Section 206C of the Income Tax Act deals with Tax Collection at Source (TCS) levied by sellers on the purchase of certain goods. This section deals with the profits related to alcohol, forest produce, scrap, minerals, etc.

 

This is a certain percentage of tax that sellers collect from buyers at the time of payment and then deposit the TCS to the government. 

 

Read on to know the applicability, limits and exemptions of this section.

Section 206C Applicability

Here are the goods and services on which sellers are liable to collect TCS, along with their respective rates:

Type of Goods/Services

TCS Rate

Alcohol meant for consumption

1%

Tendu leaves

5%

Timber obtained from a forest that is under lease

2.50%

Timber obtained from other sources 

2.50%

Forest products other than timber or tendu leaves

2.50%

Minerals including lignite, iron ore or coal

1%

Motor vehicles costing more than ₹10 Lakhs

1%

Scrap

1%

Parking lot, toll plaza, mining, quarrying 

2%

Return and Payment of TCS

Here are the regulations regarding payment and return of Tax Collected at Source (TCS):

  • A seller or service provider is liable to deposit TCS within 7 days from a specific month’s last day on which the tax was collected

  • A penalty interest of 1% each month or for a part of a month levied if the tax is not collected

  • Indian Government offices collecting TCS u/s 206C need to deposit the amount mandatorily on the same day

  • Non-payment also attracts a penalty u/s 271CA of the Act, which is equal to the TCS amount, and imprisonment of up to 7 years u/s 276BB of the Act

  • A seller or service provider needs to file for quarterly TCS returns via Form 27EQ

Buyers and Sellers for TCS Payment and Collection

A buyer is an individual who purchases goods or obtains certain goods through auction, tender or other modes. However, here are some buyers who are exempted from paying TCS under this section:

  • Central Government

  • State Government

  • Public sector companies

  • Embassy of High Commission

  • Consulate and other Trade Representatives of a foreign country

  • Clubs, including social clubs and sports clubs

 

Here are the sellers or service providers that are liable to collect TCS:

  • State Government

  • Central Government

  • Statutory corporation or authority

  • Local authority

  • Companies registered under the Companies Act

  • Co-operative society

  • Partnership firms

  • HUFs or individuals subject to audit of accounts for a particular financial year under  the Income Tax Act

Section 206C Limit

Here are some of the limits of thai section:

  • The seller is liable to collect TCS when receiving payments above ₹50 Lakhs in a financial year

  • Sellers with a turnover of over ₹10 Crores in the previous year need to collect TCS for certain payments

  • The seller can be an individual or HUF with turnover above limits specified under Section 44AB

  • Under Section 44AB, anyone earning income above ₹50 Lakhs from a profession or ₹5 Crores from a business is liable to get their books of accounts audited

  • Sellers need to deduct TCS at a rate of 0.075% from buyers for receiving consideration above ₹50 Lakhs in a fiscal year

 

These limits are based on the following conditions:

  • If the cash payment is lower than 5% of total payments

  • If the cash receipts are lower than 5% of total receipts

Exemptions Under Section 206C

Buyers do not need to pay tax under Section 206C in the following circumstances:

  • If buyers are purchasing goods for their personal consumption

  • If buyers are purchasing goods for processing, manufacturing or production instead of employing them in trading activities

Forms Required to be Submitted Under Section 206C

Here are the various forms that taxpayers need to file:

  • Form 27EQ: This form is a quarterly statement with relevant details about TCS deduction, and all deductors need to mandatorily submit this form whether or not tax is collected

  • Form 27C: Buyers have to submit a declaration through Form 27C to the seller at the time of payment, and the seller has to submit this when depositing TCS

  • Form 13: Buyers need to submit this form to the seller to avail of TCS deduction at lower rates 

  • Form 3CA: Taxpayers with an income from business or profession whose books of accounts need to be audited have to file this form

  • Form 3CB: Taxpayers engaged in business or profession who do not require audits have to file this form 

  • Form 3CD: Auditors provide a declaration on the audit process u/s 44AB through this form

  • Form 3CE: NRIs and foreign companies need to file this form

Amendments in Section 206C

Here are the amendments under 206C(1H) of the Income Tax Act:

  • Section 206C is not applicable to the export and import of goods

  • Sellers do not need to deduct TCS in case the buyer has already deducted it

  • Only businesses with a turnover of ₹5 Crores require income tax audits

  • Sellers with a gross turnover of more than ₹10 Crores in the previous year must deduct TCS at a 1% rate 

  • This is applicable in case the value of goods sold is above ₹50 Lakhs 

  • The rates u/s 206C will be doubled or charged at 5% in case of non-compliance

TCS Certificate

Tax collectors need to mandatorily furnish TCS returns on a quarterly basis through Form 27EQ online to CPC-TDS before the due date. The late filing fee is ₹200 per day in case of delay in providing quarterly TCS returns. 

 

They need to provide a TCS certificate in Form 27D to the buyer. Here are the due dates for providing quarterly TCS returns and issuing TCS certificates for each financial year:

Quarter Ending

Due Date for Filing Return

Due Date to Generate Form 27D

June 30

July 15

July 30

September 30

October 15

October 30

December 31

January 15

January 30

March 31

May 15 of the FY following the FY in which the TCS was collected

May 30

With this information in hand, sellers of goods and services can ensure tax compliance under Section 206C of the Income Tax Act. Depositing the TCS to the tax authorities within the respective due dates is essential to avoid penalties. You can get more details on various income tax sections on Bajaj Markets.

FAQs FAQs on Section 206C of the Income Tax Act, 1961

What is Section 206C?

Section 206C of the Income Tax Act deals with Tax Collected at Source (TCS) by sellers from certain buyers on purchasing goods and services. The seller collects the tax at the time of payment and deposits it to the government within the respective due date.

What is the TCS limit under Section 206C?

Under Section 206C, the seller is liable to collect TCS on receiving payments above ₹50 Lakhs in a financial year. The sellers must also have a turnover of over ₹10 Crores in the previous year to collect TCS for certain payments.

Can a buyer apply for a lower TCS rate?

Yes, a buyer can apply to the Assessing Officer for a lower rate using Form 13, in case the Assessing Officer is convinced that the income of the buyer justifies the lower TCS rate.

Is the TCS collected from a buyer inclusive of GST?

Yes, the TCS collected from a buyer for goods and services mentioned under Section 206C must include GST.

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