Saturday 25 June 2016

TCS shall be collected on sales only if cash received exceeds Rs. 2 Lakh u/s 206C (1D) of Income Tax Act, 1961

1.     Amendment in Section 206C(1D) of Income-tax Act, 1961
      Section 206C(1D) of Income Tax Act, 2016 has been Amendment by Finance Act, 2016 and also CBDT has issued clarification regarding amendment in Section 206C(1D) of Income Tax Act, 1961 vide Circular no 22/2016 dated 8th June 2016
Every seller, who receives any amount in cash on sale of:
i)                   Bullion, exceeds Rs. 2,00,000; or
ii)                 Jewellery, exceeds exceeds Rs. 5,00,000;  or
iii)               Any goods, other Bullion and Jewellery exceeds Rs. 2,00,000, or
iv)               Any service, exceeds Rs. 2,00,000
Shall collect from the buyer, a sum equal to one per cent (1%) of sale consideration as income-tax

Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B.

2.     Clarification by CBDT on TCS on Cash Sale exceeds Rs. 2,00,000/-
CBDT has issued clarification on TCS on Cash Sale exceeding Rs. 2 lakhs vide Circular No. 23/2016 dated 24th June, 2016

a)     In order to curb the cash economy, Finance Act 2016 has amended section 206C of the Income-tax Act to provide that the seller shall collect tax at the rate of one per cent from the purchaser on sale in cash of certain goods or provision of services exceeding two lakh rupees.

b)     Subsequent to the amendment, a number of representations were received from various stakeholders with regard to the scope of the provisions and the procedure to be followed in case of the amended provisions of Section 206C of the Act. The Board, after examining the representations of the stakeholders, issued FAQs vide Circular no 22/2016 dated 8th June 2016. The Board has further decided to clarify the issue as regards applicability of the provisions relating to levy of TCS where the sale consideration received is partly in cash and partly in cheque by issue of an addendum to the above circular in the form of question and answer as under:

Question 1: Whether tax collection at source under section 206C(1D) at the rate of 1% will apply in cases where the sale consideration received is partly in cash and partly in cheque and the cash receipt is less than two lakh rupees.

Answer: No. Tax collection at source will not be levied if the cash receipt does not exceed two lakh rupees even if the sale consideration exceeds two lakh rupees.

Illustration: Goods worth Rs. 5 lakhs is sold for which the consideration amounting to Rs.4 lakhs has been received in cheque and Rs.1 lakh has been received in cash. As the cash receipt does not exceed Rs.2 lakh, no tax is required to be collected at source as per section 206C (1D).

Question 2: Whether tax collection at source under section 206C (1D) will apply only to cash component or in respect of whole of sales consideration.

Answer: Under section 206C (1D), the tax is required to be collected at source on cash component of the sales consideration and not on the whole of sales consideration.

Illustration: Goods worth Rs. 5 lakhs is sold for which the consideration amounting to Rs.2 lakhs has been received in cheque and Rs.3 lakh has been received in cash. Tax is required to be collected under section 206C (1D) only on cash receipt of Rs.3 lakhs and not on the whole of sales consideration of Rs.5 lakh.


Conclusion: TCS shall be collected only on the amount received in cash, if cash received exceeds Rs. 2,00,000 on sale in cash of certain goods or provision of services exceeding two lakh rupees.   

Circular no 22/2016 dated 8th June 2016
Circular No. 23/2016 dated 24th June, 2016