Precise provision on tax collection at source (TCS)

Provisions related to Collection of Tax at Source under Income Tax Act 1961

Chapter–XVIIBB of the Income Tax Act (Herein after called as “Act”) deals with the provisions related to Collection of Tax at Source (TCS). Under that chapter section 206C stipulates the cases where the TCS is required.

As per sub- section (1) in the following cases every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer a TCS at the percentage specified in the column 3:

It means if a company X sells any of the above goods in the course of business, he should collect over and above the invoice value a tax at the rate specified in column no 3 of the above table a tax at source. The same amount of TCS is to be deposited through challan ITNS by the seventh of the next month just like in case of TDS.

It is worth to be mentioned here that the above provisions are not applicable if the buyer furnishes a declaration in form no 27C that the above goods are to be utilized for the purpose of manufacturing, Processing or producing articles or things or for the purpose of generation of Power and not for the trading purpose.

The form so collected is required to be delivered to the CCIT / CIT one copy by the seventh day of next following the month in which he receives a declaration.

As per sub-section (1C) in the following cases every person, who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry, to another person, other than a public sector company (hereafter in this section referred to as "licensee or lessee") for the use of such parking lot or toll plaza or mine or quarry for the purpose of business shall, at the time of debiting of the amount payable by the licensee or lessee to the account of the licensee or lessee or at the time of receipt of such amount from the licensee or lessee in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the licensee or lessee of any such license, contract or lease:

As per Sub – Section (1D) Every person, being a seller, who receives any amount in cash as consideration for sale of bullion (excluding any coin or any other article weighing ten grams or less) or jewellery, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration,—

(i) For bullion, exceeds two hundred thousand rupees; or

(ii) For jewellery, exceeds five hundred thousand rupees.

Illustrations:

Now let us excel into some practical examples related to the TCS: In so many cases we become confused regarding applicability of TCS.

Ex-1:

ABC Ltd is a company duly incorporated under the provisions of Companies Act and actively engaged in the business of manufacturing of Sponge Iron. It uses coal as its major consumable to convert the Iron Ores into the Sponge Iron. It purchases coal from Auction, from traders, from Mines etc. During the period of recession the company did not receive a good order and stock of coal lying idle. The management decided to sell the coal directly with profit instead of keeping them idle for using in manufacturing process. It sells coal to:

a) XYZ Ltd (A company engage in the manufacturing using coal in the manufacturing process)

b) X Pvt Ltd (A company engaged in the trading of coal)

c) Mr. X (An individual buying coal for his personal use)

In first case ABC Ltd is not required to collect TCS from XYZ Ltd since it buys coal to be used in the manufacturing process. To this effect it is necessary to submit a declaration in form 27C by the M/s XYZ Ltd to ABC Ltd that the coal so bought shall be used in the manufacturing process and hence TCS should not be collected from it. If this condition is not fulfilled then ABC Ltd is liable to collect the TCS from XYZ Ltd.

In second instance ABC Ltd is required to collect the TCS from M/s X Pvt Ltd since it is a traders and no exemption is given to them.

In the last case of my example ABC Ltd is not liable to collect TCS from Mr. X since he is buying this for his personal consumption and not for any commercial use.

Ex-2:

Now what next:

The ABC Ltd is now required to make a payment, through challan or online whichever is applicable of the TCS so collected by the seventh of the next month in which TCS is collected.

The ABC Ltd is also required to deliver / submit to the CCIT / CIT a copy of form-27C so collected (refer my situation no (a) of my ex:1) by the seventh of the next month in which it had received the form.

The ABC Ltd is required to file a quarterly TCS statement just like in a case of TDS and submit a certificate in this regard to the person from whom TCS is collected so that they can take a credit of the same at the time of making a payment of their income tax liability.

Ex-3:

What if ABC Ltd paid TCS?

In cases where ABC Ltd had bought coal from the traders, mine owners, manufacturer etc then he should submit the declaration in form-27C that it would utilize the coal so bought in the manufacturing process so that TCS collection could be avoided.

But in the case where coal is bought purely with the intention to trade on then it has to pay TCS to the seller. ABC Ltd is required to obtain a TCS certificate from the seller to this effect and take the credit of the same from the payment of Income Tax Liability at the year end.

The ABC Ltd must remember that it cannot net off the TCS collected with the TCS so paid. The paid TCS can be claimed only and TCS collected must be paid to the credit of the Party.

Hope the readers will find the above in their interest.

Thanks

CA Yogesh Kr Agarwal

Kharagpur