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BASIC GUIDE ON TAX COLLECTION AT SOURCE

Under section 206C(1), sellers of certain goods are required to collect tax from the buyers at the specified rates. The specified percentage for collection of tax at source is as follows:

  Nature of Goods Percentage
(a) Alcoholic liquor for human consumption 1%
(b) Tendu leaves 5%
(c) Timber obtained under a forest lease 2.5%
(d) Timber obtained by any mode other than (c) 2.5%
(e) Any other forest produce not being timber or tendu leaves 2.5%
 (f) Scrap 1%
(g) Minerals, being coal or lignite or iron ore 1%

Sub-section (1C) provides for collection of tax by every person who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest in any
-parking lot or
-toll plaza or
-a mine or a quarry
to another person (other than a public sector company) for the use of such parking lot or toll plaza or mine or quarry for the purposes of business. The tax shall be collected as provided, from the licensee or lessee of any such licence, contract or lease of the specified nature, at the rate of 2%.

Section 206C(IF) provides that every person, being a seller, who receives anyamount as consideration for sale of a motor vehicle of the value exceeding Rs. 10 lakhs, shall collect tax from the buyer@1% of the sale consideration

Meaning of certain terms[Explanation to section 206C]

  Term Meaning
(i) Buyer For sub-section (1) and (1C) of section 206C:
A person who obtains in any sale, by way of auction, tender, or any other mode, goods of the nature specified in the Table in sub-section (1) or the right to receive any such goods but does not include –

  1. a public sector company, the Central Government, a State Government, and an embassy, a high commission, legation, commission, consulate and the trade representation, of a foreign State and a club, or
  2. a buyer in the retail sale of such goods purchased by him for personal consumption

For sub-section (1F) of section 206C:
A person who obtains in any sale, goods of the nature specified therein, but does not include –

  1. the Central Government, a State Government and an embassy, a High Commission, legation, commission,consulate and the trade representation of a foreign State; or
  2. a local authority; or
  3. a public sector company which is engaged in thebusiness of carrying passengers.
(ii) Seller (i)The Central Government,
(ii)a State Government or
(iii)any local authority or
(iv)corporation or
(v)authority established by or under a Central, State or Provincial Act, or
(vi)any company or
(vii) firm or
(viii) co-operative society

Seller also includes an individual or a HUF whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) are sold.

(iii) Scrap Waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons;

CBDT Clarification relating to certain issues

The CBDT has, vide Circular No. 22/2016 dated 8.6.2016 and Circular No.23/2016 dated 24.6.2016, clarified the following issues in “Question & Answer (Q&A)” format.

Q.1 Whether TCS@1% is on sale of motor vehicle at retail level or also on sale of motor vehicles by manufacturers to dealers/ distributors?

A. To bring high value transactions within the tax net, section 206C has been amended to provide that the seller shall collect the tax @ 1% from the purchaser on sale of motor vehicle of the value exceeding Rs. 10 lakhs. This is brought to cover all transactions of retail sales and accordingly, it will not apply on sale of motor vehicles by manufacturers to dealers/distributors.

Q.2 Whether TCS@1% on sale of motor vehicle is applicable only to luxury cars?

A. No, as per section 206C(1F), the seller shall collect tax@1% from the purchaser on sale of any motor vehicle of the value exceeding Rs. 10 lakhs.

Q.3 Whether TCS@1% is applicable in the case of sale to Government Departments, Embassies, Consulates and United Nation Institutions, of motor vehicle or any other goods or provision of services?

A. 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 shall not be liable to levy of TCS@1% under sub-section (1F) of section 206C.

Q.4 Whether TCS is applicable on each sale of motor vehicle or on aggregate value of sale during the year?

A. Tax is to be collected at source@1% on sale consideration of a motor vehicle exceeding Rs. 10 lakhs. It is applicable to each sale and not to aggregate value of sale made during the year.

Q.5 Whether TCS@1% on sale of motor vehicle is applicable in case of an individual?

A. The definition of “Seller” as given in clause (c) of the Explanation below sub-section (11) of section 206C shall be applicable in the case of sale of motor vehicles also.

Accordingly, an individual who is liable to audit as per the provisions of section 44AB during the financial year immediately preceding the financial year in which the motor vehicle is sold shall be liable for collection of tax at source on sale of motor vehicle by him.

Q.6 How would the provisions of TCS on sale of motor vehicle be applicable in a case where part of the payment is made in cash and part is made by cheque?

A. The provisions of TCS on sale of motor vehicle exceeding Rs. 10 lakhs is not dependent on mode of payment. Any sale of motor vehicle exceeding Rs. 10 lakhs would attract TCS@1%.

Time of Collection of tax

The tax should be collected at the time of debiting of the amount payable by the buyer or licensee or lessee, as the case may be, to his account or at the time of receipt of such amount from the buyer or licensee or lessee, as the case may be, in cash or by the issue of a cheque or draft or any other made, whichever is earlier.

Non-applicability of TCS

No collection of tax shall be made in the case of a resident buyer, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that goods referred to in section 206C(1) above are to be utilised for the purpose of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes.

Furnishing of copy of declaration within specified time

The person responsible for collecting tax under this section shall deliver or cause to be delivered to the Chief Commissioner or Commissioner one copy of the declaration referred to in sub-section (1A) on or before 7th of the month next following the month in which the declaration is furnished to him.

TCS to be paid within prescribed time

Any amount collected under sub-section (1) or (1C) shall be paid within the prescribed time to the credit of the Central Government or as the Board directs.

Time limit for paying tax collected to the credit of the Central Government [Rule 37CA]

  Person collecting sums in accordance with section 206C(1)/(1C) Circumstance Period within which such sum should be paid to the credit of the Central Government
(1) An office of the
Government
(i) where the tax is paid without production of an income-tax challan on the same day
(ii) where tax is paid accompanied by an income-tax challan on or before 7 days from the end of the month in which the collection is made
(2) Collectors other than an office of the Government   within one week from the last day of the month in which the collection is made

TCS process can be understood at a glance from the diagram

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