TCS ON SALE OF MOTOR VEHICLES – GST ANGLE (Under Income Tax Act, 1961)

[Dr. Sanjiv Agarwal]

Background

According to Section 206C(1H) of Income Tax Act, 1961 introduced vide Finance Act , 2020 , every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax.

Section 206C(1F) of Income Tax Act, 1961 provides that every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding ten lakh rupees, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to one per cent of the sale consideration as income-tax.

However, in the explanation of the said sub-section, seller has been defined as a person whose total sales, gross receipts or turnover exceeds ₹ 10 crores during the FY immediately preceding the FY in which the sale of goods is carried out. (e.g. for current year 2020-21, it will be financial year 2019-20).

Applicability

The provisions of section 206(C)(1H) have been made applicable w.e.f. 01.10.2020 i.e., the receipt of consideration shall take place only after 01.10.2020.

Objective

The purpose of TCS under section 206C (1H) is to basically safe-guard the impending levy of Income Tax revenue and also to bring on record the specific transactions of sale of any goods of large amount. The ‘Income’ arising out of revenue for ‘seller’ and consequent consideration being expense for ‘buyer’ is needed to be brought on record is primarily an economic activity pertaining to both parties i.e. to the seller as well as to the buyer.

Rate of TCS

• 0.1% of consideration (above ₹ 50 lakh) to be collected by the seller in relevant period. For example, if the amount of gross receipts from one buyer in the relevant year is ₹ 70 lakh, the TCS @ 0.1% shall be computed on the incremental value of ₹ 20 lakh constituting ₹ 70 lakh – ₹ 50 lakh.
• In case of non-furnishing of PAN or Aadhar, a flat rate of 1% shall be applicable.
• However, 0.075% until March, 2021 in light of relaxations offered due to the period of COVID- 19.

Exceptions from TCS

• Where the buyer is Central / Government, State Government, an Embassy, a High Commission, Legation, Commission, Consulate, the trade representation of a Foreign State or Local Authority; or
• Buyer importing goods into India;
• Other notified persons subject to prescribed conditions

However, companies owned wholly or substantially by the Government are not exempt.

No adjustment for discount/GST while calculating threshold limit under section 206C(1H)

CBDT vide Circular No. 17/2020, dated 29.09.2020 has issued various guidelines including the following:

1. The provision of TCS would not be applicable on the transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognised stock exchanges or recognized clearing corporations located in International Financial Service Centre (IFSC);

2. TCS would not be applicable on the transaction in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the Central Electricity Regulatory Commission  (CERC);

3. No adjustment on account of sale return or discount or indirect taxes including GST is required while collecting TCS under Section 206C(1H);

4. No TCS under section 206C(1H) on the sale consideration received for fuel supplied to non-resident airlines in India.

5. In case of insurance agents or insurance aggregators, TDS under section 194-O is not required to be deducted in years subsequent to the first year, if insurance agents or insurance aggregators has no involvement in transaction between insurance company and the buyer of insurance policy. However, the insurance company shall be required to deduct tax on commission payment made to insurance agent or insurance aggregator for those subsequent years under the relevant provision of the act.

It has been clarified that the adjustment of GST will not be allowable for deduction from the amount of consideration or gross receipt.

End note

Since motor vehicles are covered under the scope of goods for the purpose of TCS under the Income Tax Law w.e.f. 01.10.2020, suppliers will have to comply with the said provision keeping in mind the scope of motor vehicle as per Motor Vehicle Act, turnover threshold of previous year, value of individual motor vehicle sold along with aggregate value of vehicles sold to same buyer. Suppliers will also have to keep in mind the tax depends upon PAN / Aadhar validity.