Tax Updates

TCS on Sale of Goods Is Gone. It Is Still Switched On in Most Zoho Books Files.

A levy can be repealed in Parliament and stay alive in your accounting software indefinitely. TCS on the sale of goods was withdrawn with effect from 1 April 2025. Eighteen months later, the tax rate that implements it is still sitting in a great many Zoho Books organisations, still selectable on an invoice, still posting to a ledger that reconciles against nothing. Nobody went back to switch it off, because switching things off is nobody's job.

Section 206C(1H) — the 0.1% collection on sale-of-goods receipts above ₹50 lakh — was omitted with effect from 1 April 2025 and has no counterpart in the Income-tax Act, 2025. The buyer-side deduction on the purchase of goods is untouched and continues at 0.1%. If your books still collect TCS on ordinary goods, they are collecting a tax that no longer exists.

What actually happened to TCS on sale of goods

Section 206C(1H) was introduced in October 2020 and required a seller whose turnover exceeded ₹10 crore in the preceding year to collect 0.1% from any buyer from whom receipts in the year exceeded ₹50 lakh. It was collected on receipt, not on invoice, which made it awkward to automate and awkward to reconcile.

It was omitted with effect from 1 April 2025. When the Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, collection at source was recodified in section 394, and the table there runs to nine entries. There is no entry for sale of goods. The provision was not moved, renumbered or narrowed — it is simply not in the new statute.

This matters for how you write about it as much as for how you configure it. Since 1 April 2026 the 1961 Act is no longer in force, so a workpaper or a client note that cites "194Q" without the current provision is quoting a repealed statute. The tables in our TDS rate chart carry both numbers for exactly this reason.

The nine collections that survive

Everything still within TCS sits in the section 394 table. If your client's sales do not fall into one of these heads, TCS is not a configuration question for them at all:

Source: section 394(1), Income-tax Act, 2025. Sl. Nos. 1 to 5 carry a buyer declaration route under section 394(2) where the goods are for manufacturing or processing and not for trading.

The buyer side did not move

TDS on the purchase of goods continues unchanged. A buyer whose turnover exceeded ₹10 crore in the preceding year deducts 0.1% on purchases from a resident seller above ₹50 lakh in the year, under section 393(1) [Table: Sl. No. 8(ii)].

What has changed is that the precedence analysis is over. There is no longer a scenario in which a purchase-side deduction and a sale-side collection both bite on the same consignment of goods, because the sale side is gone. If your working papers still carry a decision tree for that overlap, it can come out.

What to check in Zoho Books

Zoho did not delete anything from your organisation when the law changed, and it should not have — historical transactions have to keep their tax treatment. What it leaves behind is a rate record that stays selectable. Work through this in order:

1. Open the TCS tax rate list. Settings → Taxes → TCS. Look for any rate created for sale of goods, typically named for 206C(1H) or simply "TCS 0.1%". If it is active, deactivate it. Do not delete it — historical invoices reference it.
2. Check the customer masters. A default TCS rate tagged to a customer will keep applying itself long after anyone remembers tagging it.
3. Check recurring invoices and templates. These are the ones that keep firing without a human looking at them, and they are the most common source of a collection made in error.
4. Age the TCS payable ledger. A balance that has been accruing since April 2025 against no return line is the symptom. Reconcile it to what was actually deposited and to Form 27EQ.
5. Run a sales register filtered on the TCS column for FY 2025-26 and FY 2026-27 to date. That tells you whether this is a housekeeping item or a client conversation.

Our practice note in the Zoho Books Academy walks through the full configuration for all of this, including the reconciliation most files never do — see lesson 7.4 on TDS, TCS and Form 26AS. If the setup itself needs work rather than a tidy-up, that is what our Zoho Books implementation engagement covers.

If you have collected it since April 2025

Find out first whether the money was only invoiced or actually collected and deposited, because the fix is different in each case.

Where it was invoiced but not paid, a credit note for the TCS component clears it, and the customer's balance comes right. Where it was collected and deposited against the buyer's PAN, do not simply reverse it in the books — the deposit exists on the department's records and has to be dealt with in the quarterly statement, and the buyer will be looking at it in their own AIS and Form 26AS. Get the statement position and the refund route settled before you touch the ledger, and tell the customer before their auditor asks.

The volumes are usually small. The reputational cost of a customer discovering it first is not.

The five-minute version

If you act for a portfolio of clients on Zoho Books, this is a single sweep, not a project. Open each organisation, look at one screen, deactivate one rate where it exists, and note the ledger balance if there is one. Most files will be clean because they never sold above the threshold. The ones that are not will be obvious immediately, and they are the ones where somebody has been quietly collecting a repealed tax from their customers for a year and a half.

Written by CA Karan Shah

Founder of KC Shah & Associates. Provides outsourced accounting, MSME compliance monitoring, Zoho Books implementation and Virtual CFO services to startups and SMEs across India.