buyer is liable to deduct TDS under any other provision of the Act and has deducted such TDS.

Sub-section (6)

Definition of “forest produce” — as defined in any State Act relating to forests or in the Indian Forest Act, 1927.

Provisos

None.

Explanations

None.

Tables

Table — Tax Collection at Source

Sl. No.Nature of receipt (Column B)Person responsible (Column C)Rate (Column D)
1Sale of alcoholic liquor for human consumptionSeller2%
2Sale of tendu leavesSeller2%
3Sale of timber/forest produce under forest leaseSeller2%
4Sale of scrapSeller2%
5Sale of minerals (coal, lignite, iron ore)Seller2%
6Sale consideration exceeding Rs. 10 lakh for motor vehicle or notified goodsSeller1%
7Remittance under LRS exceeding Rs. 10 lakh — (a) 2% for education/medical; (b) 20% for othersAuthorised dealer2%/20%
8Sale of overseas tour programme packageSeller2%
9Use of parking lot, toll plaza, mine, quarry for businessLicensor or Lessor2%

Key Structure

  • Applies to: Sellers of specified goods (alcoholic liquor, tendu leaves, timber/forest produce, scrap, minerals, motor vehicles); authorised dealers (LRS remittances); licensors/lessors of parking lots, toll plazas, mines, quarries.
  • Conditions: Sale or receipt of items listed in the Table; LRS remittance exceeding Rs. 10 lakh in aggregate.
  • Time limits: At the time of debiting the buyer/licensee/lessee account or at the time of receipt of amount, whichever is earlier. Declaration copy to PCIT/CIT within 7th of following month.
  • Monetary limits: Motor vehicle/notified goods — sale consideration exceeding Rs. 10 lakh (Sl. No. 6); LRS remittance — Rs. 10 lakh aggregate (Sl. No. 7).
  • Exceptions: Resident buyer furnishing manufacturing/processing declaration (Sl. Nos. 1-5); education loan for LRS (sub-section 4); buyer already deducting TDS under other provisions (sub-section 5).

Cross-References

  • s393 — TDS on non-salary payments.
  • s395 — certificates for lower/nil collection.
  • s397 — compliance and reporting obligations for TCS.
  • s402 — definitions: buyer (clause 6), seller (clause 33), licensee (clause 21), lessor (clause 22).

Amendment Notes

None noted from the extracted pages.

Practical Notes

  • Consolidates old section 206C (TCS on specified goods) with LRS and overseas tour package provisions.
  • The manufacturing/processing declaration under sub-section (2) applies only to Sl. Nos. 1-5 (alcoholic liquor, tendu leaves, timber, scrap, minerals) — not to motor vehicles, LRS, or tour packages.
  • For LRS remittances, the 20% rate applies to non-education/non-medical purposes; education and medical purpose remittances attract only 2%.
  • Sub-section (5) prevents double taxation — if the buyer has already deducted TDS under another provision, no TCS is required on LRS or overseas tour transactions.
  • The time of collection is the earlier of debiting the buyer’s account or actual receipt — practitioners must track both events.
  • Circular 13/2021

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