From 1 April 2025, section 206C(1H) — TCS on the sale of goods — was omitted from the Income-tax Act. Section 194Q, the buyer-side TDS on the purchase of goods, stayed exactly where it was. If your ERPNext instance still adds 206C(1H) TCS to receipts after that date, you are charging your customers a tax that no longer exists, and filing a TCS return you should not be filing. This guide covers what changed, the 194Q boundary that survived, and how to end-date the old category without breaking a single prior-year transaction.
Also dealing with the TDS rate changes?
The same 2025 Finance Act rationalised several TDS provisions. If your issue is TDS rates or thresholds rather than the TCS omission, the ITA 2025 TDS fix guide covers those.
A tax that was repealed is more dangerous in an ERP than one that was added — nothing errors, the category keeps firing, and you quietly overcharge every large customer until one of them queries it. I am Manoj, ERPNext and Frappe implementation lead at Mith Tech in Bengaluru, and this is the statutory change most likely to still be mis-configured on Indian instances right now.
What changed, and what didn't
For nearly five years, one high-value goods transaction could attract two overlapping levies. Section 206C(1H), effective from 1 October 2020, made a seller with prior-year turnover over ₹10 crore collect 0.1% TCS on receipts exceeding ₹50 lakh per buyer — collected at the time of receipt. Section 194Q, from 1 July 2021, made a buyer with turnover over ₹10 crore deduct 0.1% TDS on purchases over ₹50 lakh per seller — deducted at invoice booking. The same shipment could trigger both, at different moments, and the precedence rule generally let 194Q take priority.
The Finance (No. 2) Act 2024 ended that overlap by omitting 206C(1H) from 1 April 2025. From that date the seller collects nothing under it; only the buyer's 194Q TDS remains on the goods. Transactions before and after the cutover therefore record differently, which is exactly the kind of boundary an ERP handles badly if the tax category was set up with open-ended validity.
Select your role and whether the transaction is before or after 1 April 2025 to see whether 206C(1H) TCS, 194Q TDS, both, or neither applies.
From 1 April 2025, section 206C(1H) TCS on sale of goods is omitted. As the seller you no longer collect 0.1% on receipts over ₹50 lakh. If ERPNext is still adding it, you are charging your customer a tax that no longer exists — end-date the category.
As of 2026-07-31: 206C(1H) omitted from 1 April 2025 (Finance (No. 2) Act 2024); 194Q unchanged. Verify the current CBDT position and confirm applicability with your CA.
The failure mode is silent over-charging
Nothing in ERPNext errors when a repealed tax keeps applying. The 206C(1H) category, if never date-bounded, simply continues adding 0.1% to post-cutover receipts. Your customer is over-charged, you accrue a TCS liability you don't owe, and you file a return line that shouldn't exist — and it all looks completely normal until a large buyer's finance team notices the deduction and asks why.
Are you still collecting it?
The practical question is narrow: does a receipt dated after 31 March 2025 still pick up 206C(1H)? If yes, every large-customer receipt since has been over-charged.
Set the receipt date, whether ERPNext still adds 206C(1H), and the buyer's FY receipts to see whether you are collecting a tax that no longer exists and roughly how much.
On receipts of ₹75 lakh from this buyer, you are adding roughly ₹2,500 of 206C(1H) TCS that is not owed from 1 April 2025. Every such receipt over-charges the customer and creates a TCS liability and return entry you should not be filing. End-date the Tax Withholding Category.
Illustrative: 0.1% on receipts above ₹50 lakh per buyer, the pre-omission 206C(1H) mechanic. Confirm exact figures and any residual obligations with your CA.
End-date it without breaking history
The instinct — delete the 206C(1H) category — is exactly wrong. Historic Payment Entries reference it, and prior-year TCS returns depend on it; deleting orphans them. The correct move is a dated rate row that stops collection from 1 April 2025 while leaving every pre-cutover transaction on its original treatment.
Copy-paste the diagnosis, the non-destructive end-date steps, the reconciliation of wrongful collection, and the habits that keep repealed taxes from firing.
Confirm whether ERPNext is still collecting 206C(1H) TCS on post-cutover receipts.
1. Accounting > Tax Withholding Category — find the
206C(1H) / "TCS on sale of goods" category.
2. Check its rate rows and validity dates. If there is
no row that STOPS collection on/after 1 Apr 2025,
it is still live.
3. Sample a Payment Entry dated after 1 Apr 2025 for a
TCS-flagged customer with FY receipts > ₹50L.
Does it still add 0.1% TCS? If yes → you are
collecting an omitted tax.
4. Note: 194Q (buyer TDS) categories are UNAFFECTED —
do not touch those.Diagnose
Find the 206C(1H) / "TCS on sale of goods" Tax Withholding Category and check its rate rows and validity dates. Then sample a Payment Entry dated after 1 April 2025 for a TCS-flagged customer with FY receipts over ₹50 lakh — if it still computes 0.1% TCS, the category is still live. Leave the 194Q buyer-TDS categories completely alone; only 206C(1H) was omitted.
End-date, don't delete
In the category's rate table, add a row with a from-date of 1 April 2025 that stops collection (or set the existing row's to-date to 31 March 2025). Pre-cutover receipts keep their original row; post-cutover receipts pick up nil. This preserves an auditable boundary instead of a destructive change that breaks prior returns.
Verify the boundary
Confirm a Payment Entry dated 31 March 2025 still computes TCS and one dated 1 April 2025 computes none. That single before/after test is what proves the change is correct and dated, not a blanket switch-off that would misstate history.
Reconcile what was already collected
For post-cutover receipts where 206C(1H) was wrongly collected, quantify the total, and with your CA decide the treatment — typically a refund or adjustment to the customer plus a correction to the TCS return, depending on whether the amount was already deposited. It is the customer's money; reconcile it, don't just stop going forward. The GST return filing guide and your bank reconciliation both surface where these corrections land.
When the config was set once and never revisited
Tax categories are usually configured at go-live and then trusted. That works until a Finance Act changes the law mid-life, and the person who set up the 206C(1H) category two years ago is not the person watching the 2024 Budget. So the category keeps firing, and because it produces a plausible-looking number on every large receipt, nobody questions it — the ERP is quietly more up to date on the mechanics than on the law.
The control is a standing review tied to the statutory calendar. Every Finance Act, someone owns walking the Tax Withholding Categories against the year's changes before the new financial year starts — omissions, rate changes and new sections all land in the same place. Date-bound every category so a rate cannot outlive the law that created it, and add a warning that flags any post-cutover transaction still computing a repealed levy.
Draft policy for your finance lead and CA to ratify. Every TDS/TCS Tax Withholding Category carries explicit validity dates; no category applies a rate with open-ended validity. On each Union Budget / Finance Act, the categories are reviewed against the year's changes before the new financial year begins, and the review is signed off. The 206C(1H) category is end-dated to 31 March 2025 and is never deleted, preserving prior-year entries. Any 206C(1H) collected on post-cutover receipts is quantified and refunded/adjusted with the return corrected. Confirm the current CBDT position and any transitional guidance with your CA before adoption.
End-date cleanly, or delete and regret it
FAQ
+Is TCS still applicable on sale of goods in India?
No. Section 206C(1H), the TCS on sale of goods, was omitted from 1 April 2025 by the Finance (No. 2) Act 2024. Sellers no longer collect the 0.1% on receipts over ₹50 lakh per buyer. The buyer-side 194Q TDS on purchase of goods is unchanged and still applies.
+Why is ERPNext still collecting 206C(1H) TCS after April 2025?
Because the Tax Withholding Category was set up with open-ended validity and never date-bounded, so it keeps applying the 0.1% rate after the law repealed it. Nothing errors — the category simply continues firing on post-cutover receipts. End-date it with a rate row from 1 April 2025 to stop it.
+What is the difference between 194Q and 206C(1H)?
194Q is TDS the buyer deducts on the purchase of goods, at invoice booking. 206C(1H) was TCS the seller collected on the sale of goods, at receipt. They applied to opposite parties at different moments, which is why one transaction could trigger both. From 1 April 2025 only 194Q remains.
+How do I stop 206C(1H) TCS in ERPNext without breaking prior years?
Do not delete the category. In its Tax Withholding Category rate table, add a row from 1 April 2025 that stops collection (or set the existing row's to-date to 31 March 2025). Pre-cutover receipts keep their original treatment; post-cutover receipts compute nil. Verify with a receipt each side of the date.
+What if we already collected 206C(1H) after 1 April 2025?
That is the customer's money. Quantify the total collected on post-cutover receipts and, with your CA, refund or adjust it and correct the relevant TCS return — the treatment depends on whether the amount was already deposited. Stopping collection going forward does not resolve what was wrongly taken.
+Does the omission affect 194Q compliance in ERPNext?
No. Only 206C(1H) was omitted. Your 194Q buyer-TDS categories should be left exactly as they are — deducting 0.1% on qualifying purchases at booking. The main practical change is that the old 194Q-vs-206C(1H) precedence question no longer arises, because the TCS side is gone.
Related issues you may also hit
- ITA 2025 TDS rate and threshold changes in ERPNext — the other half of the 2025 rationalisation.
- GST return filing in ERPNext — where TCS corrections surface.
- GST e-invoicing IRP round-trip — another statutory boundary the app enforces by date.
Closing
A repealed tax that keeps firing is the quietest compliance error there is, because the number always looks right. Check whether your 206C(1H) category is still live, end-date it to 31 March 2025 rather than deleting it, and reconcile anything collected since — it belongs to the customer. Then date-bound every tax category so the next Finance Act change is a scheduled review, not a buyer's complaint.
Not sure your ERPNext tax categories kept up with the 2025 changes?
We audit your Tax Withholding Categories against the current law, end-date repealed levies without breaking prior-year history, and reconcile anything collected in error.