Understanding Section 206C(1H) of Income Tax Act
The Income Tax Act of India has undergone several amendments over the years to ensure that the tax system in India is fair and transparent. One such amendment was the introduction of Section 206C(1H) in the Income Tax Act. In this blog, we will discuss the various aspects of Section 206C(1H) of the Income Tax Act, including its meaning, applicability, and implications.
Meaning of Section 206C(1H)
Section 206C(1H) of the Income Tax Act was introduced in the Finance Act 2020 and came into effect from October 1, 2020. This section deals with the collection of tax at source (TCS) on the sale of goods. Under this section, a seller of goods is required to collect TCS from the buyer if the sale value of goods or the aggregate of such sales exceeds Rs. 50 lakhs in a financial year.
Applicability of Section 206C(1H)
The provisions of Section 206C(1H) are applicable to sellers who sell goods and receive consideration of more than Rs. 50 lakhs in a financial year. The section is applicable to all sellers, including individuals, Hindu Undivided Families (HUFs), firms, companies, and any other person who is involved in the business of selling goods.
Implications of Section 206C(1H)
The introduction of Section 206C(1H) has several implications for sellers, buyers, and the government. Let’s discuss some of these implications in detail.
- Impact on Sellers
Sellers who come under the purview of Section 206C(1H) are required to collect TCS from the buyer at the rate of 0.1% of the sale consideration exceeding Rs. 50 lakhs. This means that if the sale value of goods exceeds Rs. 50 lakhs, the seller is required to collect TCS from the buyer and deposit it with the government. This could result in an increase in the compliance burden for sellers.
- Impact on Buyers
Buyers who purchase goods from sellers who come under the purview of Section 206C(1H) are required to pay TCS at the rate of 0.1% of the sale consideration exceeding Rs. 50 lakhs. This means that buyers will have to pay a higher amount for goods, which could impact their purchasing decisions.
- Impact on the Government
The introduction of Section 206C(1H) is expected to increase the revenue collection of the government. By collecting TCS on the sale of goods, the government will be able to keep track of high-value transactions and prevent tax evasion.
Compliance requirements under Section 206C(1H)
Sellers who are covered under Section 206C(1H) are required to follow certain compliance requirements. Some of the key compliance requirements are:
- Obtaining PAN and TAN: Sellers who come under the purview of Section 206C(1H) are required to obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.
- Collecting TCS: Sellers are required to collect TCS from the buyers at the rate of 0.1% of the sale consideration exceeding Rs. 50 lakhs.
- Issuing TCS certificate: Sellers are required to issue a TCS certificate to the buyer within 15 days from the due date of filing the TCS return. The TCS certificate should contain details such as the name and PAN of the seller and buyer, the amount of TCS collected, and the rate of TCS.
- Depositing TCS: Sellers are required to deposit the TCS collected with the government within seven days from the end of the month in which TCS is collected.
Penalties for non-compliance
Non-compliance with the provisions of Section 206C(1H) can attract penalties and legal implications. Some of the key penalties for non-compliance are:
- Penalty for non-collection or short-collection of TCS: If the seller fails to collect TCS or collects less than the prescribed amount, he/she will be liable to pay a penalty equal to the amount of TCS that he/she should have collected.
- Penalty for non-deposit of TCS: If the seller fails to deposit the TCS collected with the government, he/she will be liable to pay a penalty equal to the amount of TCS that he/she should have deposited.
- Interest on late payment of TCS: If the seller fails to deposit the TCS collected within the prescribed time, he/she will be liable to pay interest at the rate of 1% per month or part thereof until the TCS is deposited.
Impact of Section 206C(1H) on the economy
The introduction of Section 206C(1H) is expected to have a significant impact on the Indian economy. By collecting TCS on high-value transactions, the government will be able to keep track of the movement of goods and prevent tax evasion. This will help in increasing the tax revenue of the government, which can be used for various developmental activities such as infrastructure development, healthcare, education, etc.
However, the introduction of Section 206C(1H) could also impact the cash flow of businesses, especially small and medium enterprises (SMEs). SMEs may face difficulty in collecting TCS from buyers and depositing it with the government, which could impact their working capital. This could lead to a slowdown in the growth of SMEs, which are an important contributor to the Indian economy.
To address these concerns, the government has provided some relief measures to SMEs. As per the notification issued by the Central Board of Direct Taxes (CBDT), SMEs with a turnover of up to Rs. 10 crore can file their TCS returns on a quarterly basis instead of a monthly basis. This will help in reducing the compliance burden on SMEs and provide them with some relief.
Conclusion
Section 206C(1H) of the Income Tax Act is a significant amendment that has several implications for sellers, buyers, and the government. While it is expected to increase the compliance burden for sellers and impact the purchasing decisions of buyers, it will also help the government in keeping track of high-value transactions and prevent tax evasion. It is important for sellers and buyers to understand the provisions of this section and comply with the requirements to avoid any penalties or legal implications.
Read more useful content:
Frequently Asked Questions (FAQ’s)
- What is Section 206C(1H) of the Income Tax Act?
Section 206C(1H) of the Income Tax Act requires sellers to collect Tax Collected at Source (TCS) at the rate of 0.1% on sales consideration exceeding Rs. 50 lakhs in a financial year.
2. Who is required to collect TCS under Section 206C(1H)?
Sellers who sell goods and whose total sales consideration exceeds Rs. 50 lakhs in a financial year are required to collect TCS from buyers under Section 206C(1H).
3. What is the rate of TCS under Section 206C(1H)?
The rate of TCS under Section 206C(1H) is 0.1% of the sale consideration exceeding Rs. 50 lakhs in a financial year.
4. What is the due date for depositing TCS collected under Section 206C(1H)?
Sellers are required to deposit the TCS collected with the government within seven days from the end of the month in which TCS is collected.
5. What is the due date for issuing a TCS certificate under Section 206C(1H)?
Sellers are required to issue a TCS certificate to the buyer within 15 days from the due date of filing the TCS return.
6. Is it mandatory to obtain PAN and TAN under Section 206C(1H)?
Yes, sellers who come under the purview of Section 206C(1H) are required to obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.
7. What is the penalty for non-compliance with Section 206C(1H)?
Non-compliance with the provisions of Section 206C(1H) can attract penalties and legal implications. The penalty for non-collection or short-collection of TCS is equal to the amount of TCS that should have been collected. The penalty for non-deposit of TCS is also equal to the amount of TCS that should have been deposited. Interest is also charged on late payment of TCS.
8. Is there any relief for SMEs under Section 206C(1H)?
SMEs with a turnover of up to Rs. 10 crore can file their TCS returns on a quarterly basis instead of a monthly basis. This will help in reducing the compliance burden on SMEs.
9. What is the purpose of Section 206C(1H)?
Section 206C(1H) is aimed at keeping track of high-value transactions and preventing tax evasion. By collecting TCS on high-value transactions, the government can increase its tax revenue and use it for various developmental activities.
10. How can sellers comply with the provisions of Section 206C(1H)?
Sellers can comply with the provisions of Section 206C(1H) by obtaining PAN and TAN, collecting TCS from buyers, issuing TCS certificates, and depositing TCS collected with the government within the prescribed time. It is important for sellers to understand the provisions of this section and comply with the requirements to avoid any penalties or legal implications.
