Section 206C of the Income Tax Act, 1961

[Ishita Ramani]

Introduction

A new TCS section 206C (1H) was added to Finance Bill 2020. The updated section specifies that if a seller sells goods and the total sales value exceeds INR 50,00,000 (the threshold amount) in the same financial year, the seller must collect TCS from the customer. The content in this article includes eligibility requirements under Section 206 of TCS, the deadline for submitting TCS, and a definition of Section 206 of the Income Tax Act.

What is Section 206C of the Income Tax Act, 1961?

The Finance Act, 2020 has been amended by the government of India to insert a new Section 206C (1H) that covers the Tax Collected at Source (TCS) rules to the seller of goods. According to this section, if a seller receive more than INR 50 lakh from a single buyer in a single financial year, he must collect tax if his total turnover exceeds INR 10 crore. It is important to remember that when the payment is received, the TCS (Tax Collected at Source) needs to be paid.

A. The Income Tax Act defines a seller as:

• The National Government,
• The federal, state, or municipal governments, businesses, state governments, or other entities formed by law,
• The cooperative societies, the corporation, and the firm,
• HUFs (Hindu undivided families) or individuals whose accounts are audited for taxes under Section 44AB.

B. “Buyer” is described under the Income Tax Act as:

“Buyer” is described in Section 206C clause as any individual having the right to purchase a particular product by any means, including auction, tender, sale, or other means. Every single one of these people is a buyer, except:

• Any public sector company, the federal, state, or local governments, as well as any foreign state or club’s embassy, legation, commission, or consulate,
• Trade representation from an international organization or state,
• A buyer who purchased products for their own use at a retail sale.

What are the Qualifications under Section 206C of TCS?

Below is a list of the points that fall within Section 206C of TCS’s Eligibility Criteria:

• This clause only applies to sellers whose total revenue in their financial year before the sale exceeds Rs. 10 crore.
• Goods are not included in exports or those covered by sections 206C(1) — TCS on the sale of alcohol, tendu leaves, forest produce, and scrap; 206C(1F) — TCS on the sale of motor vehicles; and 206C(1G) — TCS on external remittance.
• TCS is not needed to be reduced if the buyer is a Central or State Government, Embassy, High Commission, Legation, Consulate, Trade Representation of a Foreign State, or any local authority.
• The seller is not obligated to collect TCS on transactions in which the buyer is required under any other provision of the Income Tax Act to deduct TDS from items that they have purchased from the seller, and they have already done so.
• This rule does not apply to imported items into India.

What are the goods applicable and tax rate under Section 206?

The following is the list of goods applicable under Section 206 along with tax rate:

• Timber obtained under a forest lease with the 2.5% tax rate.
• Tendu leaves with 5% tax rate.
• Scrap with 1% tax rate.
• Alcohol for human consumption with 1% tax rate.
• Timber obtained other than under a forest lease with the 2.5% tax rate.
• Minerals including coal, lignite, or iron ore 1% tax rate.
• Forest produce other than tendu leaves and timber with the 2.5% tax rate.

Note: Goods purchased by an Indian resident for the purpose of manufacturing or producing other items, as compared to trading, are free from tax under section 206C of the Income Tax Act. Buyers are required to file an application and deliver a copy to the Income Tax Department commissioner within 7 days of the sale’s completion.

What is the due date for filing TCS Quarterly?

The following are the due dates for filing Tax Collected at Source quarterly:

• The due date for the quarter 1st April to 30th June is 15th July.
• The due date for the quarter 1st July to 30th August is 15 October.
• The due date for the quarter 1st October to 30th December is 15th January.
• The due date for the quarter 1st January to 30th March is 15th May.

Conclusion

Sellers whose entire sales value exceeds INR 50,00,000 in a financial year are subject to a tax collection obligation under Section 206C of the Income Tax Act, 1961. The purpose of this section is to guarantee that taxes on high-value transactions involving the sale of products are paid to the government. A restricted number of goods and services are subject to the tax, and sellers who sell goods to customers for more than INR 50 lakh are required to collect TCS at a rate of 0.075%. To avoid fines and interest, the TCS must be submitted with the government within a particular period of time.