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. 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.
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. 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. 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.
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:
- 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.
- If the sale of goods is exempted from GST or if the seller is not liable to collect GST.
- If the seller is a non-resident person who does not have a permanent establishment in India.
- If the goods are exported out of India.
If 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.
Procedures to comply with Section 206CL
The following procedures must be followed by the seller to comply with Section 206CL:
- Obtain the PAN or Aadhaar number of the buyer.
- Collect TCS at the rate of 0.1% or 1%, as applicable, on the sale consideration received.
- Issue a TCS certificate to the buyer within 15 days from the due date of filing the TCS return.
- 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.
Sellers need 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.
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.
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, sellers need to comply with the provisions of this section to avoid any legal or financial repercussions.