Friday 10 June 2016

Clarifications and FAQs about newly amended Tax Collected at Source (TCS)

CBDT vide Circular No 22/ 2016 dated 08.06.2016 has clarified certain provisions relating to amended TCS rules of the Income Tax. It has also answered few of the Frequently Asked Questions.

Sub: Amendment in Section 206C vide Finance Act 2016
 

Section 206C of the Income-tax Act, 1961 (hereafter referred to as 'Act'), prior to amendment by Finance Act,20 16. provided that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items such as alcoholic liquor [or human consumption, tender leaves, mineral being coal or lignite or iron orc etc. It also provided for collection of tax at source at the rate of one per cent on sale in cash of bullion exceeding 2 lakh rupees and jewellery exceeding 5 lakh rupees.

In order to reduce the cash transactions in sale of goods and services, Finance Act 2016 has expanded the scope of section 206C (I D) to provide that the seller shall collect tax at the rate of one per cent from the purchaser on sale in cash of any goods (other than bullion and jewellery) or providing of any services (other than payment on which tax is deducted at source under Chapter XV II-B) exceeding two lakh rupees. 



So far as sale of Jewellery and bullion is concerned, the provisions of sub-section (1 D) of section 206C prior to its amendment by the Finance Act,2016 shall continue to apply. Further, with a view to bring high value transactions within the tax net, it has been provided in sub- section (1 F) of section 206C of the Act that the seller who receives consideration for sale of a motor vehicle exceeding ten lakh rupees, shall collect one per cent of the sale consideration as tax from the buyer.
Any person who obtains in any sale, the goods of the nature specified in sub-section ( ID) or (1 F) of section 206C is a buyer. The seller for the purposes of collection of tax under section 206C shall be -

(i) A Central Government or a state Government,
(ii) Any local authority, or corporation or authority established under any Central, State or Provincial Act,
(iii) Any company, firm or cooperative society,

(iv) 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 amendments brought in section 206C by Finance Act, 20 16 are applicable from 1st June 2016.
 

In this regard a number of queries have been received about the scope of the provisions and the procedure to be followed. The board has considered the same and decided to clarify the points raised by issue of a circular in the form of questions and answers as follows:

Question I: Whether tax collection at source ('TCS') at the rate of 1% is on sale of Motor Vehicle at retail level or also on sale of motor vehicles by manufacturers to
dealers/distributors ?

Answer: To bring high value transactions within the tax net, section 206C of the Act has
been amended to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees, This ibrought to cover all transactions of retail sales and accordingly it will not apply on sale of motor vehicles by manufacturers to dealers/distributors,



Question 2: Whether TCS at the rate of 1% is on sale of Motor Vehicle is applicable only to Luxury Cars?
Answcr: No, As per sub section ( I F) of Section 206C of the Act the seller shall collect the tax at the rate of one per cent from the purchaser on sale of any motor vehicle of the value exceeding ten lakh rupees.


Question 3: Whether'TCS at the rate of 1% is applicable in the case of sale to Government Departments, Embassies, Consulates and United Nation Institutions for sale of motor vehicle or any other goods or provision of services?
Answer: 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 and shall not be liable to levy of TCS at the rate of 1% under sub-section (1 D) and (I F) of section 206 C of the Act.


Question 4: Whether TCS is applicable on each sale of motor vehicle or on aggregate value of sale during the year?
Answer: Tax is to be collected at source at the rate of 1% on sale consideration of a motor vehicle exceeding ten lakh rupees. It is applicable to each sale and not to aggregate value of sale made during the year. This can be explained by way of an illustration:
Illustration: Motor vehicle worth 20 lakh is sold and for which payments are made in installments, 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 the position with regard to collection of tax at source under sub-section (1 D) of section 206C.



Question 5: Whether TCS at the rate of 1% on sale of motor vehicle is applicable in case of an individual?
Answer: The definition of "Seller" as given in clause (c ) of the Explanation below subsection (II) 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 of the Act 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.
 

Question 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?
Answer: The provisions of TCS on sale of motor vehicle exceeding ten lakh rupees is not dependent on mode of payment. Any sale of Motor Vehicle exceeding ten lakh would attract TCS at the rate of 1%.



Question 7: As per section 206C(1 D) , tax is to be collected at source at the rate of 1% if sale consideration received in cash exceeds 2 lakh rupees whereas as per section 206C(lF) tax is to be collected at source at the rate of 1% of the sale consideration of a motor vehicle exceeding 10 lakh rupees. Whether TCS will be made under both sub-section( lD) and (IF) of the section 206C @ 2% ,where part of the payment for purchase of motor vehicle exceeds 2 lakh rupees in cash?

Answer: Sub-section (1 F) of the section 206e 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 ( I F) of section 206e 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(l D) of section 206e of the Act. samendment by the Finance Act,2016 shall continue to apply. Further, with a view to bringhigh value transactions within the tax net, it has been provided in sub- section (1 F) of section206C of the Act that the seller who receives consideration for sale of a motor vehicleexceeding ten lakh rupees, shall collect one per cent of the sale consideration as tax from thebuyer. Any person who obtains in any sale, the goods of the nature specified in sub-section( ID) or (1 F) of section 206C is a buyer. The seller for the purposes of collection of lax undersection 206C shall be -•(i) A Central Government or a state Government,(ii) Any local authority, or corporation or authority established under any Central,State or Provincial Act,(iii) Any company, firm or cooperative society,•(iv) An individual or Hindu undivided family who is liable to audit as per provisionsof section 44AB during the financial year immediately preceding the financialyear in which the goods are sold or the services arc provided.The amendments brought in section 206C by Finance Act, 20 16 are applicable form l SI June2016.In this regard a number of queries have been received about the scope of the provisions andthe procedure to be followed. The board has considered the same and decided to clarify thepoints raised by issue of a circular in the form of questions and answers as follows:Question I: Whether tax collection at source ('TCS') at the rate of 1% is on sale of MotorVehicle at retail level or also on sale of motor vehicles by manufacturers todealers/distributors,Answcr: To bring high value transactions within the tax net, section 206C of the Act hasbeen amended to provide that the seller shall collect the tax at the rate of one per cent fromthe purchaser on sale of motor vehicle of the value exceeding ten lakh rupees, This is.. brought to cover all transactions of retail sales and accordingly it will not apply on sale ofmotor vehicles by manufacturers to dealers/distributors,Question 2: Whether TCS at the rate of 1% is on sale of Motor Vehicle is app licable only toLuxury Cars?Answcr: No, As per sub section ( I F) of Section 206C of the Act the seller shall collect thetax at the rate of one per cent from the purchaser on sale of any motor vehicle of the valueexceeding ten lakh rupees,Question 3: Whether'TCS allhe rate of 1% is applicable in the case of sale to GovernmentDepartments, Embassies, Consulates and United Nation Institutions for sale of motor vehicleor any other goods or provision of services?Answer: Government, institutions notified under United Nations ( Privileges andImmunities) Act 1947, and Embassies, Consulates, High Commission, Legation, Commissionand trade representation ofa foreign State and shall not be liable to levy ofTCS at the rateof 1% under sub-section (1 D) and (I F) of section 206 C of the Act.••Question 4: Whether TCS is applicable on each sale of motor vehicle or on aggregate valueof sale during the year?Answer: Tax is to be collected at source at the rate of 1% on sale consideration of a motorvehicle exceeding ten lakh rupees. It is applicable to each sale and not to aggregate value ofsale made during the year. This can be explained by way of an illustration:Illustration: Motor vehicle worth 20 lakh is sold and for which payments arc made ininstalments, one at the time of booking and the other at the time of delivery. At the time ofbooking 5 lakh rupees are paid and 15 lakh rupees are paid at the time of delivery. Tax at therate of 1% on 5 lakh rupees at the time of booking and at the rate of I % on remaining 15lakh rupees at the time of delivery shall be collected at source.Similar will be the position with regard to collection of tax at source under sub-section (1 D)of section 206C.Question 5: whether TCS at the rate of 1% on sale of motor vehicle is applicable in case ofan individual?Answer: The definition of "Seller" as given in clause (c ) of the Explanation below subsection (II) of section 206C shall be applicable in the case of sale of motor vehicles alsoAccordingly, an individual who is liable to audit as per the provisions of section 44AB of theAct during the financial year immediately preceding the financial year in which the motorvehicle is sold shall be liable for collection of tax at source on sale of motor vehicle by him.Question 6: I-low would the provisions of TCS on sale of motor vehicle be applicable in acase where part of the payment is made in cash and part is made by cheque?Answer: The provisions of TCS on sale of motor vehicle exceeding ten lakh rupees is notdependent on mode of payment. Any sale of Motor Vehicle exceeding ten lakh would attractTCS at the rate of 1%.Question 7: As per section 206C(1 D) , tax is to be collected at source at the rate of 1% ifsale consideration received in cash exceeds 2 lakh rupees whereas as per section 206C(lF)tax is to be collected a1 source at the rate of I% of the sale consideration of a motor vehicleexceeding 10 lakh rupees. Whether TCS will be made under both sub-section( lD) and (IF)of the section 206C @ 2% ,wherepartofthepayment for purchase of motor vehicle exceeds2 lakh rupees in cash?••f.nswcr: Sub-section (1 F) of the section 206e of the Act provides for TeS at the rate of 1%on sale of motor vehicle of value exceeding 10 lakh rupees. This is irrespective of the modeof payment. Thus if the value cfmotor vehicle is 20 lakh rupees , out of which 51akh rupeeshas been paid in cash and balance amount by way of cheque, the tax shall be collected atsource at the rate of 1% on total sale consideration of 20 lakh rupees only under sub-section( I F) of section 206e of the Act. However, if a vehicle is sold for 8 lakh rupees and theconsideration is paid in cash, tax shall be collected at source at the rate of I% on 8 lakhrupees as per sub-section(l D) of section 206e of the Act.Lakshmi arayananUnder Secretary TPL-II1CBOTCopy To:•1. The Chairman, Members and officers of the eBDT of the rank of Under Secretaryand abovc.2. OSD to Revcnue Secretary3. All principal commissioners of Income-tax & all Director General of Income-tax withthe request to bring to notice of all officers.4. The Pr. Director General ofNADT, Nagpur5. The Pr. Director General of Systems, ARA, Jhandelwan Extension, ew Delhi6. The Pr. Director General ofYigilance,7. The ADG (PR ,PP&OL). Mayur Shawan, New Delhi for printing in the quarterly taxbulletin and for circulation as per mailing list.8. Comptroller and Auditor General of India.9. ADG (Systems) for uploading on ITO website.10. The Guard Fi le. ~~~Under Secretary TPL-IIICBOT•

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