It’s wonderful to have clarification vide circular no. 23/2016 dt. 24th June, 2016 from Government.
Government had clarified liability to collect Tax at Source (TCS) from customer will only and only arise if amount of sales consideration received to us in Cash exceeds Rs. 2 Lakh.
Through this it is very clear, no need to collect TCS from customer if amount of sales consideration received to us do not exceed Rs. 2 Lakh even though the Invoice Value exceeds Rs. Two lakh.
This clarification will not affect liability to collect Tax at Source from Government on full value of consideration, if Motor Vehicle sold of value exceeding Rs. Ten Lakh.
Although this clarification will help us in running the business smoothly and removes practical lots of difficulties, clarification is warmly welcomed.
In order to curb the cash economy, Finance Act 2016 has amended section 206C of the Income-tax Act to provide that the seller shall collect tax at the rate of one per cent from the purchaser on sale in cash of certain goods or provision of services exceeding two lakh rupees. Subsequent to the amendment, a number of representations were received from various stakeholders with regard to the scope of the provisions and the procedure to be followed in case of the amended provisions of Section 206C of the Act. The Board, after examining the representations of the stakeholders, issued FAQs vide circular.No.22/2016 dated 8th June, 2016. The Board has further decided to clarify the issue as regards applicability of the provisions relating to levy of TCS where the sale consideration received is partly in cash and partly in cheque by issue of an addendum to the above circular in the form of question and answer as under:
Question 1: Whether tax collection at source under section 206C(1D) at the rate of 1% will apply in cases where the sale consideration received is partly in cash and partly in cheque and the cash receipt is less than two lakh rupees.
Answer : No. Tax collection at source will not be levied if the cash receipt does not exceed two lakh rupees even if the sale consideration exceeds two lakh rupees.
Illustration: Goods worth Rs. 5 lakhs is sold for which the consideration amounting to Rs.4 lakhs has been received in cheque and Rs.1 lakh has been received in cash. As the cash receipt does not exceed Rs.2 lakh, no tax is required to be collected at source as per section 206C (1D).
Question 2: Whether tax collection at source under section 206C (1D) will apply only to cash component or in respect of whole of sales consideration.
Answer: Under section 206C (1D), the tax is required to be collected at source on cash component of the sales consideration and not on the whole of sales consideration.
Illustration: Goods worth Rs. 5 lakhs is sold for which the consideration amounting to Rs.2 lakhs has been received in cheque and Rs.3 lakh has been received in cash. Tax is required to be collected under section 206C (1 D) only on cash receipt of Rs.3 lakhs and not on the whole of sales consideration of Rs.5 lakh.