Introduction : 206cq of income tax act
In the complex world of taxation, the Income Tax Act of India stands as a crucial framework governing the country’s tax laws. Among its various provisions, Section 206CQ plays a significant role in regulating the collection of tax at source (TCS) on the sale of goods. This article aims to provide a detailed and clear understanding of Section 206CQ, its implications for taxpayers and businesses, and how it impacts the overall tax collection system.
What is Section 206CQ?
Section 206CQ of the Income Tax Act was introduced by the Finance Act, 2020, and it pertains to the collection of tax at source (TCS) on the sale of goods. The provision was aimed at ensuring that tax is collected at the point of sale of goods, thereby increasing compliance and improving tax revenue collection.
Under this section, every seller of goods is required to collect tax at source on the sale of goods exceeding a certain threshold limit. The TCS collected by the seller is then deposited with the government, and the buyer can claim the tax credit against their total tax liability.
Key Features of Section 206CQ
- Scope of Application: Section 206CQ applies to the collection of tax at source on the sale of goods, other than those covered under the provisions of Section 206C of the Income Tax Act. The section specifically targets transactions where the seller is engaged in the sale of goods and the aggregate value of the goods sold exceeds the prescribed threshold limit.
- Threshold Limit: As per the provisions of Section 206CQ, the seller is required to collect tax at source if the sale of goods exceeds Rs. 50 lakhs in a financial year. This threshold limit is subject to changes based on amendments in the Finance Act or notifications issued by the government.
- Rate of Tax Collection: The rate of tax collection under Section 206CQ is set at 0.1% of the sale value of the goods. This rate is applicable if the buyer provides their Permanent Account Number (PAN) or Aadhaar number. If the buyer does not provide PAN or Aadhaar, the rate of TCS is increased to 1% of the sale value.
- Tax Credit for Buyers: Buyers who have paid tax at source under Section 206CQ can claim the tax credit against their total tax liability. This credit can be claimed while filing their income tax returns, and it helps in reducing their overall tax burden.
- Compliance Requirements: Sellers are obligated to comply with the provisions of Section 206CQ by collecting tax at source, filing TCS returns, and issuing TCS certificates to buyers. Non-compliance with these requirements can lead to penalties and legal consequences.
Implications for Businesses and Taxpayers
- Increased Compliance: Section 206CQ aims to enhance tax compliance by ensuring that tax is collected at the point of sale. This helps in reducing tax evasion and increasing the overall tax revenue for the government.
- Administrative Burden for Sellers: Businesses engaged in the sale of goods need to adapt to the requirements of Section 206CQ. This includes implementing systems to collect TCS, maintaining records, and filing periodic TCS returns. While this may increase the administrative burden for sellers, it also ensures transparency and accountability in tax collection.
- Impact on Cash Flow: The requirement to collect TCS can impact the cash flow of businesses, as they need to deposit the collected tax with the government. This can be particularly challenging for small businesses with limited liquidity.
- Benefits for Buyers: Buyers benefit from the provisions of Section 206CQ as they can claim the tax credit for the TCS paid. This helps in reducing their overall tax liability and ensures that they do not bear the additional tax burden.
- Penalties for Non-Compliance: Non-compliance with the provisions of Section 206CQ can lead to penalties and legal consequences. Sellers who fail to collect TCS, file returns, or issue TCS certificates may face fines and other penalties as prescribed under the Income Tax Act.
What are the Qualifications under Section 206C of TCS?
Below is a list of the points that fall within Section 206C of TCS’s Eligibility Criteria:
- This clause only applies to sellers whose total revenue in their financial year before the sale exceeds Rs. 10 crore.
- Goods are not included in exports or those covered by sections 206C(1) — TCS on the sale of alcohol, tendu leaves, forest produce, and scrap; 206C(1F) — TCS on the sale of motor vehicles; and 206C(1G) — TCS on external remittance.
- TCS is not needed to be reduced if the buyer is a Central or State Government, Embassy, High Commission, Legation, Consulate, Trade Representation of a Foreign State, or any local authority.
- The seller is not obligated to collect TCS on transactions in which the buyer is required under any other provision of the Income Tax Act to deduct TDS from items that they have purchased from the seller, and they have already done so.
- This rule does not apply to imported items into India.
What are the goods applicable and tax rate under Section 206?
The following is the list of goods applicable under Section 206 along with tax rate:
- Timber obtained under a forest lease with the 2.5% tax rate.
- Tendu leaves with 5% tax rate.
- Scrap with 1% tax rate.
- Alcohol for human consumption with 1% tax rate.
- Timber obtained other than under a forest lease with the 2.5% tax rate.
- Minerals including coal, lignite, or iron ore 1% tax rate.
- Forest produce other than tendu leaves and timber with the 2.5% tax rate.
Note: Goods purchased by an Indian resident for the purpose of manufacturing or producing other items, as compared to trading, are free from tax under section 206C of the Income Tax Act. Buyers are required to file an application and deliver a copy to the Income Tax Department commissioner within 7 days of the sale’s completion.
Conclusion
Sellers whose entire sales value exceeds INR 50,00,000 in a financial year are subject to a tax collection obligation under Section 206C of the Income Tax Act, 1961. The purpose of this section is to guarantee that taxes on high-value transactions involving the sale of products are paid to the government. A restricted number of goods and services are subject to the tax, and sellers who sell goods to customers for more than INR 50 lakh are required to collect TCS at a rate of 0.075%. To avoid fines and interest, the TCS must be submitted with the government within a particular period of time.
