Section 206CL of Income Tax Act: An Overview of TCS on Sale of Goods

Section 206CL of the Income Tax Act deals with the concept of Tax Collection at Source (TCS) on sale of goods. TCS is the tax collected by the seller while receiving payment from the buyer. It is a mechanism to collect tax at the source of income, in order to widen the tax base and reduce the burden of tax collection on the government. In this blog, we will discuss Section 206CL in detail, covering the following headings:

• Introduction to Section 206CL
• Applicability of Section 206CL
• Rates of TCS under Section 206CL
• Exemptions under Section 206CL
• Procedures to comply with Section 206CL
• Conclusion

Introduction to Section 206CL

Section 206CL of the Income Tax Act, 1961 was introduced by the Finance Act, 2020. The section mandates the collection of TCS at the rate of 0.1% by the seller, if the sale of goods exceeds Rs. 50 lakh in a financial year. The TCS collected under this section is to be deposited with the government within 7 days from the end of the month in which the tax was collected.

Applicability of Section 206CL

Section 206CL is applicable to a seller who receives consideration for sale of goods exceeding Rs. 50 lakh in a financial year. The seller can be an individual, HUF, company, firm, LLP, association of persons, or any other entity engaged in the business of selling goods.

Rates of TCS under Section 206CL

The rate of TCS under Section 206CL is 0.1% of the sale consideration received by the seller. However, if the buyer does not provide their Permanent Account Number (PAN) or Aadhaar number, the rate of TCS will be 1%. It is important to note that the TCS collected under this section is over and above the GST levied on the sale of goods.

Exemptions under Section 206CL

There are certain exemptions provided under Section 206CL. The section is not applicable in the following cases:

1. If the buyer is a Central or State government, embassy, High Commission, legation, commission, consulate, the trade representation of a foreign state, or any other person as notified by the government.
2. If the sale of goods is exempted from GST or if the seller is not liable to collect GST.
3. If the seller is a non-resident person who does not have a permanent establishment in India.
4. If the goods are exported out of India.

Procedures to comply with Section 206CL

The following procedures must be followed by the seller to comply with Section 206CL:

1. Obtain the PAN or Aadhaar number of the buyer.
2. Collect TCS at the rate of 0.1% or 1%, as applicable, on the sale consideration received.
3. Issue a TCS certificate to the buyer within 15 days from the due date of filing the TCS return.
4. File the TCS return in Form 27EQ and deposit the TCS with the government within 7 days from the end of the month in which the tax was collected.

In addition to the above, it is important to note that the TCS collected under Section 206CL is considered as a payment made on behalf of the buyer, and is allowed as a credit against the income tax liability of the buyer. The buyer can claim this credit while filing their income tax return.

The TCS collected under this section is applicable only on the sale of goods, and not on the provision of services. However, TCS provisions are applicable on certain services such as renting of immovable property, commission, brokerage, etc., under other sections of the Income Tax Act.

It is important for sellers to maintain proper records of the TCS collected and deposited, as failure to do so may result in penalties and interest. Sellers must also ensure that the PAN or Aadhaar number of the buyer is verified through the income tax department’s online portal, to avoid any errors in collection of TCS.

The introduction of Section 206CL is a step towards simplifying the tax collection process and increasing the transparency of transactions. It is expected to bring in more revenue for the government, and also make it easier for buyers to claim credit for the TCS collected.

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It is worth noting that Section 206CL of the Income Tax Act has brought a significant change in the tax collection mechanism. Previously, TCS was applicable only on certain goods such as scrap, minerals, etc. and on transactions above a certain threshold. However, the introduction of Section 206CL has widened the scope of TCS and made it applicable to a wider range of goods, without any threshold limit.

The TCS collected under Section 206CL can have an impact on the cash flow of the seller, as it is collected upfront and deposited with the government. This may affect the seller’s ability to manage their working capital effectively. To address this issue, the government has allowed the credit of TCS collected under Section 206CL to be set off against the GST liability of the seller.

Sellers must also be aware of the penalties that can be imposed for non-compliance with Section 206CL. Failure to collect and deposit TCS can result in a penalty equal to the amount of TCS not collected, and interest may also be charged on the outstanding amount. Therefore, it is important for sellers to comply with the provisions of this section to avoid any legal or financial repercussions.

Conclusion

Section 206CL of the Income Tax Act is an important provision for the collection of TCS on the sale of goods. The section aims to widen the tax base and reduce the burden of tax collection on the government. It is important for sellers to comply with the provisions of this section to avoid penalties and interest.

Read more useful content:

• section 145 of income tax act
• section 10e of income tax act
• section 9 of the income tax act
• section 94b of income tax act
• section 206aa of income tax act

Frequently Asked Questions (FAQs)

1. What is Section 206CL of the Income Tax Act?

Section 206CL of the Income Tax Act is a provision that mandates the collection of Tax Collected at Source (TCS) by the seller on the sale of goods, if the consideration for the sale exceeds Rs. 50 lakh in a financial year.

2. Who is liable to collect TCS under Section 206CL?
The seller is liable to collect TCS under Section 206CL, if the consideration for the sale of goods exceeds Rs. 50 lakh in a financial year.

3. What is the rate of TCS under Section 206CL?
The rate of TCS under Section 206CL is 0.1% of the consideration received on the sale of goods, if the buyer’s PAN or Aadhaar number is available. In case the buyer does not provide PAN or Aadhaar number, the rate of TCS is 1%.

4. Is TCS under Section 206CL applicable on the sale of services?
No, TCS under Section 206CL is applicable only on the sale of goods and not on the provision of services. However, TCS provisions are applicable on certain services under other sections of the Income Tax Act.

5. What is the threshold limit for TCS under Section 206CL?
There is no threshold limit for TCS under Section 206CL. TCS is applicable on the sale of goods if the consideration exceeds Rs. 50 lakh in a financial year.

6. Can the TCS collected under Section 206CL be claimed as a credit by the buyer?
Yes, the TCS collected under Section 206CL is considered as a payment made on behalf of the buyer, and can be claimed as a credit against the income tax liability of the buyer.

7. Is it mandatory for the seller to collect and deposit TCS under Section 206CL?
Yes, it is mandatory for the seller to collect and deposit TCS under Section 206CL, if the consideration for the sale of goods exceeds Rs. 50 lakh in a financial year.

8. What happens if the seller fails to comply with the provisions of Section 206CL?
If the seller fails to comply with the provisions of Section 206CL, penalties and interest may be imposed by the income tax department. The penalty can be equal to the amount of TCS not collected, and interest may also be charged on the outstanding amount.

9. How can sellers verify the PAN or Aadhaar number of the buyer for the purpose of TCS under Section 206CL?
Sellers can verify the PAN or Aadhaar number of the buyer through the income tax department’s online portal, using the buyer’s name and date of birth or PAN or Aadhaar number.

10. Can the TCS collected under Section 206CL be set off against the GST liability of the seller?
Yes, the TCS collected under Section 206CL can be set off against the GST liability of the seller. This can help in managing the cash flow of the seller.