Tax Collected at Source on Shares — Section 206C(1H)
Section 206C(1H) of the Income Tax Act requires sellers of goods — including shares — with aggregate sales receipts exceeding Rs 10 crore in the preceding financial year to collect Tax Collected at Source (TCS) at 0.1% from buyers at the time of receipt of consideration exceeding Rs 50 lakh from a single buyer in a financial year, creating compliance obligations for high-volume share sellers not otherwise covered by TDS provisions.
Section 206C(1H) was introduced by the Finance Act 2020 effective October 1, 2020, as a measure to widen the tax collection network for high-value goods transactions. The provision applies to any seller whose gross sales, turnover, or receipts from business exceed Rs 10 crore in the immediately preceding financial year. If such a seller receives more than Rs 50 lakh from a single buyer in the current financial year, they must collect 0.1% TCS on the amount exceeding Rs 50 lakh. The TCS is collected at the time of receipt (not at the time of invoice), making cash flow timing the relevant trigger.
In the context of share transactions, the scope of Section 206C(1H) is practically limited by an important exclusion: TCS under this provision does not apply where TDS is already applicable on the same transaction. Since TDS provisions under Section 194Q (applicable to buyers purchasing goods exceeding Rs 50 lakh from a seller) were introduced simultaneously, the interplay between Section 194Q and 206C(1H) is critical. The CBDT circular issued in June 2021 clarified that if TDS under 194Q is deducted by the buyer, the seller's obligation to collect TCS under 206C(1H) does not apply for that transaction. This prevents double compliance on the same transaction.
For listed equity share transactions conducted on stock exchanges, a further carve-out exists: securities transactions conducted through recognised stock exchanges where STT (Securities Transaction Tax) is already applied are generally not subject to 206C(1H) TCS. The STT framework — imposed on both buyer and seller at the exchange level for delivery-based and intraday transactions — serves as a transaction-level tax collection mechanism, and subjecting the same transaction to TCS would represent duplicative collection.
The practical relevance of Section 206C(1H) for shares arises primarily in off-market transactions: bulk deals, block deals conducted outside exchange mechanisms, or promoter share transfers effected through off-market demat transfer. A promoter entity with Rs 10+ crore turnover selling shares worth Rs 2 crore to a single institutional buyer off-market must assess whether TDS under 194Q is being deducted by the buyer. If not, the seller must collect TCS at 0.1% — Rs 2,000 on a Rs 2 crore transaction. While individually small, large transaction volumes make aggregated TCS collection material.
For corporate treasury teams and promoter entities engaged in regular share transactions, the compliance framework requires quarterly TCS returns in Form 27EQ and issuance of TCS certificates in Form 27D to buyers. The TCS so collected is reflected in the buyer's Form 26AS and Annual Information Statement, allowing them to claim credit against their advance tax liability. Non-compliance with Section 206C(1H) collection obligations attracts interest under Section 206C(7) at 1% per month from the date TCS was collectable to the date of actual payment.