Section 206C of Income Tax Act

A seller of goods and services might be aware of Tax Collection at Source (TCS). If so, they might also be aware of 206C. 

Section 206C of the Income Tax Act can help an individual understand everything about TCS. As per Section 206c, TCS may be levied on specific goods and services such as alcohol (for the purpose of consumption), tendu leaves, timber (obtained from the forest that is under lease or other sources), other forest products, scrap, motor vehicles above ₹ ten lacs, toll plaza, parking lot, excavation, mining, quarrying and minerals such as iron ore, lignite, and coal. 

Let us discuss the nitty gritty of TCS under 206C of the Income Tax Act. 

What is TCS under Section 206C?

Just like Tax Deduction at Source (TDS), there is Tax Collection at Source (TCS). TCS 206C or Section 206C TCS provisions help the Government of India (GoI) obtain revenue from high-value transactions as soon as possible. 

While the seller files and deposits the TCS amount on behalf of the payment made by the buyer, the buyer can claim the credit for their paid TCS while filing their Income Tax Returns. The seller is mandated to deposit the collected TCS with the government and file returns on a quarterly basis. 

How are sellers classified under Sec 206C of the Income Tax Act?

To deposit TCS, the seller has to submit challan 281. The seller has to submit it within seven days of the month-end of the sale under consideration. The seller can follow the applicable TCS deposit process on a monthly basis. However, not all sellers are allowed to collect TCS. 

Organisations and individuals classified as sellers for TCS can be any person or Hindu Undivided Family (HUF) subject-to-accounts audit under the Income Tax Act, companies registered under the Companies Act, partnership firms statutory authorities or corporates, central and state government, local authorities and co-operative society. 

How are buyers classified under TCS Section 206C?

All buyers are liable to pay TCS except central, state and local authorities, Public Sector Undertakings (PSUs) and Public Sector Enterprises (PSEs), high commission embassy, a foreign country’s consulate or other trade representatives, sports clubs, social clubs, and purchasers of manufacturing and production of power generating articles who has presented a written declaration. 

What are the important subsections of 206C of the Income Tax Act?

Section 206c 1H

206C(1H) of Income Tax Act provisions are only applicable to certain sellers. TCS 206C 1H is for sellers with more than ₹10 crores of gross turnover during the financial year preceding the financial year under consideration. 

206C(1H) excludes specific goods and exports under 206C(1), 206C(1F) and 206C(1G). Section 206C 1H of the Income Tax Act also excludes buyers that are excluded under 206C TCS. The Section 206C(1H) also does not apply to the goods imported to India. 

Section 206c 1G

Unlike Section 206C(1H) of the Income Tax Act, Section 206C(1G) applies to outward remittance under the Liberalised Remittance System (LRS). Under 206C 1G of the Income Tax Act, a five per cent TCS rate can apply to foreign remittances through LRS. 

Who is liable to pay a higher TCS rate under Section 206C of the Income Tax Act?

Since it is 206C TCS and not 206C TDS, the tax collected by the seller will be higher for buyers under the following criteria:

1. Not filed ITR for the preceding two years: A higher TCS rate may apply if the buyer has not filed Income Tax Returns (ITR) for the preceding two-year period before the TCS collection year. 
2. TDS and TCS exceeding ₹50,000: If, for each year of the previous two years, the TDS and TCS total amount exceeds ₹50,000, higher TCS rate liability may apply.
3. Expiration of ITR due date: The buyer is also liable for a higher TCS rate in case the due date of filing ITR by the buyer has expired. 

These provisions for higher TCS rates are mentioned as per Section 206CCA of the Income Tax Act. 

Conclusion

The Section 206C TCS applies on receipt and differs from the Section 194Q. A point in 194Q vs 206C(1H) would be TDS and TCS. The buyer is liable to deduct TDS, whereas the seller is liable to deduct TCS under 194Q and 206C(1H), respectively. Talking about 194Q vs 206C 1H, it is important for accurate tax reporting and compliance under the Income Tax Act.