Tax Collected at Source (TCS): Bringing expensive transactions under tax net

By: | Updated: July 12, 2016 8:51 AM

In order to reduce the quantum of cash transaction in any goods and services, the Finance Act 2016 expanded the scope of section 206C to provide that a seller shall collect tax at the rate of 1% from the purchaser on sale in cash of any goods (other than bullion and jewellery) or providing of any services exceeding Rs 2 lakh.

Tax collected at source (TCS) on sale of motor vehicles exceeding Rs 10 lakh is applicable irrespective of the mode of payment i.e., cash or cheque.(Reuters)Tax collected at source (TCS) on sale of motor vehicles exceeding Rs 10 lakh is applicable irrespective of the mode of payment i.e., cash or cheque.(Reuters)

In order to reduce the quantum of cash transaction in any goods and services, the Finance Act 2016 expanded the scope of section 206C to provide that a seller shall collect tax at the rate of 1% from the purchaser on sale in cash of any goods (other than bullion and jewellery) or providing of any services exceeding Rs 2 lakh.

Further, with a view to bring high value transactions within the tax net, it was provided that the seller who receives consideration for sale of a motor vehicle over

R10 lakh, shall collect 1% of the sale consideration as tax from the buyer.

The amendments to section 206C raised a lot of queries regarding its applicability and the procedure to be followed. In order to nip the issue in the bud and to ensure that the speculations do not lead to another set of litigation, CBDT has rightly clarified the contentious issues. Putting to rest the numerous questions arising in the minds of those impacted by the provision of section 206C, CBDT has issued two set of FAQs answering the practical difficulties.

Let us understand the applicability of TCS under various scenarios.

Applicability of TCS on sale of motor vehicle Tax collected at source (TCS) on sale of motor vehicles exceeding Rs 10 lakh is applicable irrespective of the mode of payment i.e., cash or cheque.

Is the manufacturer liable to charge TCS?

Manufacturers selling motor vehicle to dealers/distributors need not charge TCS, since it is applicable only at retail level. Also it is pertinent to note that TCS is applicable to sale of any motor vehicle not limited only to luxury cars, i.e. it is applicable to luxury bikes also.

Can TCS be avoided if the payment is split?

TCS applicability is based on each sale of motor vehicle and not on aggregate value of sales made during the year. Hence if a motor vehicle worth R20 lakh is sold for which payments are made in instalments, R5 lakh paid at the time of booking and

R15 lakh paid at the time of delivery. Tax at the rate of 1% on R5 lakh at the time of booking and at the rate of 1 % on remaining R15 lakh at the time of delivery shall be collected at source.

Is an individual liable to charge TCS?

It was also being speculated that even an individual selling his car shall be liable to collect tax at source, hence it was clarified that only those individual or HUF who was liable to tax audit during the preceding financial year shall be liable to charge TCS.

What if the money has not been paid yet?

The sellers need to make a note that tax has to be collected at the time of debiting the amount payable to the buyer or at the time of receipt of payment, whichever is earlier, hence even if the actual payment has not been made, but an entry has been made in the books of accounts, the seller shall be liable to collect and deposit the same with the government.

The writer is executive director, Nangia & Co

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