Introduction
Section 206CQ of the Income Tax Act, 1961 was introduced by the Finance Act, 2020. This section deals with the collection of tax at source on the sale of goods. The aim of this section is to widen the tax base and ensure that the transactions of the sale of goods are not carried out without proper taxation.
According to this section, a seller of goods is required to collect tax at source from the buyer at the time of sale of goods. The rate of tax to be collected at source under this section is 0.1% of the sale consideration exceeding Rs. 50 lakh. This means that if the sale consideration is Rs. 50 lakh or less, no tax is required to be collected at source. However, if the sale consideration exceeds Rs. 50 lakh, the seller is required to collect tax at source at the rate of 0.1% on the amount exceeding Rs. 50 lakh.
It is important to note that this section applies only to a seller whose turnover, gross receipts, or sales from the business exceeds Rs. 10 crore in the previous financial year. Therefore, small sellers are not required to collect tax at source under this section.
The tax collected at source under this section is required to be deposited with the government within 7 days from the end of the month in which the tax was collected. The seller is also required to file a statement of tax collected at source in Form 27EQ within the prescribed time limit.
It is important for sellers to comply with the provisions of this section to avoid any penalties and interest that may be imposed by the tax authorities for non-compliance. Failure to collect tax at source or deposit the tax collected at source can result in penalties and interest being levied on the seller.
One of the key objectives of introducing this section was to curb the circulation of black money in the economy, which has been a persistent problem in India for a long time. By mandating the collection of tax at source on high-value transactions, the government hopes to bring more transparency and accountability in the business dealings of sellers and buyers.
Another important aspect of this section is that it applies not only to resident sellers but also to non-resident sellers who carry out business in India. Therefore, even if a non-resident seller makes a high-value sale to an Indian buyer, they will be required to collect tax at source on the amount exceeding Rs. 50 lakh.
The tax collected at source under this section is credited to the account of the buyer with the government, and the buyer can claim credit for the tax amount paid against their income tax liability. This means that the tax collected at source does not represent an additional tax liability for the buyer, but rather an advance payment of their tax liability.
It is important to note that certain goods are exempt from the purview of this section, such as goods on which tax is already being deducted at source under any other provision of the Income Tax Act, or goods which are exported out of India. The section also provides for certain other exemptions, such as transactions between the government and its agencies, and transactions between registered dealers of goods.
Finally, it is worth noting that Section 206CQ is not applicable to the sale of services, only to the sale of goods. However, the government has introduced a similar provision for the collection of tax at source on the provision of certain services under Section 194-O of the Income Tax Act.
In conclusion
Section 206CQ of the Income Tax Act, 1961 is an important provision aimed at bringing more transparency and accountability in high-value business transactions. Sellers whose turnover, gross receipts, or sales from the business exceed Rs. 10 crore in the previous financial year are required to collect tax at source at the rate of 0.1% on the sale consideration exceeding Rs. 50 lakh. Non-compliance with the provisions of this section can result in penalties and interest being levied on the seller, so it is important for sellers to ensure that they are fully compliant with the requirements of the law.
Read more useful content:
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Frequently Asked Questions (FAQs)
Q: What is Section 206CQ of the Income Tax Act?
A: Section 206CQ is a provision of the Income Tax Act that requires sellers of goods to collect tax at source from buyers on high-value transactions. The aim of this section is to bring more transparency and accountability in business transactions and curb the circulation of black money in the economy.
Q: Who is required to collect tax at source under Section 206CQ?
A: Sellers whose turnover, gross receipts, or sales from the business exceed Rs. 10 crore in the previous financial year are required to collect tax at source at the rate of 0.1% on the sale consideration exceeding Rs. 50 lakh.
Q: What is the rate of tax to be collected at source under Section 206CQ?
A: The rate of tax to be collected at source under this section is 0.1% of the sale consideration exceeding Rs. 50 lakh.
Q: Is Section 206CQ applicable to all types of goods?
A: No, certain goods are exempt from the purview of this section, such as goods on which tax is already being deducted at source under any other provision of the Income Tax Act, or goods which are exported out of India.
Q: Are non-resident sellers also required to collect tax at source under Section 206CQ?
A: Yes, even non-resident sellers who carry out business in India are required to collect tax at source on high-value transactions.
Q: What is the time limit for depositing the tax collected at source under Section 206CQ?
A: The tax collected at source under this section is required to be deposited with the government within 7 days from the end of the month in which the tax was collected.
Q: What is the penalty for non-compliance with Section 206CQ?
A: Failure to collect tax at source or deposit the tax collected at source can result in penalties and interest being levied on the seller. The penalty can be up to the amount of tax that was required to be collected at source.
Q: Is Section 206CQ applicable to the sale of services?
A: No, Section 206CQ is applicable only to the sale of goods. However, a similar provision for the collection of tax at source on the provision of certain services has been introduced under Section 194-O of the Income Tax Act.
