Circular for clarification on amendment in section 206C

F.No 370142/17/2016-TI'L Government of India Ministry of Finance Department of Revenue Ce ntral Board of Direcl Taxes (TPL Division ) ... Circular No 22/2016 Dated 8~, June 2016 S ub: Amendment in Section 206C vide Finance Act 2016 -Clarifications regarding Section 206C of the Income-tax Act, 1961 (hereafter referred to as 'Act'), prior to amendment by Finance Act,20 16 . provided that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items su ch as alcoholic liquor [or human consumption , tender leaves, mineral being coal or lignite or iron orc etc. It also p rovided for collection of tax at sourc e at the rate of one per cent on sale in cash of bullion exceeding 21akh rupees andjewcllery exceeding Siakh rupees. In order to reduce the cash transactions in sale of goo ds and services, Finance Act 2016 has expanded the scope of section 206C (I D) to provide that the seller shall collect tax at the rate of one per cent from the purchaser on sale in cash of any goods (other than bullion and jewellery) or providing of any services (other than payment on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees. So far as sale of Jewellery and bullion is concerned, the provisions of sub-sec tion (1 D ) of sect ion 206C prior to it s amendment by the Finance Act,2016 sha ll continue to apply . Further , with a view to bring high value transactions within the tax net, it has been provided in sub- sec tion (1 F) of section 206C of the Act that the seller who receives consideratio n for sa le of a moto r vehicle exceeding ten lakh rupees , sha ll collect one per cent of the sale consideration as tax from the buyer. Any person who obtains in any sale, the goods of the nature specified in sub-section ( I D ) or (1 F) of sect ion 206C is a buyer. The seller for the purpo ses of collectio n of lax under se ction 206C shall be - • (i) A Central Government or a state Government, (ii) Any loca l authority , or corporation or authority established under any Cent ral, State or P rovincial Act, (iii) Any compan y, firm or cooperative society , • (iv) An individual or Hindu undivided family who is liable to audit as per provi sion s of section 44AB during the financial year immediately preceding the financial y ear in which the goods are sold or the service s arc provided. The amendments brought in secti on 206C by Finance Act, 2016 ar e applicable form lSI June 2016. In this regard a number of queries have been received about the scop e of the provisions and the procedure to be followed. The board has co nsidered the same and decided to clarify the points raised by issue of a circular in the form of questions and answe rs as follows: Question I: Whether tax collection at source ('TCS') at th e rate of 1 % is on sale of Motor Vehicle at retail level or also on sale of motor vehicles by manufacturers to dealer s/distributors , Answcr: To bring high value transactions within the tax net, sect ion 2 06C o f the Act has been amended to provide that the selle r sh a ll 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, This is .. broug ht to cover all transaction s of retail sales and accordingly it will not apply on sale of motor vehicles by manufacturer s to dealers/distributor s, Question 2: Wheth er TCS at the rate of 1 % is on sale of Motor Vehicle is applicable only to Luxury Cars? Answcr: No, As per sub section (I F) of Section 206C of the Act the seller shall collect the tax at the rate of one per cent from the purchaser on sale of any motor vehicle of the value exceed ing ten la kh rupees, Question 3: Whether 'T C S allhe rate of 1 % is applic able in the case of sale to Governmen t Department s, Embassies , Consu lates and United Natio n Institutions for sale of motor vehicle or any other goods or provi sion of se rvices ? Answer: Government , in st itutions notified under United Nations ( Privileges and Immunitie s) Act 1947 , and Embassies , Consulates , High Commi ssion , Legation , Commiss io n and trade representation ofa foreign State and shall not be liable to levy ofTCS at the rate of 1 % under sub-sect io n (1 D) and (I F) of section 206 C of the Act. • • Question 4: Whether TCS is applicable on each sale of motor vehicle or on aggregate value of sale during the year? Answer: Tax is to be collected at sou rce at the rate of 1 % on sale consideration of a motor vehicle exceeding ten lakh rupees. It is applicable to each sale and not to aggregate value of sale made during the year. This can be explained by way of an illustration: Illustration: Motor vehicle worth 20 lakh is sold and for which payments arc made in instalmen ts, one at the time of booking and the other at the time of delivery. At the time of booking 5 lakh rupees are paid and 15 lakh rupees are paid at the time of delivery. Tax at the rate of 1 % on 5 lakh rupees at the time of booking and at the rate of I % on remaining 15 lakh rupees at the time of delive ry shall be collecte d at source. Simi lar will be the position with regard to collection of tax at source under sub-section (1 D) of section 206C. Question 5: whether TCS at the rate of 1 % on sale of motor vehicle is applicab le in case of an individual? Answer: The definition of "Seller" as given in clause (c ) of the Explanation below sub­ sect ion (II) of sect ion 206C shall be applicable in the case of sale of motor vehicles also Accordingly, an indiv idual who is liable to audit as per the provisions of section 44AB of the Act during the financial year immediately preceding the financial year in which the motor vehicle is sold shall be liable for collection of tax at source on sale of motor vehicle by him. Question 6: I - low would the provisions of TCS on sale of motor vehicle be applicable in a case where part of the payment is made in cas h and part is made by cheque? Answer: The provisions of TCS on sale of motor vehicle exceeding ten lakh rupees is not dependent on mode of payment. Any sale of Motor Vehicle exceeding ten lakh would attract TCS at the rate of 1%. Question 7: As per sectio n 206C(1 D) , tax is to be co llected at source at the rate of 1 % if sale consideration received in cash exceeds 2 lakh rupees whereas as per section 206C(lF) tax is to be collected a1 source at the rate of I % of the sale consideration of a motor vehicle exceeding 10 lakh rupees. Whether TCS will be made under both sub-sectio n(lD) and (IF) of the section 206C@2% ,wherepartofthepayment for purchase of motor vehicle exceeds 2 lakh rupees in cash? • • f.nswcr: Sub-section (1 F) of the section 206e of the Act provides for TeS at the rate of 1% on sale of motor vehicle of value exceeding 10 lakh rupees. This is irrespective of the mode of payment. Thus if the value cfmotor vehicle is 20 lakh rupees , out of which 51akh rupees has been paid in cash and balance amount by way of cheque, the tax shall be collected at sou rce at the rate of 1 % on total sale consideration of 20 lakh rupees only under sub-section ( I F) of section 206e of the Act. However , if a vehicle is sold for 8 lakh rupees and the consideration is paid in cash , tax shall be collected at source at the rate of I % on 8 lakh rupees as per sub-section(l D) of section 206e of the Act. Lakshmi arayanan Under Secretary TPL-II1 CBOT Copy To: • 1. The Chairman , Members and office rs of the eBDT of the rank of Under Secretary and abovc. 2. OSD to Revcnue Secretary 3. All principal commissioners of Income-tax & all Director General of Income-ta x with the request to bring to notice of all office rs . 4. The Pr. Director General ofNADT, Nagpur 5. The Pr. Director General of Systems, ARA, Jhandelwan Extension, ew Delhi 6. The Pr. Director General ofYigilance, 7. The ADG (PR ,PP&OL ). Mayur Shawan, New Delhi for printing in the quarterly tax bulletin and for circulation as per mailing list. 8. Comptroller and Auditor General of India. 9 . ADG (Systems) for uploading on ITO website. 10. The Guard File . ~~~ Under Secretary TPL-III CBOT •