Streamlining of TCS in the New Act
Tax Collected at Source (TCS) is a mechanism whereby the seller collects tax from the buyer at the time of sale or receipt of consideration and deposits it with the Government. Under the Income-tax Act, 1961, TCS provisions were contained mainly in Section 206C with various sub-sections. The Income-tax Act, 2025 has simplified the structure by consolidating all TCS provisions into Section 394 while largely retaining the existing rates and thresholds.
Detailed Comparison of TCS Provisions
The following table presents a detailed mapping of TCS sections, rates, and thresholds between the old Income-tax Act, 1961 and the new Income-tax Act, 2025:
TCS Comparison Table
| Nature of Income / Transaction | 1961 Act Section | 2025 Act Section | TCS Rate | Threshold / Exemption Limit | Remarks |
|---|---|---|---|---|---|
| Alcoholic liquor for human consumption | Sec. 206C(1) | Sec. 394(1) | 2% | No threshold | Collected by seller at the time of sale |
| Tendu leaves | Sec. 206C(1) | Sec. 394(1) | 2% | No threshold | Applicable to specified forest produce |
| Timber obtained under forest lease | Sec. 206C(1) | Sec. 394(1) | 2.5% | No threshold | Seller responsible for collection |
| Timber other than forest lease | Sec. 206C(1) | Sec. 394(1) | 2.5% | No threshold | Applies to timber traders |
| Any other forest produce (excluding timber and tendu leaves) | Sec. 206C(1) | Sec. 394(1) | 2.5% | No threshold | Specified forest produce only |
| Scrap | Sec. 206C(1) | Sec. 394(1) | 2% | No threshold | Sale of scrap generated from manufacturing |
| Minerals (coal, lignite, iron ore) | Sec. 206C(1) | Sec. 394(1) | 2% | No threshold | Applies to mineral sellers |
| Parking lot, toll plaza, mining and quarrying rights | Sec. 206C(1C) | Sec. 394(1) | 2% | No threshold | Collection at grant of license/lease |
| Sale of Motor Vehicle | Sec. 206C(1F) | Sec. 394(1) | 1% | Sale value exceeding ₹10 lakh | Collected by dealer from purchaser |
| Foreign Remittance under LRS (other than education/medical) | Sec. 206C(1G) | Sec. 394(2) | 20% | Amount exceeding ₹10 lakh | Liberalised Remittance Scheme |
| Foreign Tour Program Package | Sec. 206C(1G) | Sec. 394(3) | 2% | No threshold | TCS collected by tour operator |
| Education Loan Remittance under LRS | Sec. 206C(1G) | Sec. 394(2) | 0.5% | Amount exceeding ₹10 lakh | Loan from specified financial institution |
| Education Remittance (other than loan) | Sec. 206C(1G) | Sec. 394(2) | 2% | Amount exceeding ₹10 lakh | Overseas education expenses |
| Medical Treatment Remittance | Sec. 206C(1G) | Sec. 394(2) | 2% | Amount exceeding ₹10 lakh | Overseas medical treatment |
Major Changes under Income-tax Act, 2025
1. Consolidation of TCS Provisions
The scattered TCS provisions of the old Section 206C have been reorganized into a single comprehensive Section 394, making compliance significantly easier for taxpayers, businesses, and professionals.
2. Simplified Reference System
Instead of referring to multiple complex sub-sections such as 206C(1), 206C(1F), 206C(1G), and 206C(1H), taxpayers can now directly refer to Section 394 and its structured tables.
3. No Significant Change in TCS Rates
The Government's primary objective is simplification and improved compliance rather than increasing the overall tax burden. Consequently, most existing TCS rates remain unchanged.
4. Better Digital Compliance
The new Act introduces a more structured, technology-friendly framework that aligns seamlessly with automated tax reporting, e-filing, and real-time reconciliation systems.
Key Exemptions from TCS
The following transactions generally remain outside the scope of TCS:
- Goods purchased for personal consumption, where specifically exempted under the provisions.
- Purchases made by the Central Government, State Governments, Embassies, High Commissions, Consulates, and specified public sector entities.
- Buyers furnishing appropriate declarations for manufacturing, processing, or production purposes (where permitted under the Act).
- Transactions specifically exempted through notifications or circulars issued by the Government from time to time.
Conclusion
The Income-tax Act, 2025 does not significantly alter the TCS rates or tax burden. Its primary objective is to simplify the law by consolidating multiple provisions into Section 394. Tax professionals, businesses, exporters, automobile dealers, tour operators, and entities dealing in specified goods should familiarize themselves with the new section references to ensure smooth compliance from 1 April 2026 onwards.
Navigate TCS Compliance Seamlessly
Have questions on how the simplified TCS rules under the new Income Tax Act, 2025 affect your sales, remittances, or business operations? Our expert team is ready to guide you.
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Disclaimer:
The information provided in this blog is for general awareness and educational purposes only. It does not constitute professional tax or legal advice. Readers are advised to consult a qualified Chartered Accountant or tax professional for guidance specific to their individual circumstances before making any decisions based on this text. While we make every effort to verify updates, the firm accepts no liability for errors or omissions.