Pay tax on cash purchase of above 2 lakh (TCS)

Section 206C of the Income tax Act, 1961 requires the seller to collect tax at source at the specified rate from the buyer at the time of sale of specified items such as alcoholic liquor for human consumption, tendu leaves etc. It also requires collection of tax at source (TCS) @ 1% on sale in cash of bullion exceeding Rs.2 lakhs and jewellery exceeding Rs.5 lakhs.

From 1^st June 2016 every seller is required to collect tax @ 1% from the buyer if such sales or provision of service in cash exceed Rs.2 lakhs under section 206C(1D). Further a seller of Motor vehicle is also required to collect tax at source @ 1% from purchaser if the consideration for sale of motor vehicle exceeds Rs.10 Lakh under section 206C(1F).

Explanation of Amendment through Q&A by CBDT:

Q1: Whether tax collection at source (‘TCS’) at the rate of 1 % is on sale of Motor Vehicle at retail  level or also on sale of motor vehicles by manufacturers to dealers/distributors?

Ans: To bring high value transactions within the tax net, section 206C of the Act has been amended to provide that the seller shall coll ect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees, This is .. brought to cover all transactions of retail sales and accordingly it will not apply on sale of motor vehic les by manufacturers to dealers/distributors.

Q2: Whether TCS at the rate of 1 % is on sale of Motor Vehicle is appli cable only to Luxury Cars?

Ans: No, As per sub section (I F) of Section 206C of the Act the seller shall collect the tax at the rate of one per cent from the purchaser on sale of any motor vehicle of the value exceeding ten lakh rupees.

Q3: Whether TCS at the rate of 1 % is applicable in the case of sale to Government Departments, Embassies, Consulates and United Nation Institutions for sale of motor vehicle or any other goods or provision of services?

Ans: Government, institutions notified under United Nations ( Privileges and Immunities) Act 1947, and Embassies, Consulates, High Commission, Legation, Commission and trade representation ofa foreign State and shall not be liable to levy ofTCS at the rate of 1 % under sub-section (1 D) and (I F) of section 206 C of the Act.

Q4: Whether TCS is applicable on each sale of motor vehicle or on aggregate value of sale during the year?

Ans: Tax is to be collected at source at the rate of 1 % on sale consideration of a motor vehicle exceeding ten lakh rupees. It is applicable to each sale and not to aggregate value of sale made during the year. This can be explained by way of an illustration: Illustration: Motor vehicle worth 20 lakh is sold and for which payments arc made in instalments, one at the time of booking and the other at the time of delivery. At the time of booking 5 lakh rupees are paid and 15 lakh rupees are paid at the time of delivery. Tax at the rate of 1 % on 5 lakh rupees at the time of booking and at the rate of 1 % on remaining 15 lakh rupees at the time of delivery shall be collected at source. Similar will be the position with regard to collection of tax at source under sub-section (1 D) of section 206C.

Q5: whether TCS at the rate of 1 % on sale of motor vehicle is applicable in case of an individual?

Ans: The definition of “Seller” as given in clause (c ) of the Explanation below subsection (II) of section 206C shall be applicable in the case of sale of motor vehicles also Accordingly, an individual who is liable to audit as per the provisions of section 44AB of the Act during the financial year immediately preceding the financial year in which the motor vehicle is sold shall be liable for collection of tax at source on sale of motor vehicle by him.

Q6: How would the provisions of TCS on sale of motor vehicle be applicable in a case where part of the payment is made in cash and part is made by cheque?

Ans: The provisions of TCS on sale of motor vehicle exceeding ten lakh rupees is not dependent on mode of payment. Any sale of Motor Vehicle exceeding ten lakh would attract TCS at the rate of 1%.

Q7: As per section 206C(1 D) , tax is to be collected at source at the rate of 1 % if sale consideration received in cash exceeds 2 lakh rupees whereas as per section 206C(lF) tax is to be collected a1 source at the rate of I % of the sale consideration of a motor vehicle exceeding 10 lakh rupees. Whether TCS will be made under both sub-section (lD) and (IF) of the section 206C @ 2% ,where part of the payment for purchase of motor vehicle exceeds 2 lakh rupees in cash?

Ans: Sub-section (1 F) of the section 206C of the Act provides for TCS at the rate of 1% on sale of motor vehicle of value exceeding 10 lakh rupees. This is irrespective of the mode of payment. Thus if the value cfmotor vehicle is 20 lakh rupees , out of which 5 lakh rupees has been paid in cash and balance amount by way of cheque, the tax shall be collected at source at the rate of 1 % on total sale consideration of 20 lakh rupees only under sub-section (I F) of section 206C of the Act. However, if a vehicle is sold for 8 lakh rupees and the consideration is paid in cash, tax shall be collected at source at the rate of 1 % on 8 lakh rupees as per sub-section(l D) of section 206C of the Act.