Section 394
Section 394: tax collected at source (TCS) rate table
Section 394 lists the categories of sale or receipt on which the seller (or, for foreign remittances, the authorised dealer) must collect tax at source from the buyer. Several rates in this table were changed by the Finance Act, 2026, with effect from 1 April 2026 - this page reflects the rates as they stand after that amendment.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
TCS rate table - Section 394(1)
Tax is collected on debiting the amount to the buyer's/licensee's/lessee's account, or on receipt of the amount (in cash, cheque, draft or other mode), whichever is earlier:
| Nature of receipt | Collected by | Rate |
|---|---|---|
| Sale of alcoholic liquor for human consumption | Seller | 2% (substituted for 1% by the Finance Act, 2026, w.e.f. 1 April 2026) |
| Sale of tendu leaves | Seller | 2% (substituted for 5% by the Finance Act, 2026, w.e.f. 1 April 2026) |
| Sale of timber (under a forest lease or otherwise), or other forest produce (not timber/tendu leaves) obtained under a forest lease | Seller | 2% |
| Sale of scrap | Seller | 2% (substituted for 1% by the Finance Act, 2026, w.e.f. 1 April 2026) |
| Sale of minerals - coal, lignite or iron ore | Seller | 2% (substituted for 1% by the Finance Act, 2026, w.e.f. 1 April 2026) |
| Sale consideration exceeding ₹10,00,000 for a motor vehicle, or other notified goods | Seller | 1% |
| Remittance under the Liberalised Remittance Scheme (LRS), for amount/aggregate exceeding ₹10,00,000 | Authorised dealer | 2% for education or medical treatment purposes (substituted for 5% by the Finance Act, 2026, w.e.f. 1 April 2026); 20% for other purposes |
| Sale of an "overseas tour programme package" (travel, hotel, boarding, lodging and similar expenses) | Seller | 2% (as amended by the Finance Act, 2026, w.e.f. 1 April 2026, for amounts up to ₹10,00,000 - see note below) |
| Use of a parking lot, toll plaza, mine or quarry for business (excluding mining/quarrying of mineral oil, petroleum and natural gas) | Licensor or lessor | 2% |
How the LRS and overseas tour package slabs changed
Before the Finance Act, 2026 amendment, remittances/tour packages up to ₹10,00,000 were collected at 5%, and amounts exceeding ₹10,00,000 at 20%. The Finance Act, 2026 substituted these clauses with, in effect, a lower 2% rate (for education/medical remittances up to the threshold) while retaining 20% for remittances above the threshold used for other purposes - businesses should apply the current substituted rate and confirm the exact slab-wise treatment for amounts above ₹10,00,000 with the specific notified text, since the bare law extract shows the clause as substituted but the post-amendment full wording for amounts exceeding the threshold is not fully reproduced here.
No TCS on declared manufacturing/non-trading use (Sl. Nos. 1 to 5)
For the first five categories in the table (liquor, tendu leaves, timber, other forest produce, scrap), TCS is not collected from a resident buyer who furnishes a written declaration, in duplicate and in prescribed form, that the goods will be used for manufacturing, processing or producing articles or things, or for generating power - and not for trading purposes.
Where no collection is made because of such a declaration, the collector must deliver a copy of the declaration to the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner on or before the seventh day of the month following the month of receipt of the declaration.
No TCS on certain LRS remittances and overseas tour payments
The authorised dealer does not collect TCS on an LRS remittance (Sl. No. 7) to the extent tax has already been collected by the seller on the related overseas tour package (Sl. No. 8), or where the remitted amount is a loan from a financial institution (as defined in Section 129(3)(b)) taken for pursuing education.
TCS under Sl. Nos. 7 and 8 is also not collected where the buyer is liable to deduct tax at source under any other provision of the Act and has actually deducted it.
Meaning of "forest produce"
"Forest produce" has the same meaning as defined in the relevant State Act, or in the Indian Forest Act, 1927.
Frequently asked questions
What is the current TCS rate on sale of scrap?
2% - the Finance Act, 2026 substituted this rate from 1% to 2%, effective 1 April 2026.
What is the TCS rate on sale of a motor vehicle above ₹10 lakh?
1% of the sale consideration, where it exceeds ₹10,00,000, under Section 394(1) Sl. No. 6.
How can a buyer avoid TCS on purchase of scrap or timber?
By furnishing a written declaration under Section 394(2), in duplicate and in the prescribed form, confirming the goods are for manufacturing, processing, producing articles or things, or generating power - not for trading.
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