In short: TCS on purchase of machinery is a 1 per cent line the seller collects when the sale consideration exceeds ₹10 lakh and the machine is a motor vehicle — entry 6 of the section 394(1) table in the Income-tax Act, 2025, in force from 1 April 2026. It is not a cost: section 390 gives you credit for it against your own tax. The exemption list is narrower than most owners assume, and the “personal consumption” let-off does not cover motor vehicles. Figures are indicative and current as of September 2026.

You negotiate hard on the machine, settle the on-road number, and then a line appears near the bottom of the invoice adding roughly a percent. Most owners either argue about it or quietly pay it. Both responses are wrong, and for the same reason: almost nobody is told what the line is.

It is tax collected at source, and it is your money. What follows is what the statute actually says, because the entries that catch a machine owner are not the ones the general write-ups cover.

Where TCS on purchase of machinery comes from

The whole thing sits in one section. Section 394(1) of the Income-tax Act, 2025 — the Act that replaced the 1961 Act and, under section 1(3), came into force on 1 April 2026 — says that every person specified in the table shall collect tax on the receipts listed, at the rate listed.

Section 394(1)(c) also fixes when. The seller collects at the time of debiting the amount payable to the buyer’s account, or at the time of receiving the money in cash, by cheque, by draft or any other mode — whichever is earlier. That is why it lands on the invoice and not at delivery, and why paying by RTGS on the day of billing does not avoid it.

The four entries a machine owner actually meets

The table has nine entries. Most concern liquor, tendu leaves and overseas tour packages. Four of them touch this business.

Entry What it covers Who collects Rate
4 Sale of scrap Seller 1%
5 Sale of minerals, being coal or lignite or iron ore Seller 1%
6 Sale consideration exceeding ₹10 lakh for a motor vehicle, or other goods the Central Government notifies Seller 1%
9 Use of a parking lot, toll plaza, mine or quarry for business — excluding mineral oil, petroleum and natural gas Licensor or lessor 2%

Entry 9 is the one that surprises people. Take a quarry on lease to win material for an earthwork contract and the lessor collects 2 per cent — twice the machine rate — on the lease consideration. If you are pricing that work, it belongs in the cash-flow alongside royalty on earthwork, which is a separate payment to a different authority.

The word that decides whether your machine is caught at all

Entry 6 does not say “machinery”. It says motor vehicle. That single word decides the question, and it is worth being precise about what the Act does and does not settle.

The Act does not define “motor vehicle” for this entry. It borrows the Motor Vehicles Act, 1988 meanings for related terms elsewhere — “goods carriage”, “gross vehicle weight”, “unladen weight” — but entry 6 itself carries no definition. In practice the line a seller applies tracks the same question that decides whether the machine goes to an RTO at all, which we cover in construction equipment registration with the RTO.

The practical consequence is one most owners have never had spelled out. A wheeled backhoe loader that registers and carries a number plate sits on one side of the line. A tracked machine that never registers sits on the other — our long-reach and dredging machine guide makes the same point from the buying side, that there is no registration or TCS to add on a machine of that kind.

This is not a reason to guess. Ask the dealer which entry he is collecting under and get it on the invoice. Section 397 requires every person collecting tax to hold a tax deduction and collection account number and to quote it on challans, statements and certificates, so a seller who cannot tell you the basis is a seller worth a second question.

Who is actually exempt — and who only thinks they are

Section 402(6) defines who counts as a “buyer”, and it does so entry by entry. This is where a widely repeated piece of folklore falls apart.

For entries 1 to 5 — scrap included — the excluded list is broad: a public sector company, the Central or a State Government, an embassy, High Commission, legation, commission, consulate or foreign trade representation, a club, and a buyer in the retail sale of such goods purchased for personal consumption.

For entry 6, the motor vehicle entry, that list is much shorter. Only three categories are left out:

Excluded from entry 6 Not excluded
Central or State Government, embassies and foreign missions A proprietor, partnership or private company buying a machine
A local authority as defined in Schedule III A buyer purchasing for “personal consumption”
A public sector company engaged in carrying passengers A club, and a PSU not in the passenger business

Read the right-hand column twice. The personal consumption escape and the club escape belong to entries 1 to 5 and were never extended to motor vehicles. Nor does a public sector company get a blanket pass — only one carrying passengers. If you are an ordinary contractor buying a machine above ₹10 lakh, you are a buyer, and the 1 per cent applies.

Sizing the cash you need at delivery is a wider exercise than this one line — the first equipment buying guide walks through what really sits between ex-showroom and on-road, and reading the quotation line by line is where you catch the items that are negotiable. TCS is not one of them. Anyone offering to “remove” it is offering to break a collection obligation on your behalf.

If the extra outgo at delivery is what pinches, that is a funding conversation rather than a tax one. Our equipment finance options page sets out what lenders will and will not fund on the on-road figure.

It is not a cost — it is your tax, paid early

This is the part that changes the decision. Section 390 provides for credit of tax deducted or collected to be given to the person from whom it was collected, and leaves it to the Board to make rules for giving that credit and for the tax year in which it is given.

So the 1 per cent is not a charge the dealer keeps and not a cost of the machine. It is a payment against your own liability, made earlier than you would otherwise have made it. On a ₹40 lakh machine that is ₹40,000 (indicative) leaving your account at delivery instead of at your next instalment of tax.

The practical error is treating it as a price increase and re-opening the negotiation. The correct response is to plan the cash, keep the certificate, and make sure it reaches your return. If the collection never shows against your PAN, you have paid tax that nobody has credited to you — which is why the invoice and the certificate matter more than the argument.

Selling: the declaration that removes it

When you go the other way and dispose of a machine at end of life, entry 4 puts you on the collecting side: sale of scrap, 1 per cent, collected by you from your buyer.

Here, unlike entry 6, there is a documented way out. Section 394(2) says no collection is to be made on entries 1 to 5 where the buyer is resident in India and furnishes a written declaration in duplicate, in the prescribed form and manner, that the goods will be used for manufacturing, processing or producing articles or things, or for generating power — and not for trading purposes.

That declaration carries a deadline for you, not just for him. Section 394(3) requires the person who collected it to deliver a copy to the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner on or before the seventh day of the month following the month in which the declaration was received. Take the declaration, miss the filing, and you have the exposure without the paperwork that justifies it.

Note also that section 402(6) describes the buyer for entries 1 to 5 as a person who obtains the goods by way of auction, tender or any other mode. Buying at a bank auction of construction equipment is expressly inside the definition, not a way around it.

And keep the two taxes apart. TCS is collected on a sale; what you owe on the profit of that sale is a different computation altogether, set out in capital gain on sale of machinery.

TCS and TDS are not the same line

Owners mix these up constantly, and the invoice usually does not help.

TCS — section 394 TDS — section 393
Who acts The seller or lessor collects from you The payer deducts before paying you
When you meet it Buying a machine, selling scrap, taking a quarry on lease Hiring your machine out; receiving a running bill
Money direction You pay more than the invoice You receive less than the bill

If the line you are looking at reduced a payment coming to you, it is not TCS at all — TDS on machinery hire charges is the piece that tells you which rate should have been cut and what to do when the wrong one was.

What we are deliberately not quoting

Two things, and it is better to say so than to fill the gap with a plausible number.

The Act provides for credit of collected tax but leaves the mechanics — the form, the matching, the year of credit — to rules made by the Board. Those rules are what your accountant works from at filing time, and we are not going to paraphrase rules we have not read.

Second, whether a specific machine is a motor vehicle for entry 6 is a question the Act does not answer on its face. It turns on the machine’s own registration position. That is a question for your dealer’s invoice and your CA, and the honest answer for a general piece is to tell you exactly which word to argue about — which is what this one has done.

The bottom line

TCS on purchase of machinery is 1 per cent above ₹10 lakh, it applies only where the machine is a motor vehicle, the exemption list for that entry is three narrow categories that almost certainly do not include you, and the money comes back as credit against your own tax. On the selling side, entry 4 makes you the collector on scrap, with a section 394(2) declaration as the documented way out and a seventh-of-the-month filing attached to it.

Plan it as cash flow, not as cost. Get the entry named on the invoice, keep the certificate, and make sure the collection reaches your PAN.

If the delivery-day cash is the constraint rather than the tax, look at how the deal is structured before you shrink the machine: compare equipment finance options and see what a lender will fund on the on-road figure.

Rates, schemes, specifications and prices change — confirm current terms with the OEM, dealer, bank or insurer before deciding.