The Union Budget 2026–27 has introduced a much-needed rationalisation of Tax Collected at Source (TCS) on the sale of coal, scrap and specified minerals. This change directly impacts traders, manufacturers, mining operators and intermediaries dealing in these commodities.
The reform addresses long-standing concerns related to cash flow blockage, classification disputes and compliance burden.
What Was the Issue Earlier?
Before this Budget:
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Different goods attracted different TCS rates
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Coal, scrap and minerals were often subject to:
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Interpretational disputes
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Cash flow strain due to higher upfront collection
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Businesses faced frequent reconciliation issues during ITR filing
The multiplicity of rates increased litigation and compliance cost, especially for MSMEs.
What Has Changed in Budget 2026–27?
Uniform TCS Rate Introduced
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TCS rate on:
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Coal
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Scrap
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Specified minerals (including iron ore, lignite, etc.)
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Rationalised to a flat 2%
This replaces the earlier fragmented rate structure.
Why This Change Matters
Improved Cash Flow
Lower and uniform TCS means:
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Less working capital blockage
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Faster reconciliation at year-end
Reduced Litigation
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Fewer disputes on classification
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Less scope for departmental objections
Simplified Compliance
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Easier TCS calculation
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Lower risk of short-collection or excess-collection
Who Benefits the Most?
This update is especially beneficial for:
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Coal traders and suppliers
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Scrap dealers and recyclers
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Mining lease holders
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Manufacturing units sourcing raw minerals
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MSMEs dealing in bulk commodity sales
For businesses operating on thin margins, this is a major relief.
GST vs Income Tax – Important Clarification
It is important to note that:
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TCS under Income Tax is different from GST TCS
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This change relates only to Income Tax Act provisions
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GST compliances remain unaffected
Businesses should ensure separate treatment in accounting and compliance systems.
Effective Date
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Applicable from 1 April 2026
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Governed by the Income Tax Act, 2025
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Relevant for transactions in FY 2026–27 onwards
Practical Takeaway
The rationalisation of TCS on coal, scrap and minerals is a business-friendly reform aimed at simplifying compliance and easing cash flow pressures.
Businesses dealing in these commodities should:
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Update billing and accounting systems
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Review contracts and pricing terms
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Align TCS collection with the revised rate in advance
Reference: Union Budget 2026–27 – Speech of the Finance Minister (Direct Taxes)