Tax Deducted at Source (TDS) is a mechanism where tax is collected at the point of certain payments and deposited with the government on the recipient's behalf. Section 206C(1H) of the Income-tax Act governs TDS on tcs on sale of goods.
This guide sets out the TDS rate under Section 206C(1H), the threshold that triggers deduction, who must deduct, and the deposit and return-filing compliance that follows.
What is Section 206C(1H)?
Section 206C(1H) required a seller to collect tax at source (TCS) on the sale of goods where receipts from a buyer exceeded the threshold. It is being phased out as 194Q covers the same transactions.
Rate, threshold and who deducts
| Nature of payment | TCS on sale of goods |
|---|---|
| TDS rate | 0.1% on receipts exceeding the threshold (1% without PAN) |
| Threshold | Receipts above ₹50,00,000 from a buyer; seller turnover over ₹10 crore |
| Who deducts (deductor) | Seller collecting TCS |
| Whose income (deductee) | Buyer |
| Time of deduction | At the time of receipt of consideration |
Key points
- Where 194Q (TDS by buyer) applies, 206C(1H) does not.
Compliance for the deductor
- Deduct at the right time. Deduct TDS on tcs on sale of goods at the time of receipt of consideration.
- Deposit to the government. Pay the deducted tax by the 7th of the following month (special dates apply for March and for Form 26QB).
- File the TDS return. Report the deduction in the quarterly TDS return (Form 24Q/26Q/27Q as applicable) on the TRACES/e-filing system.
- Issue the TDS certificate. Give the deductee Form 16/16A so they can claim credit in their return.
How the deductee claims credit
TDS deducted under Section 206C(1H) appears in the deductee's Form 26AS and Annual Information Statement (AIS). It is adjusted against the final tax liability when the deductee files their income tax return, and any excess is refunded.
Frequently asked questions
Is 206C(1H) still applicable?
It is being withdrawn in favour of 194Q; confirm the current-year position before applying it.
What happens if TDS is not deducted?
The payer can face disallowance of the expense, interest at 1%–1.5% per month, and penalties. It is important to deduct and deposit on time.
By when must TDS be deposited?
Generally by the 7th of the month following deduction (30 April for amounts deducted in March), with separate rules for property-related challans.