The income tax law in India mandates collection of tax at source (TCS) on sale of specific goods. Section 206CR elaborates on this subject.
What does the section 206CR mean?
Section 206CR of the Income Tax Act requires tax to be deducted at the source (TDS) when making payments to a non-resident. This applies to payments like commission, rent, interest, and salaries.
Here’s how it works:
- When paying a non-resident, you must deduct tax before transferring the payment.
- The TDS rate depends on the payment type, ranging from 5% to 40%.
- You need a Tax Deduction Account Number (TAN) before making these deductions. This 10-digit code, issued by the Income Tax Department, must appear on all TDS statements, challans, and returns.
The goods covered under this section include:
- Alcoholic liquor for human consumption
- Tendu leaves
- Timber obtained under a forest lease
- Timber obtained by any mode other than under a forest lease
- Any other forest produce not being timber or tendu leaves
- Scrap
- Minerals, being coal or lignite or iron ore
Section 206CR: Who has to pay tax?
A seller is mandated to deduct TCS when a sale’s total value exceeds Rs 50 lakh. The seller is required to deduct the tax from the purchasers at the time of payment itself.
Who could be a seller under Section 206CR?
The seller could be:
- Central government
- State-level government
- Any local government corporation authority created by or according to a Central, state or provincial act, any business firm, cooperative society individual or an HUF whose turnover in the most recent fiscal year (FY) exceeded Rs 1 crore or Rs 50 lakh, as the case may be.
Who could be a buyer under Section 206CR?
The buyers under this section are:
- Central government
- Central administration
- Private sector businesses
- Trade Representation International
- Ambassadors or high commissions
- Social groups
- Consulates
Know about: Section 234B
Section 206C: What falls under it?
- Human consumption of alcohol: 1%
- Timber acquired through a forest lease: 2.5%
- Scrap: 1%
- Minerals, such as lignite, iron ore, and coal: 1%
- 5% of tendu leaves
- 5% of all wood obtained other than through a forest lease
- 5% of forest products that are not timber or tendu leaves.
Section 206C: Form submission list
Under Section 206C, taxpayers are required to submit various forms according to different circumstances. These include:
Form 27C
At the time of payment, buyers must provide a declaration to the seller via Form 27C. The seller must provide this document when depositing TCS in accordance with Section 206C.
Form 13
To receive TCS deduction at reduced rates, buyers can provide this form to the seller. For a lower rate of TCS deduction, the Assessing Officer must approve and provide a certificate.
Form 27EQ
This quarterly statement includes all the necessary information for TCS deduction. Even in cases where no taxes are to be collected, this form must be submitted by all deductors (corporate or government).
Form 3CA
This form is for taxpayers whose accounts records need to be inspected and who receive income from a business or profession.
Form 3CB
This form is required for taxpayers with business or professional income who do not require audits.
Form 3CD
Auditors use this form to declare their compliance with Section 44AB’s audit process.
Form 3CE
NRIs and foreign businesses are required to file this form.
Section 206C: Absence of PAN
Tax is to be collected at the greater of the two rates listed below:
- At twice the rate outlined in the applicable Act provision; or
- 5% every year
Form 27C’s declaration is invalid if Section 206 CC’s PAN is not provided:
Form No. 27C’s section 206C(1A) declarations must include the person’s Permanent Account Number for the statement to be accepted.
Repercussions if the provided declaration is deemed invalid by Section 206 CC:
The collector must collect the tax at the source in line with the requirements of section 206CC if any declaration is invalid under section 206CC(2) (1).
Request for a certificate under Section 206CC for a lesser TCS deduction:
No certificate under section 206C(9) shall be issued unless the applicant’s Permanent Account Number is included in the application submitted using Form No. 13.
Section 206CC requires the collector and the receiver to include PAN in all correspondence, bills, etc.
The receiver must give the collector his Permanent Account Number, and both parties must include it in all communications, bills, vouchers, and other papers that are issued to one another.
Invalid or incorrect PAN attracts TCS per Section 206CC:
The receiver needs to supply his Permanent Account Number to the collector. If the Permanent Account Number given to the collector is invalid or belongs to the receiver, the rules of subsection (1) will apply as a result.
Section 206 CC’s provisions that do not apply to non-residents when there has been no PE in India:
An individual who is not a resident of India and does not have a permanent establishment there is exempt from the provisions of this clause.
Section 206C of Income Tax Act: Limit
Section 44AB mandates tax audits to stop income tax evasion. It also applies to the Section 206C limit.
Regarding the Section 206C restriction, keep the following in mind:
The vendors must deposit the tax collected with the government following Section 206C. A person or HUF that generates more than Rs 1 crore in annual revenue from a business or Rs 50 lakh from a professional quality as the seller.
Any person practising any profession must have their accounts audited per Section 44AB if their annual gross receipts or turnover exceed Rs 50 lakh. Additionally, every business owner whose annual gross earnings or turnover exceeds Rs 1 crore must have an audit performed on their books. This cap has now been raised to Rs 5 crore.
These are contingent upon factors like:
- This year’s cash receipts should be 5% at most.
- Cash payments shouldn’t account for more than 5% of the total payments made each year.
Section 206C of Income Tax Act: TCS payments
The vendor must pay the TCS to the government out of the money received from the customer as compensation for the sale of the relevant products or services. After receiving TCS, the seller is required to deposit the same amount with the designated government agency. The purchaser may use credit for the amount they paid as TCS.
When is the TCS payment due?
Here’s when the government office collects taxes:
- The day of tax collection without the production of Challan 281.
- When Challan 281 is produced, which must be done seven days after the end of the tax collection month.
- Within one week of the last day of the month, the tax is collected if it is managed by someone other than a government agency.
When should TCS be collected?
The sooner of the following periods shown below is when the vendor should collect TCS:
- When debiting the buyer’s account in the books of reports for the money owed.
- Upon receiving payment from the buyer in any form, including cash, issuing a check or draught.
- When a motor vehicle is sold, the TCS is paid once the buyer pays for the car in cash or another form of payment.
How is TCS determined according to section 206CR?
A buyer-based calculation of the TCS is required. The annual threshold limit under Section 206CR is Rs 50 lakh. Therefore, on amounts over and above Rs 50 lakh, you must collect at 0.1%.
TCS invoice format according to Section 206C
Let’s say a vendor has to cover TCS in the invoice:
- Products are worth Rs. 10,00,000.
- GST at 18% is Rs. 1,80,00,000.
- Total becomes Rs 1,18,00,000; TCS on the whole amount is 8,850 rupees
- The total amount due will be Rs. 1,18,08,850.
What are the repercussions of filing your TCS return late?
The person must pay a fine of Rs 200 per day if a person fails to submit the TCS return by the due date specified. However, the late fee amount must be, at most, the TCS amount. Before submitting the TCS return, the late filing fees must be deposited.
TCS refund and payment
As stated in Section 206C of the Income Tax Act, there are several norms and regulations regarding the payment and return of the TCS.
Within seven days of the month after the date you collected TCS from the purchasers, you must remit all tax collected at the source.
A penalty of 1% per month or for a portion of the month will be assessed if the tax collectors fail to submit or collect the TCS by the due date specified.
Government agencies in India that collect TCS are required by law to deposit it that day.
Tax collectors are suggested to fill the form 27EQ and TCS periodically. There will be a penalty if the TCS deposition is delayed in any way.
Section 206CR of the Income Tax Act: Exemptions
Certain payments to non-resident entities or individuals qualify for exemptions or reduced TDS rates under Section 206CR. For example, no TDS is required on software export payments, provided specific conditions are met. Additionally, payments made by local authorities, public sector undertakings, or the central and state governments are exempt from TDS under this section.
FAQs
What does Section 206C signify?
According to this clause, a seller must deduct tax at the source from the price of items sold if the total amount of all such sales during the relevant financial year exceeds Rs 50 lakh.
What happens if TCS isn’t collected on time?
The government shall assess the seller for a penalty equal to 1% of the amount that has yet to be paid by the due date when TCS is not paid as required by the government.
Is there a fine for filing a TCS return incorrectly?
Yes. Depending on the fault made, you must pay a minimum penalty of Rs 10,000 and a maximum fine of Rs 1 lakh if you have filed your TCS returns incorrectly.
What is the rate of TCS on alcoholic meant for human consumption?
The rate of TCS on alcoholic meant for human consumption is 1%.
What is the rate of TCS on Tendu leaves?
The rate of TCS on is Tendu leaves is 3.75%.
What is the rate of TCS on timber obtained under a forest lease?
The rate of TCS on is 1.875% on timber obtained under a forest lease.
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