Section 206CL of Income Tax Act

Have you sold goods worth more than ₹50 lacs during the current financial year? Then, you need to consider Tax Collection at Source (TCS) as you receive payment from the buyer under Section 206CL of the Income Tax Act. 

Sec 206CL was first introduced under the Finance Act 2020. It mandated a TCS collection of 0.1 per cent by the seller of goods for a sale of above ₹50 lacs in a single financial year. 

Let us learn about this Act and its nitty-gritty by answering a few important questions.

When is tax under Section 206CL of the Income Tax Act deposited?

The TCS of 0.1 per cent collected under 206CL of the Income Tax Act needs to be deposited within a period not exceeding seven days from the end of the month when it was collected. This tax is mandated to be deposited with the government within this set period; failing to do so would attract a penalty. 

Section 206CL applies to whom?

206CL can apply to a seller of goods receiving consideration of sale exceeding ₹50 lacs during a financial year. Such a seller can be a firm, a company, an individual, a Limited Liability Partnership (LLP), a Hindu Undivided Family (HUF), or any association of individuals or persons earning business income through the selling of goods. 

Is Section 206CL of the Income Tax Act applicable to the sale of services? 

Section 206CL is not applicable to the sale of services. The section only applies to the sale of goods. However, the sale of certain services is liable to collect TCS under specific sections of the Income Tax Act. 

What are the TCS rates under Section 206CL?

The seller receiving the consideration for the sale of goods exceeding ₹50 lacs in a financial year will have to pay TCS at the rate of 0.1 per cent. This tax rate would apply over and above the rate of Goods and Services Tax (GST) collected by the seller during the sale of the considered value. 

The TCS rate would be 1 per cent for sellers who fail to produce their Permanent Account Number (PAN) or Aadhaar Number. The sellers need to verify their account with the Income Tax Department portal through name, date of birth, Aadhaar, and PAN details. 

Is there any threshold limit for TCS collection under Section 206CL?

There is no threshold limit for the collection of TCS for the sale under consideration. The collected TCS can be set off against the seller’s GST liability. This provision was introduced to add convenience to managing the seller’s cash flows. 

What is the penalty for non-compliance with Section 260CL?

The Income Tax Department may impose penalties in the form of interest for non-compliance with Section 206CL. The penalty for non-compliance by the seller can be as much as the TCS failed to be collected. In addition to this, a penalty in the form of interest may be charged on the outstanding amount. 

Are there any exemptions under Section 206CL?

Section 206CL is not applicable to specific government notified firms and authorities, the sale of goods where GST is exempted, Non-Resident Indians (NRI) without a permanent Indian resident, and the sale of exported goods. 

For exemptions, the government notified individuals and businesses can include Central or State Government buyers, legation commissions, consulates, embassies, high commissions, foreign state’s trade representation and other such entities.  

Can the buyer claim credit for TCS paid under Section 206CL?

The TCS collected by the seller under 206CL of the Income Tax Act is considered as the buyer’s payment made by the seller. Therefore, the buyer can claim this credit made on their behalf when they file their Income Tax Returns (ITR). 

What is the process for section 206CL compliance? 

For compliance with Section 206CL terms, the seller needs to obtain the buyer’s PAN and Aadhaar details. Then, the seller can collect TCS (at 0.1 or 1 per cent, whichever is applicable) on the sale under consideration and issue a TCS certificate. The TCS certificate needs to be issued within 15 days following the TCS filing due date, after which the TCS return (Form 27EQ) should be filed within the prescribed period. 

Conclusion

Section 206CL of the Income Tax Act was introduced to reduce the government’s burden of collecting taxes. Since the tax is collected at the source, it also helps widen the tax base under the Income Tax Act.