The Central Government in furtherance to its goal of transforming India into a cashless economy as well as preventing the generation and circulation of black money has proposed a number of amendments to the Income Tax Act, 1961 through its union budget for the year 2017-2018. This included insertion of Section 269ST, curbing cash transactions in case of goods and services, by imposing a prohibition on receiving any amount exceeding 3 Lakh rupees with respect to any person in a single day/transaction/event. Concurrently, it also introduced Section 271DA, proposing imposition of penalty contravening the conditions laid down in in the above section, amounting to a sum equal to the amount received.
As a consequence of these, the finance ministry has also put forward a proposition relating to amendment of Section 206C of the Act that relates to the TCS (Tax Collected at Source) liability imposed, on receiving the sale consideration in cash on sale of jewellery. All of these provisions are to become effective from April 1, 2017.
Prior to the amendment proposed by Finance Act 2017, the section provided for collection of tax at source at the rate of one per cent on sale in cash of bullion exceeding 2 1akh rupees and jewellery exceeding 5 lakh rupees.
The present Section 206C sub section (1D) of Income Tax Act, 1961 reads as “Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery [or any other goods (other than bullion or jewellery) or providing any service], shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration,—
(i) for bullion, exceeds two hundred thousand rupees; or
(ii) for jewellery, exceeds five hundred thousand rupees; [or]
(iii) for any goods, other than those referred to in clauses (i) and (ii), or any service, exceeds two hundred thousand rupees”
Post the release of the union budget 2017-18, alterations suggested can be elaborated as:
♦ Omission of sub section 1D (ii) of Section 206C.
“for jewellery, exceeds five hundred thousand rupees”
♦ Omission of Explanation (ab) of Section 206C.
“jewellery shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2.”
♦ Removal of the word ‘jewellery’ from sub section 1D and 1E of Section 206C.
Section 206C (1D): Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery [or any other goods (other than bullion or jewellery) or providing any service]
Section 206C (1E): Nothing contained in sub-section (1D) in relation to sale of any goods (other than bullion or jewellery) or providing any service shall apply to such class of buyers who fulfil such conditions, as may be prescribed.
When it comes to the interpretation of Section 206C post this amendment, as no clarification has been made by the CBDT in this regard, two conflicting speculations can be construed.
1. Firstly, the interpretation of the whole scenario by applying the doctrine of pith and substance, it can be concluded that, henceforth, no TCS liability would be imposed in case of jewellery.
2. Secondly, the Central Government by removal of the collection of TCS on sale in case of jewellery, has actually given the legislation a more broader interpretation, entailing the inclusion of the same under the head “other goods” which in turn would lead to a charge of TCS on sale of jewellery exceeding the 2 lakh rupees margin that is set for the category, as compared to the earlier 5 lakh rupees margin set for jewellery specifically.
Well, as of now, all we can do is wait for further clarifications/guidelines from the Board regarding the correct interpretation of this provision in the light of this amendment, and up until then, take the affirmative approach of considering the intention of the legislature to be removal of jewellery from TCS liability.
Analysed By: Ms. Ruchira Negi (Advocate) – Works in field of Corporate Taxation.