Section 206C of Income Tax Act
- Section 206C requires sellers to collect Tax Collected at Source (TCS) from buyers when selling specified goods.
- TCS applies to goods like liquor, minerals, and motor vehicles sold above certain price limits, but not when goods are for personal use or by exempt entities.
- Sellers responsible for collecting TCS include governments, companies, and individuals in specified businesses.
- The TCS rate varies by goods type, with higher rates if the buyer doesn't provide PAN or Aadhaar.
- Sellers must issue a TCS certificate to buyers and file quarterly returns, with penalties for non-compliance.
The Section 206C of Income Tax Act deals with Tax Collected at Source (TCS). Under this provision, sellers are required to collect tax from buyers at the time of sale of certain specified goods or while receiving payments under specific transactions. The purpose is to ensure smooth tax collection at the source itself and widen the tax base.
Experience the power of Expert Accounting
Join our guided walkthrough to see how BUSY can transform your business operations.
What is the Section 206C Tax Collected at Source (TCS)?
TCS is the tax collected by the seller from the buyer at the time of sale of specified goods. Instead of the buyer paying tax later, the seller collects it upfront and deposits it with the government.
Applicability of Section 206C
Applicability of TCS on Sale of Goods
TCS applies to specific transactions such as:
- Sale of liquor, scrap, tendu leaves, minerals (coal, iron ore, lignite)
- Sale of motor vehicles exceeding ₹10 lakh
- Sale of goods above the threshold limit (introduced for wider applicability in finance amendments)
When TCS Does Not Apply / Non-Applicability of TCS
- If the buyer provides a declaration of using goods for personal consumption.
- Certain government bodies and public sector companies are exempt.
- Goods not covered under Section 206C provisions.
Classification of Sellers for TCS
Sellers who must collect TCS include:
- Central and state governments
- Local authorities
- Statutory corporations
- Companies, firms, cooperative societies, individuals, and HUFs engaged in specified businesses
Classification of Buyers for TCS
Buyers are generally anyone who purchases the specified goods, except:
- Public sector undertakings
- Central/state governments
- Embassy, High Commission, Consulates
- Other notified organizations exempted from TCS
TCS Rates Applicable under Section 206C
The rate of TCS depends on the type of goods sold. For example:
- Alcoholic liquor: 1%
- Tendu leaves: 5%
- Timber/forest produce: 2.5%
- Scrap: 1%
- Sale of motor vehicle above ₹10 lakh: 1%
- Sale of goods (over ₹50 lakh in a year): 0.1%
When Will a Higher Rate of TCS Apply?
If the buyer does not furnish PAN or Aadhaar, TCS will be collected at a higher rate of 5% or twice the prescribed rate, whichever is higher.
Goods Covered under TCS Provisions and Applicable Tax Rates
Section 206C lists several goods such as liquor, tendu leaves, timber, scrap, minerals, and luxury motor vehicles. The rate varies for each category and is updated through Finance Acts.
Who is Responsible for Collecting TCS Under Section 206C?
The seller of specified goods is responsible for collecting TCS from the buyer and depositing it with the Income Tax Department within the prescribed due dates.
Threshold Limits Under Section 206C
- For general goods transactions, TCS applies when sales exceed ₹50 lakh in a financial year per buyer.
- For motor vehicles, TCS applies to sales above ₹10 lakh per vehicle.
TCS Certificate
After collecting TCS, the seller must issue a TCS certificate (Form 27D) to the buyer, which acts as proof of tax collection.
Section 206C Revisions
Over the years, Finance Acts have widened the scope of TCS by including new goods such as overseas remittances, foreign tour packages, and sale of goods above a certain limit.
TCS Payments and Returns
- TCS collected must be deposited within 7 days from the end of the month in which it is collected.
- Sellers must file quarterly TCS returns in Form 27EQ .
Cases of TCS Exemption
- TCS is not applicable when the buyer declares that the goods are for manufacturing, processing, or personal consumption.
- Specific government authorities are exempt.
Penalties and Consequences for Non-Compliance
- Interest at 1% per month on delayed deposit.
- Penalties equal to the amount of TCS not collected.
- Prosecution in severe cases.
List of Forms to Submit under Section 206C
- Form 27C – Buyer’s declaration for exemption.
- Form 27D – TCS certificate issued by seller.
- Form 27EQ – Quarterly TCS return filed by seller.
How TDS is Different from TCS?
TDS (Tax Deducted at Source): Deducted when making specific payments such as salary, rent, or professional fees.
TCS (Tax Collected at Source): Collected by the seller while selling specified goods.
In short, TDS is deducted from income while TCS is collected on sale of goods.
Conclusion
Section 206C of the Income Tax Act ensures that tax is collected upfront on specified goods and services. It applies to sellers who must collect TCS at prescribed rates and deposit it with the government. Correct classification of transactions, timely filing of returns, and issuing TCS certificates help businesses remain compliant and avoid penalties.
