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Government of India
Ministry of Finance
Department of Revenue
ntral Board of Direcl Taxes
(TPL Division )
Circular No 22/2016
Dated 8~, June 2016
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
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
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
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
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
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
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
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
Answer: The definition
of "Seller" as given in clause (c ) of the Explanation below sub
(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
is sold shall be liable for collection of tax at source on sale of motor vehicle by him.
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
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%
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
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.
Under Secretary TPL-II1
1. The Chairman , Members and office rs of the eBDT of the rank of Under Secretary
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
10. The Guard File .
Under Secretary TPL-III