Rani Jain

Rani JainOn amendment in Section 206C, sub section 1 of the Income Tax Act, 1961 for Sale of Motor Vehicle of Value exceeding Rs. 10,00,000

Finance minister, Mr. Jaitley had proposed to impose a provision for collection of Tax at source at the rate of 1%, in case of Sale of Motor Vehicle and finally it was passed and law amended. Effective date is 1st June, 2016. In this article, I am trying to answer most commonly asked questions on this Amendment.

Act – “ Every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding ten lakh rupees, shall at the time of receipt of such amount, collect from the buyer, a sum equal to one percent of the sale consideration as income tax.

– Sub Sec. 1F of Section 206C.

Q1. Rate at which tax to be collected at source?

A 1. At the rate of 1%, on Sales consideration tax is to be collected at source.

Q2. Value means for collection of tax at source?

A 2. Value means Sales Consideration i.e. Invoice Amount.

Q3. Definition of Motor Vehicle?

A 3. Motor vehicle’ has not been defined specifically under the Income Tax Act. However, it is defined under section 2(28) of the Motor Vehicle Act, 1988, which read as under :

‘”motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding thirty five cubic centimetres.”

It includes trucks, buses, two-wheelers and cars.

Q4. If full value of Sales Consideration received through cheque or mode other than Cash, whether TCS provisions will be applicable.

A 4. Yes still, the provisions will be applicable, particularly this section had covered every mode of receipt and therefore receipt can be any mode for an Invoice value exceeding Rs. 10,00,000, provisions will be applicable.

Q5. If motor vehicle sold of value Rs. 10,00,000/- whether TCS provisions will be applicable?

A 5. Based on the reading of the provisions, it is inferred that TCS Provision will not be applicable, as act uses the word exceeding Rs. Ten lakh, however not include Rs. Ten lakh.

Act – “….value exceeding ten lakh rupees”.

Q6. Whether TCS to be collected, if Motor vehicle of value exceeding Rs. 10,00,000 purchased for personal consumption from Retail Buyer?

A 6. Yes, still Tax is to be collected at Source; as definition of Buyer is amended for clause VII in Bill passed in Lok Sabha, which specifically covers everyone as buyer, no one is excluded from Scope.

Act – “ sub –section (1D) or (1F) means a person who obtains in any sale, goods/services of the nature specified in the said sub-section” – Explanation 1.

Q7. Collection of TCS to be on Receipt basis or on Invoice basis in case Motor vehicle sold of value more than Rs. 10,00,000?

A 7. Collection of TCS to be on Receipt basis; the Finance Bill, 2016 as passed by the Lok Sabha provides that tax shall be collected on sale of motor vehicle only at the time of receipt of consideration. Earlier law was tax to be collected at source on date or receipt or invoice, whichever is earlier, now amended.

Act – “ Every person being a seller,…………….at the time of receipt of such amount, collect from the buyer…………” – Sub Section 1F.

Q8. Limit of Rs. 10,00,000/- will be considered on amount inclusive of Tax or exclusive of Tax?

A 8. For Limit, amount will be considered inclusive of VAT i.e. Sales Consideration.

Q9. Rate of 1% for collection of TCS to be charged on Ex-showroom Price or On-Road Price?

A 9. TCS to be collected on Ex-showroom Price i.e. again on Sale Consideration (the Invoice amount, which include VAT)

Act – “…….a sum equal to one percent of the Sale Consideration as income tax”.

Q10. Whether TCS to be collected only on sale of Passenger vehicle?

A 10. For above question, answer is pessimistic; TCS must be collected on “sale of motor vehicle value exceeding Rs. Ten Lakh”, not just passenger vehicle. From the budget speech, it was perceived that it would be implemented only on passenger vehicles priced above Rs 10 lakh, but what has come prima facie in the language of the approved budget (Finance Bill 2016), TCS (tax collection at source) is applicable on all types of motor vehicles including trucks, buses, two-wheelers and cars sold by manufacturers, exports, dealers and government.

Q11. From which date TCS on Sale of Motor Vehicle of value exceeding Rs. Ten Lakh is applicable?

A 11. It is applicable from 1st June, 2016.

Q12. In case Invoice generated before applicability of law and amount received on and after 1st June, 2016; whether TCS provision will be applicable?

A 12. No liability arises to collect TCS; as event (Sale of Car) arises already before applicability of law.

Example – Car Invoice generated on 25th May, 2016 (Event arises before 1st June, 2016) of Rs. 11,00,000 and Rs. 1,00,000 received on 5th June, 2016 (receipt after or in 1st June, 2016); no need to collect TCS only collect Rs. 1,00,000/-.

Q13. In case complete invoice amount of Motor Vehicle, received before June, 2016 and Invoice generated on or after 1st June, 2016; whether liability to collect TCS arises?

A 13. Yes, liability to collect TCS arises, as event – generation of invoice is during the period of applicability of law. From customer amount of TCS is to be collected.

Example – Car’s complete invoice amount Rs. 11,00,000/- received on 25th May, 2016 and invoice generated on 5th June, 2016, TCS to be collected from customer of Rs. 11,000 (1% of Rs. 11,00,000).

Q14. Whether Manufactures will also collect TCS?

A 14. Yes, Manufacturers will also collect TCS from Dealers; as everyone is covered.

Q15. Whether supplier will also collect TCS?

A 15. Yes, Suppliers will also collect TCS.

Q16. Whether Inter Dealer Seller will also collect TCS?

A 16. Yes, in case of Inter dealer Sale TCS will be collected.

Q17. If Ex-showroom Price of motor vehicle exceeds Rs. 10,00,000 but after giving discount, value is less than or equal to Rs. 10,00,000; whether TCS is to collected?

A 17. Based on the reading of the provisions, it is inferred that No need to collect TCS, as liability of TCS arises only if sales consideration (invoice amount) exceeds Rs. 10,00,000, but after giving discount to customers the invoice amount do not exceed Rs. 10,00,000 and hence no liability of TCS arises.

If discount is given through Credit Note, then liability of TCS collection arises, even though amount to be received by the seller do not exceed Rs. 10,00,000/- (because the seller Invoice amount exceeds Rs. 10,00,000). So only and only if, discount is given on invoice then such discount will be considered.

Q18. If bill raised, for two different parts of motor vehicle (say in case of trucks for – chasis and body) as single invoice, whose value exceeds Rs. Ten Lakh, whether TCS provision will be applicable?

A 18. Yes, TCS is to be collected, as the seller create a single invoice, it can be for two different parts of motor vehicle. So even though the individual value do not exceed Rs. Ten Lakhs, but if the invoice amount exceeds Rs. 10,00,000, then TCS is to be collected from customers.

Q19. Amount of Sale Consideration received in parts/stages, whether TCS to be collected on 1st receipt itself or in stages?

A 19. No regards to amount received in stages or in one pay, TCS to be collected at the time of first receipt itself.

Q20. Whether amount of TCS to be collected at the time of Receipt of Booking Amount?

A 20. Based on the reading of the provisions, it is inferred that; yes, on first receipt itself the TCS to be collected, which means TCS is to be collected with booking amount itself.

But practically, it’s not possible to collect TCS on full amount of Sales consideration, at the time of booking motor vehicle of value exceeding Rs. 10,00,000, with booking amount itself; therefore considering practical life, amount on which 1% to be charged for collection of TCS is Booking Amount.

Further, on every second receipt of sales consideration full amount of Tax can be collected at source less already received at the time of booking a motor vehicle.

Act – “ Every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding ten lakh rupees, shall at the time of receipt of such amount, collect from the buyer, a sum equal to one percent of the sale consideration as income tax.: – Sub Sec. 1F.

Example –

• car booked of value Rs. 11,00,000 on 7th June, 2016 with receipt of Rs. 11,000 (here booking amount is Rs. 10891 – 100% and tax Rs. 109 – 1%) &

• On 11th June, 2016 amount received Rs. 5,00,000/- and on 5th July, 2016 rest amount, Rs. 589000/- received.

• Here on 11th June, 2016 along with Rs. 5,00,000 (1st receipt after booking amount) TCS of Rs. 10890/- (1% of Rs. 1089000/-) to be collected and so on 11th June,2016 net amount to be taken is Rs. 510890/- (500000+10890)

• On 5th July, only Rs. 5,89,000/-.

Yet this matter needs to be clarified by CBDT.

Q21. In case, car financed and amount received from Financer, when and how TCS to be collected?

A 21. As from above answer, tax is to be collected at the rate of 1% on booking amount at the time of booking and rest amount of TCS i.e. 1% on sales consideration, after deducting TCS collected at the time of booking; but in Finance case, part of the amount is received from Financer, here at the time of receiving margin money (before receiving money from Financer) from customer tax at the rate of 1% can be collected, considering practical situation.

This matter needs further CBDT’s clarification.

Q22. In case booking amount refunded to customer after payment of TCS to Government?

A 22. To customer, amount refundable will be Booking Amount only, not amount collected from customer for TCS can be refunded to customer, as tax collected from customer would being already paid to Government and in Act there is no provision of refund of TCS deposit or to adjust such TCS deposit, only provision for TDS is specified.

So practically, it would not be possible to refund tax to customer on cancellation of booking of motor vehicle of value exceeding Rs. Ten Lakh after depositing it with Government.

Final thoughts

In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees – However, it doesn’t help much to the various government initiatives aimed at simplification of business process. It would require some additional upfront payment from the customer. Coupled with increasing administrative hassles, it could impact ease of doing business,”

What do you think of this new Tax Collect at Source? Please feel free to share your thoughts in comments section below.

Posted Under

Category : Income Tax (20860)
Type : Articles (10791) Featured (3626)
Tags : Budget 2016 (434) FAQs (190) income tax act (493) tcs (166)
  • GANDHI MOHAN BHARATI

    I feel that though the Government’s intentions may be good, they are slowly but steadily moving toward more complications than less rules.

    Even all persons whose income is above taxable limit have to file ITR, irrespective of whether they are taxable or not !!!. Asmall clerk also will also will come in the ambit.

    • Rani Jain

      At the time of amending Section 206C, Finance Minister spoke “In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section……………….”; the main reason behind amendment of law is to curb Black Money in the Act, and to cover every person who have cash to pay for goods/services of value Rs. Two Lakh and more and to generate information of such persons.

  • Manoj Thakur

    Tax is collected at Source from the buyer – will the buyer get credit of the same in his 26AS? Will he be issued a certificate for the same from the seller ? Does the seller have to file a return for the same . What about indivual person – does he have to apply for TAN & then file the return OR would it be similar to 26QB (property > 50 lacs). Request Please clarify

    • Rani Jain

      Yes the buyer will get the credit of TCS and it would be seen in Form 26AS of the buyer.
      Certificate to be issued by seller as Form No. 27D withing 15 days from the due date of filing Quarterly Return of TCS.
      Seller have to file the return on Quarterly basis, withing 15 days from the end of Quarter end and in case quarter ends on 31st March, return to be filed till 15th May.
      For payment of TCS and filing TCS return, TAN no. is required so if any collector do not have, they have to apply and obtain the same.

      • sharad

        I believe obtaining TAN for a solitary transaction is avoidable and PAN should suffice as in case of property purchase…

  • Kunal

    couple of question to author “Rani Jain” .

    Does this provision also apply to purchase of used vehicle from one person by another ?

    regarding Q22: isn’t it unfair to public and undue gain for Government. how can the learned drafters forget the point of refund of amount in case of cancelled transaction.

    • Rani Jain

      Yes, this provision (sub section 1F) will be applicable; as definition of seller for particular such section is not defined in Explanation No. 3 and therefore General definition of Seller will be considered, which means any on who sells the goods and therefore Individual is also covered here.

  • allena

    Shall it be applicable in case of sale of second hand cars/vehicles ?

    • Rani Jain

      Yes, provision would be applicable; as act do not differentiate between new and old vehicles.

      Rani Jain

  • Brijesh Khanna

    Please guide if motor car vehicle sold in cash with value of ₹600000 then whether we covered this under section 206C(1D) since mentioned section talks about Any Goods other than Bullion or Jewellery and according to Memorandum explaining provisions of Finance Bill 2016 Gov’t will not happy if we deal in Cash?

    • Rani Jain

      Yes, sure the transaction in cash for sale of motor vehicle of value between Rs. 2 Lakh and Ten Lakh is covered under section 206C(1D) and liability to collect TCS arises.

  • K S Nagabhushan

    Is this applicable only for new vehicles?
    What about resale of used cars?

    • Rani Jain

      Such provision is applicable in case of Sale of “Motor Vehicle” and definition of Motor Vehicle is not defined under the Act, so definition of Motor Vehicle Act to be adopted.

      Motor Vehicle includes every type of vehicle i.e. it can be new one or old one

  • KODANDA RAMAIAH K

    The Act stipulates tax collection based on invoice value. Booking amount does not constitute invoice amount. at the time of booking sale is not committed. Booking is only an agreement for sale. Both the parties can revoke this agreement for sale ( booking ) with mututal consent and upon conditions agreed upon prior to booking or after revoking.

    Therefore, the tax incidence occurs only upon generation of invoice and not before. Any advances paid or deposits made as part of booking shall constitute only as advance payments and not as sale value.

    This approach can simplify the procedures and also not burden the purchaser with forfeited tax on advances/deposits paid.

    The Act further to clarify on second sale of vehicles i.e., reg incidence and liability of tax on such second sale of vehicles. This further, needs to authentication of the value of vehicle during such second sale.

    • Rani Jain

      In sub section (1F) tax to be collected at the time of receipt of money, no regards to when invoice raised; point of taxation is Receipt of Money.

      Yes, its correct at the time of booking sale is not confirmed, but after going from one of the well known Manufacturer’s Booking Form, it constitutes Dealer or says manufacturer, is under an obligation to deliver the vehicle or sale the vehicle to buyer, if buyer wants to purchase the motor vehicle. With seller there is no right to cancel the sale generally.

      Even, at the time of booking, invoice value and date of delivery is known. So collection of booking amount constitutes to Sale.

      As also when sale is confirmed, amount taken to book a Motor Vehicle is also adjusted with its Sales consideration and only balance amount (Invoice Value – Booking Amount) is only taken; therefore booking amount is part of Invoice Consideration.

      Old Vehicle is also part of bigger term Motor Vehicle, it means on sale of old vehicle TCS provision will be applicable if value of old vehicle exceeds Rs 10Lakh or between Rs. 2 lakh and Rs. 10 lakh and any amount of Sales consideration received in Cash.

  • jeris jenis

    Is section 206 (1F) as brought forward by FA 2016 event or receipt based, as in law it’s the latter?
    The sales consideration that includes all taxes for TCS at 1% is extra or included in the value?

    • Rani Jain

      Under section 206(F) Tax to be collected at the time of receipt of money.

      Sales consideration is the Invoice value, which include all taxes generally Indirect tax to take credit of same; but TCS is extra amount to be collected and does not includes in Sales Consideration.

  • ravindra kumar jain

    in case of tcs on sale of motor vehicle, no definition of seller is given under explanation (c) of section 206C, please clarify that who is a seller either any individual or huf without tax audit u/s 44AB

  • ravindra kumar jain

    in case of tcs on sale of motor vehicle, there is no provision in section 206C (3) for deposition of collected tax in this case.

    • Rani Jain

      Yes, provision is not under section 206C(3) to collect the tax, but as under sub section 6, defining assessee in default, any person collected tax and fails to pay would amounts to assessee in default and therefore, tax should be paid to Government on time.

    • Rani Jain

      Yes, under section 206C (3), no reference to sub section (1F) is given, but under sub section 6 of same section, assessee in default is defined. In case any person collected tax fails to pay to Government, then it would be deemed to be assessee in default. Actual money collected by seller is of Government and it need to be paid to Government.
      So tax need to be paid to Government on time.

  • gagan

    Kindly tell if a motor veh price is less than rupees ten lacs than tcs is applicable or not?

    If not than as per sale of goods and services more than two lacs than tcs is applicable?

    If applicable than on which amount for example on ex showroom price or on road price (i.e. ins, acc, ew, etc)

    Plz xlear

    • Rani Jain

      TCS collection liability arises in case vehicle sold of value less than Rs. 10,00,000 but more than Rs. 2 lac and any amount of consideration received in cash, TCS liability arises on Invoice value i.e. on Ex showroom price.

  • Jasvinder Singh

    Is this apply on agricultural goods/Tractors/Implements too? If we sell a agricultural Tractor for Rs. 8 L and receive a down payment less than Rs. 3 L then its applicable or not? if yes, then on full invoice value or only the down payment?

    • Rani Jain

      On sale of agricultural goods of value exceeding rs. 2 lack and for which receiving any amount in cash attract TCS on complete invoice value.
      Further sell of Tractor in cash of value exceeding rs. 2 lac and up to 10 lac or in any mode of value exceeding Rs. 10 lac attract TCS liability on complete Invoice Value.

  • Pranay Shrivastava

    I have a small query regarding this 1% TCS increment…
    1. Will this be added to the Ex-Showroom price? i.e. if ex-showroom price is 11,00,000 so the Ex-Showroom still remain same or if the vehicle dealer can add 1% of TCS to Ex-showroom price and quote Ex-showroom price as 11,00,000 + 11,000 = 11,11,000?
    If Ex-Showroom price increases, there will be collateral damage in form of RTO charges and Insurance charges increment accordingly.

    • Rani Jain

      It will not be added to ex Showroom Price, as it is not cost for buyer, only it is advance payment of tax.

  • Shweta Pandey

    Hi…in case we are buying a car from CSD canteen we pay money to the canteen depot…acquire a purchase order from the depot over which the dealer gives us the car…in this case where are we supposed to pay TCS …CSD canteen or the dealer?

    • Rani Jain

      CSD to be paid, but whether to CSD Canteen or Dealer will depend on to whom you are paying sales consideration.

  • Debashish Paul

    Rate of TCS on motor vehicle above Rs. 10,00,000 if Buyers PAN NOT available

  • Manish Kothari

    There is an invoice with two lines one is vehicle with value 11 Lac and other is insurance sale with value 1 Lac. In this case the invoice value is above 10 Lac. TCS will definitely be calculated for vehicle, but will it be applicable for insurance sale line also.

  • muralidharan ms

    hi… we are into supply of Road Rollers and this does not come under Automobile. pricing would be basic Rs. 20 L + ED + VAT / CST. please advise if TCS is applicable in this case.

  • Debashish Paul

    If a customer purchase 2 nos of different model vehicle in a day from a same dealer, 1 vehicle costs Rs. 6L and other one RS. 7L in two different bills, in this case TCS will be applicable.

  • Navneet Munot

    Weather TCS is applicable if I purchase motor vehicle from outside India of value exceeding Rs. 10 Lakh….