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No TCS on Scrap? Decode Section 206C(1A), Form 27C & Section 394 of the Income Tax Act, 2025
In the world of Tax Collected at Source (TCS), businesses often focus on rates and deposits. However, the real compliance opportunity lies in the exemption mechanism under Section 206C(1A) of the Income-tax Act, 1961.
For manufacturers and processors dealing in scrap, minerals, timber, tendu leaves and other specified goods, this provision prevents unnecessary working capital blockage — provided compliance with Form 27C read with Rule 37C is strictly followed.
1. Section 206C(1A) – Income-tax Act, 1961
Section 206C(1A) provides that no TCS shall be collected from the buyer if the buyer furnishes a declaration that the goods are to be utilized for manufacturing, processing, production or generation of power, and not for trading purposes.
This exemption applies only to goods covered under Section 206C(1) such as:
• Scrap
• Timber
• Tendu leaves
• Other forest produce
• Minerals (coal, lignite, iron ore)
2. Form 27C – Read with Rule 37C
The exemption mechanism operates through Form 27C governed by Rule 37C of the Income-tax Rules, 1962.
Conditions for non-collection of TCS:
• Buyer furnishes Form 27C in duplicate.
• Declaration contains PAN.
• Goods are not for trading purposes.
• Seller submits one copy to the income-tax authority.
Timeline: The seller must submit the declaration on or before the 7th day of the month following the month in which the declaration is received.
3. Section 394 – Income Tax Act, 2025
Under the Income Tax Act, 2025, TCS provisions are reorganized for structural clarity. Section 394 carries forward the exemption mechanism similar to Section 206C(1A).
4. Tabular Comparison – Old vs New Law
| Particulars | Income-tax Act, 1961 (Section 206C(1A)) | Income Tax Act, 2025 (Section 394) |
| Nature of Provision | TCS exemption on declaration | TCS exemption retained |
| Applicable Goods | Goods under Section 206C(1) | Corresponding specified goods retained |
| Purpose Condition | Manufacturing / Processing / Production / Power Generation | Same retained |
| Trading Allowed? | Not allowed | Not allowed |
| Form Required | Form 27C | Form 27C (continued) |
| Procedure Rule | Rule 37C | Reframed procedural rule |
| Timeline | 7th of next month | Similar timeline retained |
| PAN Requirement | Mandatory | Mandatory |
Conclusion
Section 206C(1A) provides significant relief to manufacturers by preventing unnecessary TCS collection, provided Form 27C compliance is properly executed. The Income Tax Act, 2025 under Section 394 maintains the same core principle with simplified drafting.
