Section 206C of the Income Tax Act

The Income Tax Act of India, 1961, has numerous sections outlining the provisions for deduction and tax payment under various conditions. Complying with these sections is essential because non-compliance can result in penalties.

One such essential section is Section 206C of the Income Tax Act. This section stipulates the provisions on Tax Collected at Source (TCS). To learn more about this section, read on.

Section 206C of the Income Tax Act outlines when a seller can collect taxes from a buyer. The section also stipulates the rate and conditions under which a seller can collect tax for selling goods of various kinds. 

A critical condition a seller must meet to collect TCS under Section 206C is that the goods sold to a buyer should be above ₹50 Lakhs. Subsequently, for a seller to collect TCS, their turnover in the year previous to when the sale took place should be above ₹10 Crores.

According to Section 206C, a seller means:

• Central or State Government

• Corporation

• A company or a firm

• Individuals / HUFs with turnover exceeding the stipulated limit

• Co-operative society

• Authority established by/ under the Provincial, State, or Central Act

A seller can collect TCS under Section 206C only for certain goods, not all. Here’s a list of goods for which a seller can collect TCS:

• Alcoholic liquor for human consumption

• Timber from forest lease or other modes

• Scrap

• Tendu leaves

• Minerals (iron ore, lignite, coal)

• Motor cars with a value above ₹10 Lakhs

• Tour package for an overseas program

• Forest produce (except tendu leaves and timber)

• Toll plaza, parking lot, quarrying, mining

Different goods attract a different rate of TCS deduction, as mentioned in Sec 206C of the Income Tax Act. Given below is a tabular overview of the different rates at which sellers can collect TCS:

It is important to note that the above rates may change with any amendments. You can check the rates of TCS under Section 206C on the official Income Tax website.

Like most sections of the Income Tax Act, Section 206C also has some exemptions under which a seller cannot collect tax at source. These exemptions include the following:

• If goods purchased are for personal use, then the purchase is exempt from TCS

• Buyers are not liable to pay TCS if goods bought are for manufacturing, processing, or producing instead of trading it

• Transactions in renewable energy and electricity sectors are not subject to TCS 

While collecting the tax at source is the first step of complying with the provisions under section 206C, ensuring that you deposit the same on time is the next. 

According to the Income Tax Act, a seller should deposit the TCS collected under Section 206C within seven days of the month end in which it was collected. Along with depositing the collected tax on time, filing the return on time is essential. 

Given below is a table with the due dates for filing TCS returns for every quarter:

If the seller fails to collect taxes per Section 206C, they may be subjected to the following penalties:

• Interest at a rate of 1% on the tax amount from the date of collection to the date of payment

• Penalty as per Section 271CA/271H which may be equal to the payment amount, ₹10,000 or ₹1 Lakh

• Prosecution under Section 276BB, where the seller may face imprisonment for three months or 7 years with a fine

Numerous sections, including Section 206C of the Income Tax Act, are amended occasionally. Staying updated with these amendments helps you comply with the sections of the Income Tax Act. 

Be sure to file your returns accurately and on time, so you do not have to pay penalties. Stay updated with the latest information on Bajaj Markets.