Amendment in TCS U/S 206C(1D) of Income Tax Act,1961

Important Amendment U/S 206C (1D) Of Income Tax Act, 1961 - Effective from 01/06/2016.

Finance Bill, 2016 assented by President on May 14, 2016 has now become the Finance Act, 2016 (28/2016).

Recently, Section 206C has been amended by Finance act 2016 and it has now become an important provision since this section was having limited use before the amendment.

After amendment, this section is now at par with provisions relating to TDS as far as the usage is concerned.

The relevant amended provisions of section 206C are as follows:

“(1D) Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery  87[or any other goods (other than bullion or jewellery) or providing any service], shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration,—

(i) for bullion, exceeds two hundred thousand rupees; or

(ii) for jewellery, exceeds five hundred thousand rupees; or

[(iii) for any goods, other than those referred to in clauses (i) and (ii), or any service, exceeds two hundred thousand rupees:

Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B.]

[(1E) Nothing contained in sub-section (1D) in relation to sale of any goods (other than bullion or jewellery) or providing any service shall apply to such class of buyers who fulfil such conditions, as may be prescribed.

(1F) Every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding ten lakh rupees, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to one per cent of the sale consideration as income-tax. ”

Relevant Extract from the memorandum

Tax Collection at Source (TCS) on sale of vehicles; goods or services

[Clause 86]

 In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section 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 and sale in cash of any goods (other than bullion and jewellery), or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees. It is also proposed to provide that the sub-section (1D) relating to TCS in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfil such conditions as may be prescribed.                                                

Analysis of Above Amendment

The whole analysis and consideration is given to the amendment in clause (iii) of sub-section (1D) to section 206C relating to collection of TCS in case of sale in cash of any goods (other than bullion and jewellery), or providing of any services exceeding Rs.2 lakh.

Meaning

If the consideration (or any part of it-even a small sum of say Rs. 100) is received in Cash towards Sale of ANY Goods (other than bullion or jewellery where limit is Rs.2 Lakh & Rs. 5 Lakh respectively) or for Provision of any service against a Single Invoice exceeding Rs. 2 lakhs , then TCS @ 1% shall be collected , at the time of receipt of such amount in cash, from the Buyer or the Customer.

Further in case of sale of motor car exceeding Rs. 10 Lakh (either in cash or cheque) 1% TCS will be collected.

Gold jewellery and bullions were already covered since year 2012.

Time Limit for payment of collected TCS

Income tax Act: Sec 206C (3) states that any person collecting any amount under sub-section (1) or sub-section (1C) or sub-section (1D) shall pay within the prescribed time the amount so collected to the credit of the Central Government or as the Board directs.

Income tax Rules: Rule 37CA prescribes that Tax collected at source by collectors other than an office of the Government shall be paid to the credit of the Central Government within one week from the last day of the month in which the collection is made.

Rate of TCS applicable

The applicable rate of TCS for section 206C (1D) is 1%.
Surcharge will also be added as applicable.
However, Buyer can obtain lower TCS certificate from the A.O on making an application in form 13.

Exception to above (i.e. TCS not applicable)

TCS shall not be collected in 2 following cases (apart from non applicability where Bill amount is up to Rs. 2 lakh)

Proviso to sub-section (1D)

“No tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B”

Newly added sub-section (1E)

“Nothing contained in sub-section (1D) in relation to sale of any goods (other than bullion or jewellery) or providing any service shall apply to such class of buyers who fulfil such conditions, as may be prescribed”

Usage of the provision of the section 206C (1D)

After amendment in section 206C (1D) by Finance act 2016, this section has been made at par with the provisions relating to TDS in chapter XVII –B.

The provisions of this section shall be applicable in the following situations provided cash is received again consideration (either in full or in part):

1. Where no TDS provision is available in the law for the transaction.
2. Where TDS provision is available in the law for the transaction but TDS is not deductible as per such provision applicable to the transaction.
3. Where TDS provision is available in the law for the transaction but TDS is not deducted as per such provision applicable to the transaction.

What if amount Deposited directly to bank               

If a customer directly deposits cash in seller’s bank account, whether it will be treated as cash received by seller and liable for TCS?

Yes, it will be covered as cash transaction and TCS shall apply

One must prefer to accept the amount through Cheque/ DD/ RTGS/ NEFT (any mode other than cash)

Examples on TCS

Mr. A purchases goods from distributor for Rs. 8.00 Lac on 10.06.2016 out of which, Payment of Rs. 795000/- has been made by Cheque/RTGS on 11.06.2016.
Balance 5000/- has been paid in Cash on 12.06.2016.
Please note that Seller has to collect TCS @ 1% on Rs. 800000/- (i.e. Rs. 8000/-).
Therefore, the seller is liable to collect Rs. 8, 08,000 from the buyer in total.

If the seller does not collect TCS from the buyer, then he shall be deemed to be assessee in default for not collecting TCS.

It should be noted that no TDS provision is available in case of sale of goods and TCS will only apply in this case provided limit is satisfied.

Mr. B, a GTA owning 5 good carriage provides service in relation to transportation of goods on which TDS is not deductible u/s 194C owing to sub-section (6) for Rs. 3 Lakh out of which  Rs. 2 lakh is paid in cash, then  TCS shall be applicable and TCS shall be Rs. 3000 (i.e. 3 lakh @1% ).

TDS is not applicable in case of GTA having up to 10 goods carriage (section 194C (6))

It should be noted that in case where TDS provision is available in law but is not attracted to the transaction, then also TCS provision shall be applicable since the exemption from TCS is available where  “tax has been deducted by the payer under Chapter XVII-B”

C Ltd provides professional service of Rs. 3 lakh where TDS is deductible u/s 194J but it is not deducted by the service receiver and Rs. 3 lakh is received in cash ,then  in this case, TCS provision is attracted and C ltd should receive Rs. 3000 extra as TCS.

In this case, the service receiver shall be deemed to be assessee in default for not deducting TDS.

However, SR may be relieved from being assessee in default if C ltd follows the provisions of 1st proviso to section 201(1).But if the seller fails to collect TCS of Rs. 3000, thenhe shall pay TCS on his own to govt. Moreover, he shall be deemed assessee in default for TCS and above facility shall not be available in case of TCS.

It should be noted that in case where TDS provision is available in law but TDS has not been deducted, then also TCS provision shall be applicable since the exemption from TCS is available where “tax has been deducted by the payer under Chapter XVII-B.”

Option to obtain lower TCS certificate

According to section 206C (9) read with Rule 37G, Buyer can obtain lower TCS certificate from the A.O on making an application in form 13.

Credit of TCS collected by seller from buyer in the name of buyer

According to section 206C (4) ,TCS collected and paid to the credit of the Central Government shall be deemed to be a payment of tax on behalf of buyer and credit shall be given to such person for the amount so collected in a particular assessment year .

Importance of above Limits

The limit for applicability of TCS is as follows:

1. Bullion (exceeding Rs. 2 Lakhs),
2. Jewellery (exceeding Rs. 5 Lakhs), or
3. Any other goods or any service (Exceeding Rs. 2 Lakhs)
4. sale of motor vehicle of value exceeding Rs. 10 Lakhs (in cash or cheque)

In case of (iii) above,

If payment consideration (or any part of it) is received in cash of sale of ANY goods/ provision of any service whose consideration exceeds Rs. 2. Lakh, then TCS @ 1% should be collected.

If single party is having multiple bills each less than 2 Lakh, then any amount collected in cash will not be liable to TCS. It is applicable on transaction basis on Single Bill exceeding Rs. 2 lakh.

It means no cash payment to be made even in part against Single Bill exceeding Rs. 2 Lakh, otherwise Seller to collect TCS Or clients better to prefer each bill below Rs. 2 Lakhs.

It may be noted that the limit of Rs. 2 Lakh is more than the limit applicable in case of TDS in respect of goods & services. Therefore, if TDS has not been deducted, then TCS provisions will be applicable provided cash is received (either in full or in part) against consideration.

In all cases of sale of goods, TCS provisions will be applicable in all cases provided consideration is exceeding Rs. 2 lakh and cash is received.

In case of Provision of service, TCS provisions will be applicable if all the conditions are satisfied:

• Where no TDS has been deducted or where TDS is not applicable.
• Consideration is exceeding Rs. 2 lakh.
• Cash has been received (either in full or in part).

The obligation regarding the collection of tax can be avoided by splitting of the bill so that the amount does not exceed the specified limit. This planning can be done in view of the fact that sub section (1D) does not refer to aggregate receipt from buyer.

Effect of this provision on business Finance & Compliance

This new provision is going to seriously affect business cash transactions.

This provision mandates that it is the liability of the seller /collector or the service provider to collect TCS @ 1% from the buyer or the service receiver.

In case the seller or SP fails to collect TCS, then the seller shall be deemed to be assessee in default.

Therefore, a policy or a checkpoint should be in place to ensure that no cash is received and where it is anticipated that cash is receivable against transaction after issuance of invoice, then TCS should be collected before hand to avoid hardship and paying TCS from own pocket.

Buyer & Seller- Definition

Definition of buyer and seller was already there in the section.

“Seller”

means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a HUF whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods or services of the nature specified in the Table in sub-section (1D) are sold or are provided].

It means that if seller is state and central government department, any company, firm or individual or HUF liable to Tax Audit i.e. person whose turnover

• Exceeds Rs. 1 Crores (PY 15-16 & onwards) for business and,
• Exceeds Rs. 25 Lakhs/ Rs. 50 Lakh for PY 15-16 & PY 16-17(& onwards) respectively.

in FY preceding the FY in which the goods are sold/ services are provided , then they are liable to collect TCS.

Therefore, a patient making payment to any hospital is also covered in this rule. Even government hospital is also liable to collect TCS from patients.

"Buyer" with respect to—

(i)........

(ii) Sub-section (1D) or sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section;

This Rule will be applicable irrespective of the fact whether the buyer is a manufacturer, trader or the purchase is for personal use.

Therefore goods purchased by end use consumers are also covered under TCS.

However, the purchaser can obtain a lower TCS certificate by submitting Form No. 13 to the Assessing Officer.

Furnishing of Quarterly TCS Statement by Seller after payment

According to proviso to section 206C(3) read with Rule 31AA ,seller or TCS collector shall furnish a Quarterly TCS statement in form 27EQ by the due date specified in the Table below :—

Therefore, Quarterly TCS statement in form 27EQ shall be required to be filed on or before 15th July, 15th Oct., 15th Jan or 15th May, as the case may be.

Furnishing of TCS Certificate by the collector/Seller to Buyer

According to section 206C (5) read with Rule 37D, TCS certificate in form 27D shall be furnished to the Collectee /buyer within fifteen days from the due date for furnishing the quarterly statement of tax collected at source specified under sub-rule (2) of rule 31AA.

Therefore, TCS certificate shall be furnished to the collectee or buyer on or before 30th June, 30th Oct., 30th Jan or 30th May, as the case may be, according to the quarter.

Case Law for Reference

Where in case, assessee had not collected tax u/s 206C from buyer, it was held that before proceeding against assessee, it is necessary to find out whether buyer had paid tax in accordance with the provisions of the act and only in event buyer has not paid tax, then the authorities can proceed against assessee, who was under obligation to collect tax and remit to Govt. -Shri Manjunath Wines v. CIT (2011) 202 Taxman 620 (Kar.)

Consequences in case of failure to collect TCS or after collection fail to pay to govt.

According to section 206C(6),any person responsible for collecting the tax (i.e. seller or Service provider) who fails to collect TCS in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government within the specified time limit for payment of TCS.

 Moreover, section 206C (6A) states that If any seller or Service provider does not collect the whole or any part of the tax or after collecting, fails to pay the tax as required by or under this Act, then he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax.

In case of such default, then such seller or service provider shall be liable to pay simple interest @1% P.M or part of the month on the amount of defaulted TCS from the date on which such tax was collectible to the date on which the tax was actually paid and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3).

Important:

The Facility of not to be treated as Assessee in Default due to failure to make TCS on furnishing of ROI, payment of due taxes etc. by the concerned buyer and furnishing of certificate in form 27BA by defaulter is not available to persons referred to in section 206C (1D) since it specifically excludes (1D) from the proviso to sub-section (6A)