Quick Facts
What TCS is
TCS (Tax Collected at Source) is a tax mechanism under the Income Tax Act where the seller of specified goods or services collects a percentage of the sale value from the buyer as tax. The collected amount is deposited with the government, and the buyer receives credit for the TCS when filing their annual income tax return.
The mechanism serves two purposes:
Improves tax collection efficiency: Government receives tax in advance at the transaction stage, rather than waiting for the buyer to pay at year-end.
Captures economic activity: Sales above thresholds are tracked through TCS, providing tax authorities with data on large transactions.
For solar purchases, TCS under Section 206C(1H) of the Income Tax Act applies when the aggregate sale to a buyer exceeds Rs 50 lakh in a financial year from a single seller. Solar modules, inverters, mounting structures, and BOS components fall under this provision.
The TCS rate is standard 0.1% for PAN-holders. Higher rates (0.5% or 1%) apply for non-PAN holders.
When TCS applies to solar
TCS applies when:
The transaction is sale of goods (not services).
The buyer is a person resident in India.
The aggregate sale to that buyer from the seller exceeds Rs 50 lakh in the financial year.
TCS is collected only on the amount above Rs 50 lakh.
The buyer holds PAN (else higher rate applies).
The seller’s turnover exceeds Rs 10 crore in the previous year.
For solar projects:
Residential rooftop solar: Generally below threshold. TCS rarely applies.
Commercial rooftop solar (100 kW+): May approach threshold for direct large module purchases. Often through EPC, which may absorb TCS in pricing.
Utility-scale solar: Threshold typically exceeded for module purchases. TCS applies on the amount above Rs 50 lakh.
For a 100 MW utility solar project purchasing modules:
Total module cost: about Rs 25 to Rs 30 crore.
Per-vendor purchase: typically Rs 10 to Rs 25 crore (depending on vendor mix).
TCS applicable on amount above Rs 50 lakh per vendor.
TCS amount: 0.1% of the excess.
For Rs 10 crore purchase from one vendor: TCS on Rs 9.5 crore at 0.1% = Rs 95,000.
TCS calculation example
For a buyer purchasing solar equipment from Vendor A:
Total purchase from Vendor A in FY 2026-27: Rs 80 lakh.
Threshold: Rs 50 lakh.
Excess: Rs 30 lakh.
TCS rate: 0.1%.
TCS to be collected: Rs 3,000.
The vendor adds Rs 3,000 to the invoice as TCS and deposits this with the government. The buyer claims credit for Rs 3,000 when filing their income tax return.
If the buyer doesn’t have PAN:
TCS rate: 0.5% or 1%.
TCS on Rs 30 lakh: Rs 15,000 or Rs 30,000.
PAN holders have significant advantage.
TCS process
For sellers (typically EPC contractors or module manufacturers):
Monitor cumulative sales to each buyer.
Track threshold reach (Rs 50 lakh per buyer).
After threshold, collect TCS on subsequent sales.
Issue TCS certificate (Form 27D) to buyer.
Deposit TCS with government per due date.
File quarterly TCS returns.
For buyers:
Provide PAN to seller (standard practice).
Pay invoice including TCS.
Collect TCS certificate from seller.
Claim TCS credit when filing annual income tax return.
The buyer’s income tax payable is reduced by the TCS amount.
TCS versus GST
TCS and GST are different mechanisms:
| Aspect | TCS | GST |
|---|---|---|
| Act | Income Tax Act | GST Act |
| Rate | 0.1% (standard) | 12% (modules) / 18% (other) |
| Collection point | Sale above threshold | All sales |
| Buyer’s credit | Income tax return | GST input credit |
| Purpose | Tax data, advance collection | Indirect tax on consumption |
Both can apply to the same transaction. They don’t replace each other; they coexist.
TCS in solar project economics
For solar project financial modelling:
TCS is essentially an advance payment of income tax. The buyer recovers it through reduced tax payment at year-end.
For cash flow purposes, TCS is a working capital consideration. The buyer pays it upfront but recovers it at year-end.
For taxable corporate buyers, TCS doesn’t change the total tax burden; it changes the timing.
For non-corporate buyers without sufficient income tax liability, TCS is a refund situation through the income tax return.
For OPEX/RESCO arrangements, the RESCO contractor pays TCS on their equipment purchases. The consumer doesn’t directly trigger TCS.
Common TCS mistakes
Forgetting to provide PAN. Higher TCS rate applies to non-PAN holders.
Mismatched buyer information. Errors in PAN or buyer details cause processing delays.
Missing TCS certificate. Without Form 27D, the buyer cannot claim credit.
Treating TCS as a cost. TCS is essentially an advance tax payment, recoverable at year-end.
Not tracking cumulative purchases. Sellers need to monitor threshold per buyer per year.
Best practices
For solar EPC contractors:
Develop systems to track cumulative sales per buyer.
Issue TCS certificates promptly.
Comply with quarterly return filing requirements.
For solar buyers:
Provide PAN at the time of placing order.
Maintain TCS certificates for income tax filing.
Include TCS in working capital planning for large projects.
Reconcile TCS with income tax returns at year-end.
For tax planning:
Consult chartered accountants for company-specific TCS implications.
For very large projects, plan project timing to manage TCS cash flow.
For multi-vendor purchases, track threshold per vendor.
Standards and references
TCS is governed by Section 206C of the Income Tax Act 1961, as amended by various Finance Acts. CBDT (Central Board of Direct Taxes) issues notifications and clarifications. Form 27D is the prescribed TCS certificate. Quarterly returns are filed electronically through TDS/TCS portal.
Related glossary terms
- Accelerated Depreciation
- MAT Credit
- GST Input Credit
- TDS on Solar
- CAPEX Model
- OPEX Model
- Power Purchase Agreement
Key takeaways
TCS (Tax Collected at Source) under Section 206C(1H) of the Income Tax Act applies to sale of goods above Rs 50 lakh per buyer per year from a single seller. For large solar equipment purchases (typically utility-scale and large commercial projects), TCS at 0.1% applies on the amount above threshold. TCS is essentially an advance payment of income tax, recoverable by the buyer through credit at year-end. PAN-holders benefit from the standard 0.1% rate; non-PAN holders face higher rates. TCS coexists with GST; both apply separately to the same transaction.