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Section 206C creates a dual obligation — sellers must match TCS collected to challan deposited and Form 27EQ filed, while buyers must verify Form 26AS Part C credits against invoices. Scrap at 1 percent, 20 percent TCS on LRS above medical/education and on overseas tour packages from October 1, 2023, and the 194Q vs 206C(1H) precedence rule for above-₹10-crore buyers produce recurring errors on both sides.
For sellers, reconcile TCS collected per buyer PAN and category against the monthly challan, file Form 27EQ quarterly, and issue Form 27D. For buyers, match each Form 26AS Part C entry to the collector TAN, section, and invoice. Flag transactions where the buyer's prior-year turnover exceeds ₹10 crore and suppress TCS collection in favour of 194Q TDS by the buyer.
Buyer-master with prior-year turnover flag controlling 194Q vs 206C(1H) precedence. Category-rate master (scrap 1 percent, LRS 20 percent with medical/education exception at 5 percent, tour 20 percent). Seller-side TCS reconciliation workflow aligned to Form 27EQ quarters.
Matched TCS collected to deposited and filed figures for sellers, Form 26AS Part C credits that reconcile to invoices for buyers, zero 194Q vs 206C(1H) double-deduction disputes, and auditor-ready TCS evidence for scrap, LRS, and tour transactions.
Section 206C TCS reconciliation India applies to sellers obligated to collect tax at source on specified goods and transactions—and to buyers who need to claim those credits accurately. Finance teams on both sides of the transaction face distinct but related reconciliation problems: sellers must confirm collections match deposits, and buyers must verify 26AS credits match invoices before the credit can flow to the ITR.
What Section 206C Covers
Section 206C of the Income Tax Act requires the seller to collect TCS from the buyer at the point of sale for specified categories. Unlike TDS—where the payer deducts before remitting—TCS is collected from the buyer by the seller at the time of receipt or invoicing, whichever is earlier. The collected amount is then deposited by the seller with the government on the 7th of the following month, and a quarterly return in Form 27EQ is filed.
Finance Act 2023 significantly increased TCS on Liberalised Remittance Scheme (LRS) remittances to 20% from 1 October 2023, with the exception of medical and education remittances, which remain at 5%. Overseas tour packages also attract 20% TCS. These rates apply in addition to the established rates for goods categories such as scrap, motor vehicles, minerals, and forest produce.
Where Reconciliation Breaks Down
Collection and deposit falling in different months. Companies with high-volume scrap sales frequently find that the TCS deposit amount and the collected amount in the subsidiary ledger diverge by month-end because collections and deposits fall in different calendar months. A sale invoiced on 31 March triggers a collection obligation, but if payment is received on 2 April, the deposit due date and challan month both shift—creating a mismatch between the March sales ledger and the Q4 Form 27EQ data.
Buyer PAN errors in Form 27EQ. The TCS certificate (Form 27D) generated from TRACES and the corresponding 26AS Part C entry are linked to the buyer’s PAN as reported in Form 27EQ. If the seller’s accounts receivable team has an incorrect or outdated PAN for a buyer, the credit will not appear in the correct buyer’s 26AS—making it irrecoverable without a correction return.
Overlap with Section 194Q. For goods transactions where the buyer’s turnover exceeds ₹10 crore, Section 194Q governs and TCS should not be collected. Sellers whose billing systems default to automatic TCS collection frequently generate TCS entries for transactions that should have been exempt, requiring credit notes and refund processes that complicate both the seller’s Form 27EQ return and the buyer’s 26AS.
Reconciling Section 206C TCS: Steps
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Monthly seller reconciliation: At month-end, extract the TCS collected per the accounts receivable ledger by buyer PAN and category. Match the total collected amount to the challan deposited for that month. Verify the challan BSR code and date are within the 7th-of-following-month deadline.
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Quarterly Form 27EQ preparation: Aggregate monthly data into the quarterly return. Validate buyer PAN for each line item against the buyer master in the ERP. Identify any transactions where 194Q should have applied and remove erroneous TCS entries before filing.
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Buyer 26AS Part C verification: After the seller files Form 27EQ, the buyer downloads Form 26AS and locates Part C entries. Each entry must be matched to the purchase invoice—checking seller TAN, amount, section code, and quarter.
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Form 27D issuance and receipt confirmation: The seller generates Form 27D from TRACES after filing Form 27EQ. Confirm the buyer receives the certificate and that the amounts on Form 27D match the buyer’s 26AS entry.
Section 206C — TCS Rates by Category
| Category | Rate | Threshold | Applicable to |
|---|---|---|---|
| Scrap | 1% | No threshold | All buyers |
| Motor vehicle | 1% | Above ₹10 lakh per vehicle | All buyers |
| LRS — general purpose | 20% | Above ₹7 lakh per FY (w.e.f. Oct 2023) | All remitters |
| LRS — medical / education | 5% | Above ₹7 lakh per FY | All remitters |
| Overseas tour package | 20% | No threshold | All buyers |
| Minerals (coal, lignite, iron ore) | 1% | No threshold | All buyers |
What Automated Reconciliation Changes
TCS reconciliation software India with ERP integration pulls accounts receivable data, challan records, and Form 27EQ filings into a single matching pipeline. The tolerance-matching pass in the multi-pass engine identifies month-boundary timing differences—collections in the last week of a month matched against challan deposits in the first week of the next—and classifies them as timing variance rather than unresolved exceptions. Finance teams that previously reviewed every challan-to-collection discrepancy manually reduce their exception list to genuine data-quality issues.
Reconciliation software India with 26AS synchronisation confirms buyer TCS credit posting within 48 hours of Form 27EQ filing, giving the seller’s accounts team early visibility into any buyer PAN errors before the quarterly deadline passes and a correction return becomes necessary.
New Income Tax Act 2025: Section 206C TCS Overhaul
Effective April 1, 2026, Section 206C becomes Section 394 under the Income Tax Act 2025. This is not just a renumbering — TCS rates are being rationalized to a uniform 2% across most categories, with significant simplification.
Rate changes
| Category | Old Rate | New Rate (April 2026) |
|---|---|---|
| Alcoholic liquor | 1% | 2% |
| Scrap | 1% | 2% |
| Coal, lignite, iron ore | 1% | 2% |
| Tendu leaves | 5% | 2% |
| Timber/forest produce | 2% | 2% (unchanged) |
| LRS — education/medical (above ₹10L) | 5% | 2% |
| Overseas tour packages | 5%/20% slab | Flat 2% |
| Motor vehicle above ₹10L | 1% | 1% (unchanged) |
New TCS category: luxury goods
An entirely new TCS obligation applies at 1% on sale consideration exceeding ₹10 lakh for watches, art/collectibles, yachts, helicopters, sunglasses, bags, shoes, sportswear, home theatres, and horses. Payment codes 1076–1085. No equivalent existed under the 1961 Act.
Abolished provisions
- Section 206C(1H) (TCS on sale of goods exceeding ₹50 lakh) is removed from April 1, 2025, eliminating the overlap with Section 194Q on the buyer side
- Section 206CCA (higher TCS for non-filers) is abolished — no replacement in the new Act
What changes for reconciliation
- TCS returns shift from Form 27EQ to Form 143; certificates from Form 27D to Form 133
- The flat 2% simplification reduces rate-lookup complexity but requires updating every category-specific rate entry
- Overseas tour package reconciliation simplifies dramatically — a ₹15 lakh tour now attracts ₹30,000 TCS versus approximately ₹2.5 lakh under the old slab structure
- New luxury goods TCS requires sellers to identify qualifying items and apply 1% on amounts exceeding ₹10 lakh per transaction