Section 394 — Collection of tax at source

(1) Every person, as specified in column C of the Table below shall collect
tax—
( a) on receipts specified in column B;
( b) at the rate as specified in column D; and
( c) at the time of debiting of the amount payable by the buyer or licensee or
lessee to the account of the buyer or licensee or lessee or at the time of
receipt of such amount from the said buyer or licensee or lessee in cash
or by way of a cheque or a draft or any other mode, whichever is earlier.
TABLE
TAX COLLECTION AT SOURCE
Sl.
No.
Nature of receipt Person Rate of Tax Collect-
ed at Source
A B C D
1. Sale of alcoholic liquor for human con -
sumption.
Seller. 86[2%]
2. Sale of tendu leaves. Seller. 87[2%]
3. Sale of timber whether obtained under
a forest lease or otherwise; or any other
forest produce (not being timber or tendu
leaves) obtained under a forest lease.
Seller. 2%
4. Sale of scrap. Seller. 88[2%]
86. Substituted for “1%” by the Finance Act, 2026, w.e.f. 1-4-2026.
87. Substituted for “5%”, ibid.
88. Substituted for “1%”, ibid.
Sl.
No.
Nature of receipt Person Rate of Tax Collect-
ed at Source
A B C D
5. Sale of minerals, being coal or lignite or
iron ore.
Seller. 88a[2%]
6. Sale consideration exceeding ten lakh
rupees in case of—
( a) motor vehicle; or
( b) any other goods, as may be notified
by the Central Government.
Seller. 1%
7. Remittance under the Liberalised
Remittance Scheme of an amount or
aggregate of the amounts exceeding ten
lakh rupees—
Authorised
dealer.
( a) 88b[2%] for
purposes of
education
or medical
treatment;
( b) 20% for pur -
poses other
than educa -
tion or medi -
cal treatment.
8. Sale of “overseas tour programme pack-
age” including expenses for travel or hotel
stay or boarding or lodging or any such
similar or related expenditure.
Seller. 89[2%]
9. Use of parking lot or toll plaza or mine
or quarry for the purpose of business, ex-
cluding mining and quarrying of mineral
oil (including petroleum and natural gas).
Licensor or
Lessor.
2%
(2) Irrespective of anything contained in sub-section (1) (Table: Sl. Nos. 1 to 5), the
collection of tax shall not to be made in respect of receipts specified in sub-section
(1) (Table: Sl. Nos. 1 to 5) in respect of the buyer, who is a resident in India, if he
furnishes a written declaration in duplicate in such form and manner, as may be
prescribed, to the person responsible for collecting tax, mentioning that such goods
are to be utilised—
( a) for the purposes of manufacturing, processing or producing articles or
things or for generating power; and
( b) not for trading purposes.
(3) Where no collection of tax is to be made under sub-section (2), the person re -
sponsible for collecting tax shall deliver or cause to be delivered, one copy of the
88a. Substituted for “1%” by the Finance Act, 2026, w.e.f. 1-4-2026.
88b. Substituted for “5%”, ibid.
89. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to their substitution, clauses (a)
and (b) read as under :
“( a) 5% of amount or aggregate of amounts up to ten lakh rupees;
( b) 20% of amount or aggregate of amounts exceeding ten lakh rupees.”
90. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, clause (c) read
as under :
“( c) when a certificate is issued under clause (b), the person responsible for paying the
income or sum shall deduct the tax at the rate specified in such certificate, or deduct
no income-tax, as the case may be, till its validity.”
declaration referred to in that sub-section, to the Principal Chief Commissioner
or Chief Commissioner or Principal Commissioner or Commissioner, on or before
the seventh day of the month following the month of receipt of that declaration.
(4) The collection of tax shall not be made by the authorised dealer in respect of
receipt specified in sub-section (1) (Table: Sl. No.7),—
( a) on such amount on which tax has been collected by the seller in respect
of receipt referred to in sub-section (1) (Table: Sl. No. 8);
( b) if the amount being remitted out is a loan obtained from any financial
institution as defined in section 129(3)( b), for the purpose of pursuing
any education.
(5) The collection of tax shall not be made by the authorised dealer or seller, in
respect of receipt specified in sub-section (1) (Table: Sl. Nos. 7 and 8), if the buyer
is liable to deduct tax at source under any other provisions of this Act and he has
deducted such tax.
(6) For the purposes of this section, “forest produce” shall have the same meaning
as defined in any State Act for the time being in force, or in the Indian Forest Act,
1927 (16 of 1927).