ITR filing 2026: If you purchased a car with an ex-showroom price exceeding ₹10 lakh, you would have paid 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 refunded when filing your Income Tax Return (ITR).
Buying a new car is one of the biggest financial decisions for most households. However, many buyers are unaware that the 1% TCS collected by the dealer on vehicles priced above ₹10 lakh is not a permanent tax outgo.
Instead, it functions as a tax credit that can either 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 benefit simply because they are unaware of the rules or overlook the credit while filing their ITR.
What is the 1% TCS?
Under the Income Tax Act, authorised vehicle dealers are required to collect 1% Tax Collected at Source (TCS) on the sale of motor vehicles with an ex-showroom value exceeding ₹10 lakh.
For example, if you purchase a car worth ₹20 lakh, the dealer will collect ₹20,000 as TCS in addition to the purchase price. The amount is deposited with the Income Tax Department and linked to the buyer’s Permanent Account Number (PAN).
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The objective of TCS is to help the tax department 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 the dealer deposits the TCS, it appears as a tax credit in the buyer’s Form 26AS and Annual Information Statement (AIS). While filing the 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.
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Documents you should keep ready
To ensure a smooth claim, buyers should retain:
Car purchase invoice showing the TCS amount
Form 27D, the TCS certificate issued by the dealer
PAN used while purchasing the vehicle
Form 26AS reflecting the TCS credit
Before filing the return, taxpayers should verify that the TCS has been correctly reflected in Form 26AS.
How TCS adjustment works
| Car Ex-showroom Price | 1% TCS Paid | Final Income Tax Liability | TCS Adjustment | Refund / Tax Payable |
| ₹12 lakh | ₹12,000 | ₹20,000 | ₹12,000 adjusted | Pay balance tax of ₹8,000 |
| ₹15 lakh | ₹15,000 | ₹15,000 | Fully adjusted | No refund, no extra tax |
| ₹20 lakh | ₹20,000 | ₹8,000 | ₹8,000 adjusted | Refund of ₹12,000 |
| ₹25 lakh | ₹25,000 | ₹0 | Nil tax payable | Full refund of ₹25,000 |
Example 1: Tax adjustment
Car price: ₹12 lakh
TCS collected (1%): ₹12,000
Total income tax payable: ₹20,000
Less: TCS credit: ₹12,000
Balance tax to be paid = ₹8,000
Example 2: Partial refund
Car price: ₹20 lakh
TCS collected: ₹20,000
Total income tax payable: ₹8,000
Less: TCS credit: ₹20,000
Refund = ₹12,000
Example 3: Full refund
Car price: ₹25 lakh
TCS collected: ₹25,000
Total income tax payable: ₹0
Less: TCS credit: ₹25,000
Refund = ₹25,000
Formula
TCS = 1% × Ex-showroom price of the car
Refund = TCS – Final tax liability (if TCS is higher)
Additional tax payable = Final tax liability – TCS (if tax liability is higher)
When will you receive a refund?
Whether you receive a refund depends on your overall income tax liability.
If the TCS paid is higher than your total tax payable, the excess amount will be refunded by the Income Tax Department. If the TCS is lower than your tax liability, it will simply be adjusted against the tax due, and you will pay only the balance amount.
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If your overall tax liability is zero, you can claim a refund of the entire TCS collected.
For instance, suppose you purchase a ₹20 lakh car and pay ₹20,000 as TCS. If your final income tax liability for the year works out to ₹8,000, the TCS will first be adjusted against that amount and you will receive a refund of ₹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 dealer, fail to check whether the TCS has been credited to Form 26AS, or simply omit the entry while filing their ITR.
Since TCS is linked to your PAN and already available in the income tax records, verifying the credit before filing your return can help ensure you receive the refund or adjustment you are entitled to. For car buyers, spending a few extra minutes checking Form 26AS could translate into thousands of rupees returned to their bank account.
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