Section 206C of Income Tax Act 2018: All You Need to Know About Tax Collection at Source (TCS)

March 16, 2023

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Section 206C of the Income Tax Act, 1961 was inserted by the Finance Act, 2020 with effect from 1st October 2020. It is an important provision that deals with tax collection at source (TCS) on certain specified transactions. In this blog, we will discuss section 206C of the Income Tax Act, 1961 in detail.

Table of Contents

What is TCS?

Tax collection at source (TCS) is a mechanism for collecting tax at the source of the transaction. The person making the payment is required to collect tax from the receiver of the payment and deposit it with the government. TCS is applicable on certain specified transactions as per the Income Tax Act, 1961.

Applicability of Section 206C

Section 206C is applicable to the following transactions:

Sale of goods: TCS is applicable on the sale of goods if the sale consideration exceeds Rs. 50 lakhs in a financial year. The rate of TCS is 0.1% of the sale consideration.
Sale of overseas tour packages: TCS is applicable on the sale of overseas tour packages if the tour package cost exceeds Rs. 7 lakhs. The rate of TCS is 5% of the tour package cost.
Sale of any goods or services: TCS is applicable on the sale of any goods or services by an e-commerce operator if the consideration for such sale exceeds Rs. 50 lakhs in a financial year. The rate of TCS is 1% of the sale consideration.

Exclusions from Section 206C

Section 206C does not apply to the following transactions:

Goods or services exported out of India.
Goods or services covered under other provisions of the Income Tax Act, 1961, where TDS or TCS is applicable.
Transactions where the buyer is a Central or State Government, local authority, or any other specified person.

Compliance Requirements

The person collecting TCS is required to obtain a Tax Collection Account Number (TAN) and furnish a quarterly statement of TCS to the government. The statement should be furnished within 15 days from the end of the quarter. The person collecting TCS is also required to issue a TCS certificate to the buyer of the goods or services.

Penalties for Non-Compliance

Non-compliance with the provisions of section 206C can attract penalties and interest. If the person responsible for collecting TCS fails to collect or deposit the tax, they may be liable to pay a penalty equal to the amount of tax not collected or deposited. In addition, interest may be levied on the amount of tax not collected or deposited.

If the person responsible for furnishing the quarterly statement of TCS fails to do so, they may be liable to pay a penalty of Rs. 200 per day for the period of delay. The penalty amount cannot exceed the amount of TCS that should have been collected or deposited.

Impact of Section 206C on Businesses

Section 206C has a significant impact on businesses, especially those engaged in the sale of goods or services through e-commerce platforms. The provision requires them to collect and deposit TCS with the government, which increases their compliance burden. Failure to comply with the provision can lead to penalties and legal issues.

On the other hand, section 206C also helps businesses by ensuring that the tax base is widened and compliance with tax laws is increased. The provision helps in preventing tax evasion and increasing tax revenue for the government.

Conclusion

Section 206C of the Income Tax Act, 1961 is an important provision that deals with tax collection at source (TCS) on certain specified transactions. The provision is aimed at widening the tax base and ensuring compliance with tax laws. It is important for businesses to understand the applicability of section 206C and comply with the requirements to avoid any penalties or legal issues.

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Frequently Asked Questions (FAQs)

What is Section 206C of the Income Tax Act, 1961?

Section 206C is a provision that deals with tax collection at source (TCS) on certain specified transactions.

What are the transactions on which TCS is applicable under Section 206C?

TCS is applicable on the sale of goods, sale of overseas tour packages, and sale of any goods or services by an e-commerce operator, subject to certain conditions.

What is the rate of TCS under Section 206C?

The rate of TCS varies depending on the transaction. For the sale of goods and any goods or services by an e-commerce operator, the rate is 0.1% or 1% respectively. For the sale of overseas tour packages, the rate is 5%.

Who is responsible for collecting and depositing TCS under Section 206C?

The person making the payment is responsible for collecting and depositing TCS with the government.

What is the threshold limit for TCS under Section 206C?

The threshold limit for TCS varies depending on the transaction. For the sale of goods and any goods or services by an e-commerce operator, the threshold limit is Rs. 50 lakhs in a financial year. For the sale of overseas tour packages, the threshold limit is Rs. 7 lakhs.

Are there any exclusions from Section 206C?

Yes, Section 206C does not apply to certain transactions, such as goods or services exported out of India, transactions covered under other provisions of the Income Tax Act, and transactions with specified persons.

What are the compliance requirements under Section 206C?

The person collecting TCS is required to obtain a Tax Collection Account Number (TAN) and furnish a quarterly statement of TCS to the government. The person is also required to issue a TCS certificate to the buyer of the goods or services.

What are the penalties for non-compliance with Section 206C?

Non-compliance with Section 206C can attract penalties and interest. The penalty amount can be equal to the amount of tax not collected or deposited, and interest may be levied on the amount of tax not collected or deposited.