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Collection of Tax at Source (TCS) under section 206C

The Finance Act 2016  had amended section 206C to cover more transactions. The amendments brought in section 206C by Finance Act, 2016 are applicable from 1 st June 2016.
Under section 206C the seller has to collect Tax at Source (TCS) at the rate of 1% from purchaser while selling the specified items or services beyond specified limits.

Assesses which are liable to collect TCS.

  1. A Central Government or a state Government
  2. Any local authority, or corporation or authority established under any Central, State or Provincial Act
  3. Any company, firm or cooperative  society
  4. An individual or Hindu undivided family who is liable to audit as per provisions of section 44AB during the financial year immediately preceding the financial year in which the goods are sold or the services are provided.

The buyer may be any person. The status of buyer is irrelevant.

The following transactions are covered in section 206C (including both before and after amendment)

  1. Sale of any goods in cash (other than jewellery or bullion) of more than Rs. 2 lakh.
  2. Providing any services whose receipt is in cash exceeding Rs. 2 lakhs (other than those services for which tds is deductible under any section)
  3. Sale in cash of bullion exceeding rs. 2 lakh and jewellery exceeding 5 lakh rupees.
  4. Sale of motor vehicle exceeding Rs. 10,00,000 in cash or any other mode.

The CBDT has issued two circulars to clarifies some points relating to this section. Points in the clarifications are

  • If the sales consideration of more than Rs. 2 lakhs is partly received in cash and partly in cheque and cash receipts in less than rs. 2 lakhs then NO TCS is required to be collected.
    For eg – Sales consideration – 5 lakhs, Received by cheque – 4 lakhs, Received by cash – 1 lakh
    In this case no TCS is required to be collected as receipt in cash is less than rs. 2 lakhs.
  • TCS is collected @ 1% only on the cash component and not on the whole of sales consideration.
    For eg – Sales consideration – 5 lakhs, Received by cheque – 2 lakhs, Received by cash – 3 lakh
    TCS is collected @1% on rs. 3 lakh only.
  • Only retail sale is covered, this section doesn’t apply to sale by manufacturers to dealers/distributors.
  • The provisions of TCS on sale of motor vehicle exceeding ten lakh rupees is not dependent on mode of payment.
  • All motor vehicles are covered, whether its a car or any other vehicle
  • TCS provision doesn’t apply in case of sale to Government, institutions notified under United Nations ( Privileges and Immunities) Act 1947, and Embassies, Consulates, High Commission, Legation, Commission and trade representation of a foreign State.
  • It is applicable to each sale and not to aggregate value of sale made during the year.
    Eg:- Motor vehicle worth 20 lakh is sold and for which payments are made in instalments, one at the time of booking and the other at the time of delivery. At the time of booking 5 lakh rupees are paid and 15 lakh rupees are paid at the time of delivery. Tax at the rate of 1 % on 5 lakh rupees at the time of booking and at the rate of 1 % on remaining 15 lakh rupees at the time of delivery shall be collected at source. Similar will be for sale of any goods or service.
  • Sub-section (1F) of the section 206c of the Act provides for TCS at the rate of 1% on sale of motor vehicle of value exceeding 10 lakh rupees. This is irrespective of the mode of payment. Thus if the value of motor vehicle is 20 lakh rupees , out of which 5 lakh rupees has been paid in cash and balance amount by way of cheque, the tax shall be collected at source at the rate of 1 % on total sale consideration of 20 lakh rupees only under sub-section (1F) of section 206c of the Act. However, if a vehicle is sold for 8 lakh rupees and the consideration is paid in cash, tax shall be collected at source at the rate of 1 % on 8 lakh rupees as per sub-section (1D) of section 206c of the Act.

Source: Circular No 22/ 2016 

Circular No. 23/2016

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