Removal of TCS on Sale of Goods from 1st April 2025 : What You Need to Know

Aswani K.S
CMA Trainee

28-Mar-2025

Starting from 1st April 2025, there will be a significant change in the taxation structure for the sale of goods in India. The government has decided to remove the Tax Collected at Source (TCS) on the sale of goods, which has been a subject of much discussion. This move is part of the larger framework of simplifying the tax structure and reducing compliance burdens on businesses.    

We will explore what this means for businesses, consumers, and the broader tax landscape. We will also discuss the potential implications and the key things you need to keep in mind as the new policy takes effect.

What is TCS?

Before diving into the removal of TCS, it’s important to understand what Tax Collected at Source (TCS).

Under Section 206C(1H) of the Income Tax Act, sellers were required to collect Tax Collected at Source (TCS) at 0.1% on the sale of goods exceeding ₹50 lakh.

Section 194Q of the Act, requires any person being a buyer, to deduct tax at the rate of 0.1%, on payment made to a resident seller, for the purchase of any goods of the value or aggregate of value exceeding fifty lakh rupees in any previous year . Sub-section (1H) of section 206C mandates tax collection at source (TCS) by a seller while Section 194Q provides for tax deduction at source (TDS) by a buyer on the same transaction.

Further, it is provided in sub-section (1H) of section 206C of the Act that the provision will not apply, if the buyer is liable to deduct TDS under any other provision of this Act on the goods purchased from the seller and has deducted such amount.

What Does the Removal of TCS Mean?

The removal of TCS on the sale of goods signifies a major shift in the tax landscape. From 1st April 2025 onwards, businesses will no longer be required to collect tax at the source for most goods sold. This will significantly reduce the compliance burden on businesses, especially small and medium-sized enterprises (SMEs), which were previously responsible for the additional administrative work associated with TCS.

Why is TCS Being Removed?

The government’s decision to remove TCS is in line with its broader goal of streamlining the taxation system. Several reasons have been cited for this move:

Ease of Doing Business: The TCS system was seen as an additional burden for businesses, particularly SMEs, who had to ensure compliance with complex tax filing and reporting. The removal will make it easier for businesses to focus on core operations rather than tax administration.

1. Improved Efficiency: By simplifying the tax structure, the government aims to make the system more transparent and reduce the chances of compliance errors

2. Enhanced Consumer Experience: With fewer steps in the purchasing process, the consumer experience may improve, as there will be no need to worry about TCS being added at the point of sale.

3. Focus on Technology: The government’s move also aligns with a broader initiative to digitize the tax system. A simplified approach helps improve efficiency and reduce the potential for human error, allowing businesses and individuals to rely more on automated systems.

4. Eliminates dual taxation (TDS & TCS on same transaction).

Proposed Amendment (Effective from April 1, 2025)

What Should Businesses Do Before the Change Takes Effect?

Businesses need to prepare for the removal of TCS by:

• Reviewing Pricing Models: With the removal of TCS, businesses may need to adjust their pricing models. They should ensure that customers understand any changes in the cost of goods.

• Updating Accounting Systems: Many businesses have built their accounting systems around the collection and remittance of TCS. These systems will need to be updated to reflect the new structure.

• Training Staff: Businesses will need to ensure that their finance and accounting teams are well-trained and aware of the changes to the tax structure.

• Consulting with Tax Advisors: To ensure compliance and a smooth transition, businesses should consult with tax professionals to understand the implications of the removal of TCS on their specific operations.

Conclusion

The removal of TCS on the sale of goods from 1st April 2025 marks a significant shift in India’s tax landscape. For businesses, it promises a reduction in compliance costs and a streamlined tax process, making it easier to focus on growth and development. However, businesses and consumers will need to adapt to the changes, adjusting financial and pricing strategies accordingly.

As we approach the effective date, businesses should prepare for the transition by reviewing their operations and seeking professional advice to ensure smooth implementation. Ultimately, the change reflects the government’s ongoing commitment to simplifying the tax structure and making the Indian business environment more efficient and less burdensome.

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