Section 206C(1H) Is Gone: What Sellers Need to Know Now TCS on Sale of Goods No Longer Applies

If your billing software still has a TCS-on-sale line item firing on invoices above ₹50 lakh to a single buyer, it shouldn't be — not since 1 April 2025. A fair number of businesses around Raipur that cross that threshold with regular buyers are still carrying old configuration in their accounting systems, either because nobody told the software vendor to switch it off, or because the finance team assumed "if it was law last year, it's law this year" and never revisited it. Worth fixing, and worth understanding why the government pulled this one specifically.

What Actually Happened to Section 206C(1H)

Section 206C(1H) of the Income Tax Act, 1961 required a seller whose total sales, gross receipts, or turnover exceeded ₹10 crore in the preceding financial year to collect TCS at 0.1% on receipt of consideration for sale of goods, once that consideration from a single buyer crossed ₹50 lakh in a year. It came in via the Finance Act 2020, effective October 2020, and for close to five years it sat alongside a parallel — and largely overlapping — TDS obligation on the buyer's side under Section 194Q.

The Finance Act 2025 put a stop to it, with effect from 1 April 2025. Here's the precise framing, and it matters: the provision was not deleted from the statute book. A proviso was inserted making Section 206C(1H) inapplicable from that date. Some early commentary, including parts of the Budget Speech and Finance Bill memorandum, used the word "omitted," which isn't strictly accurate at the drafting level — the section text is still sitting there, just switched off. For a seller, this distinction changes nothing in practice. No TCS obligation exists under this section for any sale consideration received on or after 1 April 2025, regardless of how the amendment is technically worded. If your CA or your compliance team describes it as "deleted" in casual conversation, that's fine for everyday purposes, but "made inapplicable" is the more defensible phrasing if you're ever writing a formal note or a client memo.

Why the Government Removed It

The reason was straightforward and had been flagged by industry for years before the fix arrived: double compliance on the same transaction. When Seller A sold goods worth ₹80 lakh to Buyer B in a year, Seller A was collecting TCS at 0.1% under 206C(1H), while Buyer B was simultaneously required to deduct TDS at 0.1% under Section 194Q on the same purchase. The law had a mechanism to prevent double taxation — if TDS under 194Q had already been deducted, the seller wasn't supposed to also collect TCS — but reconciling who deducted what, and when, across thousands of counterparties created genuine confusion. Buyers and sellers argued over who was responsible, invoices got flagged incorrectly in both directions, and Form 26AS/AIS reconciliation became a recurring headache at year-end, especially for businesses with high-volume B2B transactions.

Removing the seller-side TCS and leaving only the buyer-side TDS under 194Q collapses this into a single, cleaner compliance point. The buyer now carries the entire obligation on qualifying purchases (where the buyer's turnover exceeded ₹10 crore in the preceding year and purchase value from a single seller crosses ₹50 lakh), and the seller has one less thing to track.

What Sellers Should Actually Check Now

A few practical items, roughly in order of how often we see them missed:

Billing and accounting software configuration. ERP systems, Tally configurations, and custom billing tools that had TCS-on-sale rules set up under 206C(1H) need that rule disabled for invoices dated on or after 1 April 2025. If your accountant configured this back in 2020 and nobody has touched it since, don't assume it auto-updated — check the actual invoice output.

Whether other TCS provisions still apply — because most of them do. This is the point people most often get wrong: 206C(1H) becoming inapplicable does not mean TCS on sale of goods has disappeared entirely. Section 206C(1) — covering TCS on sale of specified goods like scrap, timber, tendu leaves, and certain minerals — is completely unaffected and continues exactly as before. If you're a steel re-roller or fabricator dealing in scrap, or a timber trader, that TCS obligation under 206C(1) hasn't moved an inch. Similarly, TCS on motor vehicle sales above ₹10 lakh under a separate limb of 206C, and TCS on overseas remittances under the LRS provisions (206C(1G)), remain in force. Don't let the general relief around 206C(1H) create a false sense that all TCS-on-goods compliance is now off the table.

Past-year returns and reconciliation. For any consideration received before 1 April 2025, the old obligation still applies in full — this change is prospective only. If a seller is filing a belated or revised TCS return for FY 2024-25 covering transactions before the cutoff, 206C(1H) still governs that period.

Buyer-side confirmation. If you're a seller who's stopped collecting TCS, it's worth a quick check that your regular large buyers have correctly continued deducting TDS under 194Q rather than assuming that because "TCS stopped," no compliance is happening on the transaction at all. The mechanism didn't vanish — it consolidated to one side.

A Concrete Example

Take a Raipur-based steel trading firm with FY 2025-26 turnover of ₹25 crore, selling to a regular industrial buyer whose own turnover exceeds ₹10 crore. Sales to this one buyer touch ₹1.2 crore over the year. Before April 2025, this firm would have collected TCS at 0.1% once cumulative receipts from this buyer crossed ₹50 lakh — a real, if small, cash flow and compliance task on every large invoice. From April 2025 onward, this seller collects nothing under 206C(1H). The buyer, assuming their own turnover crosses the ₹10 crore threshold in the preceding year, deducts TDS at 0.1% under 194Q on payments above ₹50 lakh to this seller, exactly as they were already required to do. One compliance leg instead of two, and no more year-end arguments about which party's obligation takes priority.

This is a genuinely useful simplification for trading and manufacturing businesses that deal in bulk B2B sales — it removes a real administrative burden without removing the underlying tax collection mechanism, since TDS under 194Q picks up the slack. The only risk is businesses that haven't actually updated their systems and processes to reflect it, which is more common than it should be a year and a half into the change.

Related Advisory Services & Practice Guides

• Income Tax Advisory & Compliance
• TDS Return Filing in Raipur