TCS on Used Car Sales Above ₹10 Lakh: What Dealers Must Collect and Report

GST is the tax every used car dealer talks about. The one that quietly catches dealers moving premium stock is income-tax TCS - tax collected at source - under Section 206C(1F) of the Income-tax Act. Sell a motor vehicle for more than ₹10 lakh and you, the seller, must collect 1% of the sale consideration from the buyer and deposit it with the government. It applies to used cars, it applies to the whole amount, and it is entirely separate from GST.

This guide explains the rule as it stands, what to actually do at the desk when a Fortuner or a Creta crosses the threshold, and how to record it so your CA is not reconstructing it at year-end. It is a practical explainer, not tax advice - confirm your position with your chartered accountant.

Key takeaways

• Under Section 206C(1F), a seller who receives consideration for the sale of a motor vehicle of value exceeding ₹10 lakh must collect 1% of the sale consideration from the buyer as TCS, at the time of receipt.
• It applies to retail sales - a dealer selling to a customer - including second-hand vehicles; it does not apply to sales by manufacturers to dealers.
• TCS is on the entire sale consideration, not on the amount above ₹10 lakh, and it is assessed per vehicle.
• The buyer gets credit for the TCS against their own income tax, so the dealer needs the buyer’s PAN and must deposit the amount and file the TCS return.
• TCS is an income-tax rule; GST under the margin scheme applies to the same sale separately.

What the section says

Section 206C(1F) provides that every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding ten lakh rupees shall, at the time of receipt of such amount, collect from the buyer a sum equal to one per cent of the sale consideration as income-tax. From 1 April 2025 the same sub-section was extended to certain other notified luxury goods, but for a car dealer the motor-vehicle rule is the one that bites.

Worked example

What to do at the desk

• Take the buyer’s PAN before the deal is closed - the TCS credit flows to their PAN, and you cannot file the return without it.
• Collect 1% with the payment. The section says "at the time of receipt", so the practical approach is to collect it when the balance is paid, on the full consideration.
• Show it on the invoice as TCS under Section 206C(1F), separately from the price and separately from GST.
• Deposit and file. TCS is deposited by challan and reported in the quarterly TCS return (Form 27EQ); your CA will handle the filing, but only if the sale is recorded with the PAN and the TCS amount.
• Issue the TCS certificate (Form 27D) so the buyer can claim the credit.

The most common slip is a partial-payment deal: the token is taken in March, the balance in April, and the TCS is forgotten because the deal was "already done". Recording the token and the balance due on the car - and flagging the car as above the threshold - is what prevents it.

TCS and GST on the same sale

The two rules do not interact, but they sit on the same invoice. GST under the margin scheme is charged on the margin between purchase and sale price and is the dealer’s tax liability (how the margin scheme works). TCS is collected from the buyer on the full consideration and passed through. A ₹12,20,000 sale therefore carries a GST line of ₹30,600 (on a ₹1,70,000 margin) and a TCS line of ₹12,200 - and the buyer pays both on top of the price.

Recording it so nothing is reconstructed later

The failure mode is simple: TCS collected in cash, noted in a message, and rebuilt by the CA in June from memory. Record the buyer’s PAN, the sale value, the TCS collected and the deposit date against the car when the sale is recorded, and keep the GST payment as its own ledger entry. Per-vehicle records are what make the quarterly return a report instead of a search.

Frequently asked questions