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TCS SEC 206 (1C)

This query is : Resolved 

one of my client who is State Govt. Dept. has given quarry on lease for extractions of minerals etc...and in contract there are number of terms and conditions and one such conditions is if the lessee violates any conditions, the lesser will impose penalty on lessee...Do i have to collect TCS under section 206 (1C) imposed on lessee who have been caught in illegal mining and quarrying in other words is TCS applicable on penalty on defaulters kindly guide us with ur expert opinion

NO, Because Sec 206(1C) mandates the collection of TCS on lease charges collected against the right of use given to the lessee. The penalty imposed is due to a violation of the terms and conditions of the contract. In the case of a penalty, Lessee is not enjoying any right, It is just a fine for not fulfilling the terms and conditions of the contract. Hence TCS provision will not be applicable on Penalty charges.

but section 206 (1C) mandates that at the time of debiting of the amount payable by the licensee or lessee to the account of the licensee or lessee or at the time of receipt of such amount from the licensee or lessee in case or by the issue of a cheque or draft or by any other mode, whichever is earlier...
when we impose penalty on the lessee, we will either debit lessee's account or receive such amount from lessee...whether TCS will be deducted as it is in continuation of the contract??????

Good Question
But if you consider the TDS Provision probably you will get the answer.
For Example. Mr. X gets a bill of Rs. 50,000 from a professional (let's say a bill of a CA) and the is bill is drafted as Rs. 40000 towards Professional charges and Rs. 10,000 as reimbursement of expenses. We will ignore the GST for the time being. In that case, Sec 194 J says TDS has to be deducted at the time of credit of sum to the account of payee or payment, whichever is earlier. Now the accounting entry will be
Professional Charges Dr. Rs. 50,000
Professional Charges Payable Cr. 46,0000
Tax Deducted at Source Cr. 4,000

In the above case, we did not deduct TDS on the full amount payable, but only on Professional Charges. We ignored the TDS provision on Travelling charges Re-imbursed.

In the same way, Tax has to be collected at source on Lease payment received not on all the sum which is receivable from Lessee.


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