TCS Under Section 206C: List of Goods & Services, Limits, Payments, Returns And Exemptions
Under Section 206C of the Income Tax Act, individuals are liable to pay indirect taxes for availing of services or purchasing goods. Indirect taxes include TCS (Tax Collected at Source), TDS (Tax Deduction at Source) and GST (Goods and Service Tax). Tax under Section 206C is collected by the seller and submitted to the Government.
Here is a detailed guide on everything you want to know about Section 206C of the income tax act. Read on!
What is Section 206C
Section 206C of the Income Tax Act deals with collecting a certain percentage of tax from the buyers on gains and profits made on products such as alcohol, scrap, forest goods, etc. This tax is collected at the time of payment and then the seller deposits the Tax Collected at Source to the government.
List of Goods and Services Covered under Section 206C
Section 206C mandates tax collection by the sellers from buyers. Here is a list of goods along with the rate of TCS under section 206C that you need to collect from buyers under Section 206C of the income tax act.
| Type of Goods | TCS Rate |
| Timber from a forest that is under lease | 2.50% |
| Alcohol meant for consumption | 1% |
| Tendu leaves | 5% |
| Timber from sources other than forest leased | 2.50% |
| Forest products other than tendu leaves or timber | 2.50% |
| Minerals such as lignite, iron ore or coal | 1% |
| Scrap | 1% |
| Vehicles costing more than Rs. 10 lakh | 1% |
| Toll plaza, mining, parking lot, quarrying | 2% |
However, there is an exemption. If a resident purchases certain goods for producing some other items, the buyer is not liable to pay tax under Section 206C of the Income Tax Act. The transaction has to be trading in nature.
Limits under Section 206C of the Income Tax Act
As per the provisions of Section 206C of the Income Tax Act, sellers who have a turnover of over Rs. 10 crore in the previous year needs to collect taxes for certain payments. The seller must collect TCS when receiving payments over Rs. 50 lakh in a financial year at the time of receiving receipts.
Section 206C also applies to companies, firms, local authorities, cooperative societies and local authorities. Sellers do not need to deduct TCS if the buyer is a representative of the Central/State Government, Consulate, Embassy, High Commission or Trade Representative.
The seller can be individuals/HUFs with turnover above limits specified by Section 44AB. Under this Section, anyone receiving income above Rs. 50 lakh from a profession or more than Rs. 5 crore from a business needs to get their books of accounts audited. These limits are applicable based on certain conditions:
- If the cash payment is below 5% of total payments
- In case cash receipts are below 5% of total receipts
For receiving consideration above Rs. 50 lakh in a fiscal year, the seller needs to deduct TCS at a 0.075% rate from the buyer. He/she has to deposit this amount to the government by the 7th of the month following the tax collection.
Payment and Return of TCS under Section 206C
These are some of the regulations related to the payment and return of tax collected at source as mentioned under Section 206C:
- As a seller, you have to deposit the TCS within seven days from the last day of the month when you collected the tax from your buyers.
- If tax collectors do not collect the TCS or submit the tax after collection within the due dates, they have to pay a penalty interest of 1% each month or for a part of a month.
- Offices of the Indian Government collecting TCS under Section 206C have to deposit the amount on the same day mandatorily.
- As a tax collector, you must file for quarterly TCS returns through Form 27EQ. You have to pay the interest penalty, in case of delayed TCS deposition, before filing this quarterly TCS return.
Also Read: How To Pay Income Tax Online?
List of Forms to Submit under Section 206C
Taxpayers will need to file different forms for different situations under Section 206C:
- Form 27C: Buyers need to submit a declaration via Form 27C to the seller at the time of payment. The seller needs to submit this document when depositing TCS under Section 206C.
- Form 13: Buyers can submit this form to the seller to get TCS deduction at lower rates. The Assessing Officer needs to give approval and issue a certificate for TCS deduction at a lower rate.
- Form 27EQ: This is a quarterly statement containing all the relevant details about TCS deduction. All deductors (corporate or government) are required to submit this form even when no tax is to be collected.
- Form 3CA: This form is for taxpayers having an income from business or profession and whose books of accounts need to be audited.
- Form 3CB: Taxpayers with business or professional income but who do not need audits need to file this form
- Form 3CD: Auditors use this form to provide a declaration on the audit process under Section 44AB.
- Form 3CE: This form has to be filed by NRIs and foreign companies.
Sellers and Buyers for TCS Collection and Payment
As per Income Tax Act provisions, there are certain individuals and organisations who are qualified to collect TCS. Only the following sellers can collect TCS from their buyers:
- HUFs or individuals are subject to tax under certain provisions of the IT Act.
- State government
- Central government
- Statutory corporation or authority
- Any local authority
- Companies that are registered under the Companies Act
- Co-operative society
- Partnership firms
A buyer, on the other hand, is an individual who purchases goods or acquires rights to obtain certain goods through auction, tender or through other modes. However, here are some of the buyers who are not required to pay TCS under section 206C:
- Central government
- State government
- Public sector companies
- High Commissions or Embassies
- Trade Representation of a foreign country
- Consulates
- Social clubs
List of Amendments to Section 206C
The Finance Act 2020 added a new rate of tax and a new subsection (1H) to Section 206C. The following are the key points of this amendment.
- Sellers should deduct TCS at a 1% rate if the value of goods sold is over Rs. 50 lakh.
- This is applicable for sellers having over Rs. 10 crore gross turnover in the previous year.
- Section 206C will not apply to the export and import of goods.
- The seller does not need to deduct TCS if the buyer has already deducted the TDS.
- Only businesses with a turnover of Rs. 5 crore will require income tax audits.
- In case of non-compliance, while filing ITR, the rates under Section 206C will be doubled or 5%.
Exemptions
Collection of tax under Section 206C is not applicable under the following circumstances:
- In case the purchased goods are meant for personal consumption, tax deduction under Section 206C is exempted.
- Buyers do not have to pay TCS if they buy goods for processing, manufacturing or production instead of trading with those goods.
- Transactions in electricity and renewable energy are not subject to provisions u/s 206C.
Also Read: How To File Income Tax Return Online?
About TCS Certificate
If you collect TCS on goods from your buyers, you need to file TCS returns on a quarterly basis. You are also required to provide a certificate of TCS to buyers of goods. The certificate that you get after a successful filing of TCS returns is Form 27D.
A TCS certificate consists of the following details:
- Names of the buyers and sellers
- PAN of the buyers and sellers
- The total amount of tax collected by a seller
- Rate of tax collection
- Date of TCS collection
The TCS certificate is issued within 15 days of filing quarterly TCS returns. Here are the due dates:
| Quarter Ending | Due Date to Generate Form 27D |
| For the quarter ending June 30 | July 30 |
| For the quarter ending September 30 | October 30 |
| For the quarter ending December 31 | January 30 |
| For the quarter ending March 31 | May 30 |
About TCS under GST
If you are a trader or a dealer selling items online, then the online platform is liable to deduct a tax at 1% under IGST Act. This 1% tax would comprise 0.5% CGST and 0.5% SGST. You would get your payments accordingly after this deduction. Tax collectors have to submit the tax to the government within the 10th of the following month.
The government has made these provisions effective from October 1 2018. Let’s take an example to have a clear understanding.
Mr Sharma is a trader selling electronic goods on an e-commerce platform. He has received an order of Rs. 20,000 including commissions. The e-commerce platform would be deducting Rs. 200 before payments (1% of Rs. 20,000).
Final Word
If you are a buyer or a seller dealing with alcohol, forest goods, scraps or other goods and services that require deduction of TCS, make sure to refer to the detailed guide on Section 206C of the Income Tax Act.
FAQs on Section 206 of the Income Tax Act
Ans: According to provisions of the IT Act, any individual not filing a TCS return before the last date is liable to pay Rs. 200 per day till the date of filing. However, the late filing fee amount shall not exceed the TCS amount. You need to submit this fee before you file your TCS return.
Ans: You can easily check the details of TCS on Form 26AS. Form 26AS lists details about tax collected at source by a seller on specific goods. This form includes details about the seller, TCS amount, and the date of a particular transaction.
Ans: If you have incorrectly filed TCS returns, you are liable to pay a penalty under Section 271H. You might have to pay a minimum penalty of Rs. 10,000 and a maximum of Rs. 1 lakh if you file an erroneous TCS return.
Ans: Yes, a seller deducting a TCS from a buyer for selling specific goods as mentioned under Section 206C should be inclusive of GST. The amount debited from the buyer’s account or payment amount that a seller receives from a buyer should include all applicable taxes.
Ans: Sometimes a contract might be cancelled after payment of advance and TCS deduction. In such scenarios, the seller will refund only the amount received as primary sale consideration. TCS deducted will not be refunded as buyers will get it back while filing IT returns.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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