Section 206C: Details about Tax Collection at Source

Section 206C entails Tax Collected at Source (TCS) on profits and gains from selling alcohol, forest produce, scrap, minerals, etc. This section specifies that a seller must collect this tax if the total sales value exceeds ₹50 Lakhs from a single buyer. These provisions apply to sellers with a turnover of over ₹10 Crores in a particular financial year.

Section 206C requires the seller to deposit TCS by the 7th of the following month. Here are the goods and services on which sellers are liable to collect TCS, along with their respective rates:

The buyer is an individual who purchases goods or obtains certain goods through auction, tender, or other modes. However, here are some of those who are exempted from paying TCS under the said section:

• Central Government

• State Government

• Public sector companies

• Embassy of High Commission

• Consulate and other Trade Representatives of a foreign country

• Clubs, including social clubs and sports clubs

Here are the sellers or service providers that are liable to collect TCS under Section 206C:

• State Government

• Central Government

• Statutory corporation or authority

• Local authority

• Companies registered under the Companies Act, 2013

• Co-operative society

• Partnership firms

• HUFs or individuals subject to audit of accounts for a particular financial year under the Income Tax Act

As per the I-T Act, you need to collect TCS when debiting money payable by the buyer or upon receipt of such money.

Here are some of the provisions related to Section 206C of the Income Tax Act:

• Sellers with a turnover of over ₹10 Crores in the previous year need to collect TCS for certain payments

• The seller can be an individual or a Hindu Undivided Family (HUF) entity with a turnover above the limits specified under Section 44AB

• Sellers need to deduct TCS at a rate of 0.1% from buyers for receiving consideration above ₹50 Lakhs in a fiscal year

Buyers do not need to pay TCS under Section 206C in the following circumstances:

• If they are purchasing goods for their personal consumption

• If they are purchasing goods for processing, manufacturing, or production instead of employing them in trading activities

When filing taxes under this provision, you need to file certain forms. Here are the various forms that taxpayers need to file:

• Form 27EQ: It is a quarterly statement with relevant details about TCS deduction, and all deductors need to mandatorily submit this form whether or not tax is collected

• Form 27C: Buyers have to submit a declaration through Form 27C to the seller at the time of payment, and the seller has to submit this when depositing TCS

• Form 13: Buyers need to submit this form to the seller to avail of TCS deduction at lower rates 

• Form 3CA: Taxpayers with an income from business or profession whose books of accounts need to be audited have to file this form

• Form 3CB: Taxpayers engaged in business or profession who do not require audits have to file this form

• Form 3CD: Auditors provide a declaration on the audit process u/s 44AB through this form

• Form 3CE: NRIs and foreign companies need to file this form

A seller needs to deposit the Tax Collected at Source with the Government of India. Here are the regulations regarding payment and return of (TCS):

• A seller or service provider is liable to deposit TCS with Challan 281 within 7 days from a specific month’s last day on which the tax was collected

• A penalty interest of 1% each month or for a part of a month is levied if the tax is not collected

• Non-payment also attracts a penalty u/s 271CA of the Act, which is equal to the TCS amount, and imprisonment of up to 7 years u/s 276BB of the I-T Act

• A seller or service provider needs to file for quarterly TCS returns via Form 27EQ

Tax collectors need to mandatorily furnish TCS returns on a quarterly basis through Form 27EQ online to CPC-TDS before the due date. This TDS certificate needs to be issued within 15 days of filing the quarterly TCS returns.  

They need to provide a TCS certificate in Form 27D to the buyer. Here are the due dates for providing quarterly TCS returns and issuing TCS certificates for each financial year:

The Finance Act 2023 has modified the sub-section 1G of Section 206C. Here are a few critical points to note:

• There is an increase in TCS from 5% to 20% for all remittances under Liberalised Remittance Scheme (LRS)

• The rate applies to the purchase of overseas tour program packages

• The threshold on foreign remittances under LRS has been increased from ₹7 Lakhs to ₹10 Lakhs