When does the 1% vehicle collection apply?
For transactions governed by the Income-tax Act, 2025 in tax year 2026–27, section 394(1), Table entry 6, prescribes 1% TCS where motor vehicle sale consideration exceeds ₹10 lakh. The person selling must fall within the statutory seller definition and the purchaser must be a covered buyer. Exactly ₹10 lakh does not satisfy an “exceeding” test. The threshold is an entry condition; the collection is on qualifying consideration, not merely the part above ₹10 lakh.
This article addresses the motor vehicle limb, using the enacted Act as amended by the Finance Act, 2026, checked on 25 October 2026. It does not extend the vehicle rule to all expensive consumer goods: the separate other-goods limb requires notification. Read sections 394 and 402 in the official amended Act.
Identify the seller before testing the price
Section 402(33)(a) includes the Central and State Governments, specified statutory bodies and authorities, companies, firms and co-operative societies. For an individual or HUF, the definition instead requires business turnover, sales or gross receipts above ₹1 crore, or professional gross receipts above ₹50 lakh, in the immediately preceding tax year. These are seller-entry tests, distinct from the ₹10 lakh vehicle consideration test. A company does not need to cross the individual/HUF turnover limit.
Obtain the legal identity of the invoicing seller and the preceding-period evidence relevant to that identity. A trade name is insufficient. Do not impose TCS merely because any person disposes of a valuable private car. Conversely, an individual/HUF whose applicable preceding-period business or professional figures cross the statutory test cannot rely on the absence of corporate status.
Buyer exclusions differ from the scrap exclusions
Section 402(6), Table entry 3, defines the vehicle buyer and excludes the Central or State Government and the listed foreign State representations, a qualifying local authority, and a public sector company engaged in carrying passengers. The motor vehicle entry does not incorporate every exclusion appearing in entry 2 for goods such as scrap. In particular, it does not create a general personal-consumption exemption for an individual buying a car, nor a blanket exclusion for every public sector company.
Record the precise exclusion and supporting documents. A purchaser’s statement that it is government-connected or uses the vehicle for business does not establish the statutory category. For an ordinary non-excluded company purchaser, test the sale in the normal way.
The current collection trigger requires a debit and receipt reconciliation
The opening words of section 394(1) require collection at the earlier of debiting the amount payable to the buyer’s account or receiving the amount, including receipt through non-cash modes. A process designed only around final delivery or bank settlement can therefore miss the relevant event. Read the current provision for the transaction period instead of carrying forward a legacy section-number checklist.
Maintain one transaction-level TCS ledger showing the agreed consideration, each qualifying debit or receipt, prior collection and the remaining amount. An advance that triggers collection must be linked to the later invoice so the same consideration is not collected on twice. If an advance is a refundable security rather than sale consideration, establish its contractual character before treating it as consideration; its label alone is inconclusive.
Establish the base rather than guessing from a headline car price
Reconcile the contract, invoice and ancillary items to determine the legally applicable consideration. The illustrations assume that the stated amount has already been established as the relevant consideration and collection base. They do not decide whether a particular separately charged tax, registration payment, insurance recovery, discount or reimbursement forms part of that base. Resolve material base disputes against applicable law and current official clarification before computing the collection.
The examples use the ordinary 1% rule with valid identification information and no special higher-rate or other overriding provision. TCS is a collection credited through the tax system; it should be separately reconciled rather than described as a change in the vehicle’s GST rate. Returns, certificates, deposit obligations and any cancellation adjustment need their own current procedural review.
Frequent review failures
The main failures are applying 1% only to the excess above ₹10 lakh, applying the individual/HUF turnover test to a company, importing the scrap personal-use exclusion into vehicle sales, collecting again when an already-covered advance becomes an invoice, and waiting for final payment after an earlier taxable debit. A sound review resolves seller scope, buyer scope, value and timing separately.
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Boundary value
A covered company sells one vehicle to a non-excluded buyer for established consideration of ₹10,00,000. Since ₹10,00,000 does not exceed ₹10,00,000, entry 6 TCS is ₹0. Other taxes and duties are outside this illustration.
Illustrative example 2: Just above the boundary
Established qualifying consideration is ₹10,00,100. Ordinary TCS is ₹10,00,100 × 1% = ₹10,001. Applying 1% only to the ₹100 excess would produce ₹1 and understate collection by ₹10,000.
Illustrative example 3: Ordinary company purchaser
A covered seller’s established consideration is ₹12,00,000 and the buyer is an ordinary private company. The entry 6 computation is ₹12,00,000 × 1% = ₹12,000. Business use does not itself provide a buyer exclusion.
Illustrative example 4: Advance followed by debit
A ₹20,00,000 qualifying sale has a ₹5,00,000 sale-consideration advance received before the balance is debited. TCS attributable to the advance is ₹5,000; the later uncovered ₹15,00,000 contributes ₹15,000. Total ₹20,000 equals 1% of ₹20,00,000; the advance is not counted again.
Illustrative example 5: Individual seller’s preceding-year threshold
For a business-only individual seller, preceding-tax-year turnover of exactly ₹1,00,00,000 does not exceed the seller threshold. Turnover of ₹1,00,00,001 does. Assuming the latter seller, a covered buyer and a qualifying ₹15,00,000 vehicle sale, ordinary TCS is ₹15,000. This comparison assumes no independent professional-threshold issue.
Illustrative example 6: Documented excluded buyer
A company sells a vehicle for established consideration of ₹15,00,000 directly to a State Government department that meets section 402(6), Table entry 3. Entry 6 TCS is ₹0 because of buyer exclusion. Without that exclusion the ordinary arithmetic would be ₹15,000; retain evidence for the difference.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the governing period | Transaction dates and the applicable 2025 Act text, including Finance Act, 2026 amendments. |
| 2 | Identify the seller | Legal name, entity form and invoicing party. |
| 3 | Test individual/HUF entry | Immediately preceding tax year business and professional figures, where relevant. |
| 4 | Identify the buyer | Purchaser identity and evidence for the exact statutory exclusion, if claimed. |
| 5 | Confirm the vehicle transaction | Contract and invoice establishing the motor vehicle sale. |
| 6 | Establish consideration | Documented treatment of discounts, recoveries, taxes and ancillary amounts. |
| 7 | Apply the threshold | Strictly greater than ₹10 lakh, with a recorded conclusion. |
| 8 | Map collection events | Chronological debit, advance and receipt schedule. |
| 9 | Prevent repeated collection | Transaction ledger matching amounts already subjected to collection. |
| 10 | Close the compliance trail | Collection, deposit, statement and certificate reconciliation under applicable current procedures. |
Sixteen practitioner FAQs
1. Does exactly ₹10 lakh trigger entry 6?
No. The statutory consideration must exceed ₹10 lakh.
2. Is only the excess collected on?
No. Once the qualifying consideration crosses the entry test, the ordinary computation uses that consideration, subject to the correct base analysis.
3. Must a company seller cross ₹1 crore turnover?
No. That preceding-period threshold is relevant to the individual/HUF seller limb.
4. What is the professional threshold for an individual seller?
Professional gross receipts must exceed ₹50 lakh in the immediately preceding tax year under the seller definition.
5. Does a privately used car escape TCS automatically?
No. The vehicle-buyer entry has no general personal-consumption exclusion; seller scope still has to be satisfied.
6. Are all public sector purchasers excluded?
No. The vehicle entry identifies a public sector company engaged in carrying passengers, alongside the other specified excluded buyers.
7. Is a qualifying local authority excluded?
Yes, but the authority must meet the statutory definition incorporated in the vehicle-buyer entry.
8. Can the seller wait until delivery?
Delivery alone is not the statutory collection trigger. Reconcile the earlier debit or receipt event under section 394(1).
9. Can a sale-consideration advance matter?
Yes. Receipt before debit can trigger collection; link it to the eventual invoice to avoid collecting twice.
10. Is every refundable booking security consideration?
Its substance and contractual terms must be examined. Do not assume that a label settles the issue.
11. Does payment by bank transfer avoid collection?
No. The receipt limb covers cash and other specified payment modes, including other modes generally.
12. Is the vehicle TCS rate now the scrap rate?
No. Entry 6 prescribes 1%; the Finance Act, 2026 change to scrap does not replace the vehicle rate.
13. Does this article establish the treatment of every invoice add-on?
No. It requires a documented consideration-base analysis; examples use a base already established for the model.
14. Can a buyer’s PAN alone prove an exclusion?
No. Identification and exclusion evidence answer different questions.
15. Should an old section 206C checklist be used unchanged?
No. For the stated tax year, map the transaction to the current 2025 Act and the applicable procedural framework.
16. What is the most useful monthly control?
Reconcile vehicle-wise consideration, debit dates, receipts and prior collection to the TCS ledger before completing period compliance.
Conclusion
For tax year 2026–27, a covered seller collects 1% TCS on qualifying motor vehicle consideration exceeding ₹10 lakh. Check the seller and buyer definitions, the full consideration base and the earlier debit-or-receipt trigger before collecting.