Section 206C: TCS on Sale of Goods
TCS or tax collected at the source, is a vital part of Indian taxation. It facilitates the government to promote legal compliance among taxpayers. The buyer is liable to pay the TCS, while the seller is also responsible for collecting TCS at the source. It aims to curb tax evasion and promotes transparency in taxation. Under the Income Tax Act 1961, Section 206C was inserted through the Finance Bill 2020. Section 206C of the income tax allows a seller of goods to deduct TCS from the buyer when the total value of the transaction exceeds a certain limit. This article discusses Section 206C’s key details, such as the classification of sellers and buyers for TCS, threshold limits, and applicability.
What is Section 206C About?
It allows sellers to deduct TCS from the amount of money they get from selling goods to certain buyers. If the total sale of goods sold by a seller in a financial year, then it is mandated to deduct the TCS by the seller.
This section draws a clear classification line for qualified sellers and buyers to follow the rules. The rules of this section apply to the seller if the seller deals in the following categories
- Deals in goods other than exports, tendu leaves, alcoholic liquor, timber, scrap, motor vehicles, or foreign remittances
Even the rates of deductions of taxes vary from goods to goods such for TCS on alcoholic liquor for human consumption is 1%, while on remittances outside India, under the Liberalized Remittance Scheme of RBI is 5%.
Classification Criteria for Sellers
Below are the listed sellers who are eligible to deduct TCS under section 206C
- Companies registered under the Companies Act 2013
- Central government
- Statutory authority or corporation
- State government
- Local authority
- Co-operative society
- Partnership firms
- Individuals or HUFs (Hindu Undivided Families) are entitled to a tax audit for a specific financial year
Classification of Buyers for TCS
Classified buyers under section 206C are those who buy goods from eligible sellers through retailers, wholesalers, or online platforms. Some such buyers are exempted, and these are as follows
- Public sector companies
- Embassy of high commission
- Central government
- Representing and consulate of a foreign nation
- Clubs such as sports clubs or social clubs
- Buyers purchase goods to use them in producing or manufacturing a thing or article to generate power. But need to provide a declaration in writing under section 197C
Threshold Limit under Section 206C
- The threshold limit for an individual buyer or seller is Rs. 50 lakhs mean an aggregate sale consideration received from a single buyer in a financial year exceeds Rs. 50 lakhs
- The goods are being exported only in India
- Transaction involves the sale of goods
- The sellers’ total sales, gross receipts, or turnover in the preceding financial year is less than Rs. 10Cr
TCS Rates under Section 206C
When other conditions are met, sellers have to collect TCS at higher rates under sections 206C and 206CCAA. Provided that the below-listed conditions are met
- In case the buyer has failed to file an ITR for the last two consecutive years before the year in which the seller collects the TCS
- The total amount of TCS and TDS exceeded Rs. 50,000 in the last two consecutive financial years
- The due date to file the ITR has expired
| Sections | Types of goods | TCS rates |
| 206C(1) | Alcoholic liquor for human consumption | 1% |
| Tendu Leaves | 5% | |
| Timber obtained under forest lease | 2.5% | |
| Timber obtained by any mode other than a forest lease | 2.5% | |
| Any other forest produce not being timber or tendu leaves | 2.5% | |
| Scrap | 1% | |
| Minerals like lignite, coal and iron ore | 1% | |
| 206C(1C) | Permit or lease of | |
| Toll plaza | 2% | |
| Parking lot | 2% | |
| Mining and quarrying | 2% | |
| 206C(1F) | Motor vehicle if the sale exceeds Rs 10 lakhs | 1% |
| 206C(1G)(a) | Remittance outside India under the Liberalized Remittance Scheme | 5% |
| 206C(1G)(b) | TCS on sale of overseas tour packages | 5% |
| 206C(1H) | TCS on sale of any goods excluding goods on which TCS is applicable as per section 206C(1), 206C(1F), 206C(1G) | .1% for sales exceeding Rs 50 lakh if annual turnover Rs 10 Cr |
The TCS rates on foreign remittances under the liberalized remittance scheme increased from 5% to 20%. The increased rates are also applicable on the purchase of international tour packages. And the exemption threshold for foreign remittances under the LRS scheme increased from Rs 7 Lakh to Rs 10 Lakh per financial year.
Ensure that you adhere to the issued guidelines and collect or deduct TCS if you meet the classification criteria and the rules apply to you. Reach out to TaxDunia to confirm a smooth compliance. We offer tech-savvy solutions and provide unique advice to cater to diversified businesses all around the world.
