TCS on Sale of Scrap (Section 206C): Meaning, Tax Rate, Payment And Tax Returns
The Government of India introduced TCS on the sale of scrap under Section 206C to monitor and gather information on an unorganised market segment. Apart from the sale of scrap, Section 206C of the Income Tax Act covers many other products like forest produce, tendu leaves, alcohol, etc.
Read on to understand TCS deduction on scrap under section 206, rate of tax and payment and returns concerning TCS.
What does Scrap Mean under Section 206C?
Under Section 206C of the Income Tax Act, scrap means waste or scrap discarded due to mechanical working or manufacturing of non-usable materials. It is mainly because of processes like cutting up, breakage, etc.
What does Section 206C of the Income Tax Act Mention?
Section 206C of the Income Tax Act, 1961 covers goods on which sellers must collect TCS (Tax Collected at Source) from their purchaser. However, it is only applicable for specified goods. It includes scrap, alcohol for human consumption, forest produce, minerals like coal and iron ore, timber, and tendu leaves.
Under this Section, every seller has to collect tax from their buyer of goods explicitly mentioned by the IT department. However, it must be at the time when sellers’ account gets debited with the amount buyers pay or when sellers receive the amount from buyers (whichever is earlier).
Under Section 206C, all sellers must collect tax from their buyers. Still, there are certain exceptions, too. For example, if an individual is buying goods for manufacturing or producing other goods or for personal consumption and not for trading, TCS is not applicable.
However, a buyer must prove it by filing a declaration. Also, they must mention the same and provide a copy of it to an IT commissioner. The process must be completed within seven days of from the end of the month in which the sale took place.
What is the Tax Rate for Goods under Section 206C?
Find the applicable tax rate for goods in the following table:
| Sl. No. | Nature of Goods | Taxable Rate |
| 1 | Scrap | 1% |
| 2 | Alcohol for human consumption | 1% |
| 3 | Forest produce (excluding timber and Tendu leaves) | 2.5% |
| 4 | Minerals including lignite, iron ore and coal | 1% |
| 5 | Timber purchased under forest lease | 2.5% |
| 6 | Timber purchased that is not under forest lease | 2.5% |
| 7 | Tendu Leaves | 5% |
There are other products too that fall under the purview of Section 206C:
- Toll plaza, parking lot, quarry or mine – taxable at a rate of 2%
- Purchase of motor vehicle worth more than Rs. 10 lakh – taxable at a rate of 1%
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What are the Limits under Section 206C?
Filing and tax audit under Section 44AB is compulsory. This also takes into account limits mentioned under Section 206C, which include the following:
- Section 44AB mentions that every professional must carry auditing if their gross receipts or turnover in the books is more than Rs. 50 lakh in a particular year. In contrast, the limit extends to Rs. 1 crore for business owners. So, if their gross receipt surpasses this amount, they must get their books of accounts audited. After the amendment, this limit has surged Rs. 5 crore.
- Sellers, including both individuals and HUFs, must submit TCS under Section 206C if their turnover exceeds Rs. 1 crore or Rs. 50 lakh limit in a preceding year.
Applicability of TCS under GST
TCS under GST is applicable in the following cases:
- When carrying out online trading, sellers will receive their payment after a deduction of 1% tax under the IGST Act. This includes 0.5% under SGST and 0.5% under CGST.
- Registration for all traders and sellers is compulsory under GST.
- Every seller or trader must deposit the tax amount before the 10th of next month.
Guidelines Related to Payments and Returns for TCS
- Sellers must make their deposit of the TCS amount through Challan 281 before seven days pass from the last day of the month in which they collected the tax amount.
- If the government office makes this collection, they must deposit it on the day of the collection itself.
- Quarterly TCS return filing is compulsory under this Section. So, every tax collector must do it using Form 27EQ for the amount they collect as tax. Also, if there is any delay in TCS payment, interest must be levied.
- Suppose a person responsible for making appropriate deductions and submitting the same to the government cannot perform any of the two duties. In that case, they are liable to pay a 1% interest amount per month or a part of the month.
Final Word
Every seller must collect tax at source if they are selling goods mentioned under Section 206C of the Income Tax Act. To find the applicable rates and other related information, refer to the different sections of this write-up carefully.
FAQs
No, TCS is not refundable. This is because it is not an additional tax chargeable by the government. Instead, it has the nature of an advance tax that a person pays and claims a credit against the output tax. Also, if this amount of TCS exceeds the output tax, then only the net amount is payable.
If a person fails to file their TCS return, a penalty of Rs. 200 per day is applicable until the delay continues. Remember, this amount is not a penalty but a late fee that a person must pay before depositing their TCS amount.
No, a person does not need to pay TCS in case of ‘sale of service’ as it is only applicable for ‘sale of goods.’ However, this does not mean the ‘sale of service’ is free of tax applicability. It is liable to tax deduction at source (TDS).
If a tax collector files an incorrect TCS return, then the person is liable to pay a minimum penalty of Rs. 10,000 and a maximum penalty of Rs. 1,00,000 under Section 271H of the Income Tax Act.
Buyer u/s 206C includes any of the following:
• State government
• Central Government
• Public sector company
• Legation
• An embassy
• A club
• A buyer who purchased goods for personal consumption
• Consulate/commission/trade representation of the foreign state
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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