Filing ITR 2026: If you buy a car priced above INR 10 lakh ex-showroom, you will pay 1% Tax Collected at Source (TCS) at the time of purchase. While many buyers assume this is an additional cost, the amount can actually be claimed as a tax credit or refund when Submit Income Tax Return (ITR).
Purchasing a new car is one of the biggest financial decisions most families make. However, many buyers do not realize that the 1% TCS collected by the dealer on vehicles priced above INR 10 lakh is not a permanent tax expense.
Instead, it acts as a tax credit that can reduce your final income tax liability or be refunded if the tax collected exceeds the amount you owe. Despite this, many taxpayers fail to claim the benefits simply because they are unaware of the rules or ignore the credit while filing their ITRs.
What is 1% TCS?
Under the Income Tax Act, authorized car dealers have to charge 1% tax collected at source (TCS) on the sale of cars whose ex-showroom value exceeds INR 10 lakh.
For example, if you buy a car worth INR 20,000, the dealer will collect INR 20,000 as TCS on top of the purchase price. The amount is deposited with the Income Tax Department and linked to the buyer’s Permanent Account Number (PAN).
Must read: Income Tax Department issues ITR-5 Excel utility for AY 2026-27; Here’s who can apply and who can’t
The goal of TCS is to help the tax administration track high value purchases and improve tax compliance. It is not an additional tax or fee imposed on the buyer.
How can you claim it?
Once a dealer deposits a TCS, it shows as a tax credit on the buyer’s Form 26AS and Annual Information Statement (AIS). While filing income tax return for the relevant financial year, taxpayers can claim this amount under the ‘Taxes Paid’ section.
The Income Tax Portal automatically adjusts the credit against the taxpayer’s final tax liability.
Documents you should keep ready
To ensure a smooth claim, buyers must maintain the following:
The vehicle purchase invoice shows the TCS amount
Form 27D, TCS Certificate issued by the agent
PAN is used while purchasing a car
Form 26AS reflects the TCS balance
Before filing a return, taxpayers should check that the TCS has been correctly reflected in Form 26AS.
How does TCS modification work?
| Ex-showroom car prices | 1% TCS paid | Final income tax liability | TCS system modification | Refund/tax due |
| 12 thousand Indian rupees | 12,000 Indian rupees | 20,000 Indian rupees | 12,000 Egyptian pounds modified | Pay balance tax of INR 8,000 |
| 15 thousand Indian rupees | 15,000 Indian rupees | 15,000 Indian rupees | Fully modified | No refund, no additional tax |
| 20 thousand Indian rupees | 20,000 Indian rupees | 8000 Indian rupees | 8,000 Egyptian pounds modified | Refund of INR 12,000 |
| 25 thousand Indian rupees | 25,000 Indian rupees | 0.00 INR | There is no tax payable | Full refund of INR 25,000 |
Example 1: Tax adjustment
Car price: 12 thousand pounds
TCS Collected (1%): INR 12,000
Total income tax payable: INR 20,000
Less: TCS Balance: INR 12,000
Balance tax to be paid = INR 8,000
Example 2: Partial refund
Car price: 20 thousand pounds
TCS collected: INR 20,000
Total income tax payable: INR 8,000
Less: TCS Credit: INR 20,000
Refund = INR 12,000
Example 3: Full refund
Car price: 25 thousand pounds
TCS collected: INR 25,000
Total income tax payable: ₹0
Less: TCS Credit: INR 25,000
Refund = INR 25,000
formula
TCS = 1% x ex-showroom price
Refund = TCS – final tax liability (if TCS is higher)
Additional tax due = final tax liability – TCS (if tax liability is higher)
When will you receive a refund?
Whether you get a refund depends on your total income tax liability.
If the TCS paid is higher than the total tax payable by you, the excess amount will be refunded by the Income Tax Department. If the TCS is less than your tax liability, it will simply be adjusted against the tax due, and you will only pay the remaining amount.
If your total tax liability is zero, you can claim a refund of the entire TCS amount collected.
For example, let’s say you bought a car worth INR 20,000 and paid Rs 20,000 as TCS charges. If your final income tax liability for the year amounts to INR 8,000, the TCS will first be adjusted against this amount and you will receive a refund of INR 12,000.
Common mistakes to avoid
Tax experts say many taxpayers lose out on this credit because they forget to collect Form 27D from the agent, fail to check whether the TCS has been added to Form 26AS, or simply omit the entry while filing their ITR.
Since the TCS is linked to your PAN and is already available in your income tax records, a credit check before filing your return can help ensure that you get the refund or settlement to which you are entitled. For car buyers, spending a few extra minutes checking Form 26AS could translate into thousands of rupees being returned to their bank accounts.
