Understand Section 206C(1F) for TCS on motor vehicle sales exceeding INR 10 lakhs. Decode implications, exemptions, and key insights with illustrative examples.
Decoding of Section 206C(1F) i.e Collection of TCS @1% by seller on sale of motor vehicles wherein the value is exceeding 10 Lac.
As we know that every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding Rs.10,00,000/- shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 1% of the sale consideration as income-tax as per Section 206C(1F) of Income Tax Act.
However, there is no clarity as whether the same will be applicable on all the transactions of motor vehicles or there are any transactions which are out of this preview. To understand the same, lets discuss the relevant act, notification/circular.
Section 206C(1F) of the Income Tax Act requires a seller of a motor vehicle to collect tax at source from the buyer at the rate of 1% if the value of the motor vehicle exceeds INR 10 lakhs. The tax shall be collected at the time of receipt of such sum from the buyer.
In this regard, the term ‘buyer’ has been defined to inter-alia include a person who obtains the motor vehicles in any sale, but does not include the following:
- Central Government, State Government, Embassy, High Commission, legation, commission, consulate and trade representative of a foreign Stat; or
- a local authority as defined in Section 10(2o) of the Act; or
- a public sector company engaged in business of passenger
Further, the Central Board of Direct Taxes (‘CBDT’) had issued Circular No. 22/2016 dated June 08, 2016 which provides that Section 206C(1F) of the Act has been introduced to cover all transactions of retail sales. Vide the said circular, it has been clarified that provisions of Section 206C(1F) of the Act should not apply to the sale of motor vehicles by the vehicle manufacturers to dealers/distributors. The relevant question/answer of the circular is re-produced below for your reference.
Question 1:- Whether tax collection at source (‘TCS’) at the rate of 1% is on sale of Motor Vehicle at retail level or also on sale of motor vehicles by manufacturers to dealers/distributers.
Answer :- To bring high value transactions within the tax net, section 206C of the Act has been amended 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. This is brought to cover all transactions of retail sales and accordingly it will not apply on sale of motor vehicles by manufacturers to dealers/distributers.
In this regard, an ambiguity may arise whether Circular No. 22/2016 (supra) would apply to cars sold by vehicle dealers to other dealers, since vehicle dealer is a car dealer and not a manufacturer.
In this regard, it may be contended that clarification introduced by CBDT with respect to applicability of provisions of section 206C(1F) of the Act applies to retail sales only, meaning thereby that any sales made by any seller to a car dealer/ distributor shall not attract TCS under Section 206C(1F) of the Act.
Further, in the aforesaid CBDT Circular, it has been clarified that Section 206C(1F) of the Act is brought to cover all transactions of retail sales. Thus, it is imperative to analyze the meaning of ‘retail sales’.
The provisions of the Act do not define the meaning of ‘retail’. However, a few dictionary do contain the meaning of the term ‘retail’ which is as follows:
- As per Websters dictionary, retail sales has been defined to mean as under –
- The sale of commodities in small quantities or parcels; – opposed to wholesale
- To sell in small quantities, as by the single yard, pound, gallon, ; to sell directly to the consumer
- As per Law Lexicon, retail sales has been defined to mean as under –
- The sale of goods in small quantities to ultimate consumers or general public
- In relation to sale of commodity, retail sales means distribution or delivery of such commodity for consumption by an individual or group of individuals or any other consumer
Thus, from the perusal of the above, it is evident that retail sales means sales made to ultimate consumer, which is for that consumer’s personal consumption and not for the purposes of further trading.
Further, this view is further supported by another CBDT Circular i.e. Circular number 17 of 2020 on Section 206C(1H) of the Act, which states that Section 206C(1F) of the Act is for sale to consumer only and not to dealer. The sale of motor vehicle to a car dealer will be covered under Section 206C(1H) of the Act, upon fulfilment of prescribed conditions (refer para 4.5.2 of the said Circular). Relevant extract of the circular is re-produced below for your reference.
4.5.2 It this regard it may be noted that the scope of sub-sections (1H) and (1F) are different. While sub-section (1F) is based on single sale of motor vehicle, sub section (1H) is for receipt above 50 Lakh Rupee during the previous year against aggregate sale of good. While sub-section (1F) is for sale to consumer only and not to dealers, sub-section (1H) is for all sale above the threshold. Hence, in order to remove difficulty it is clarified that,-
Given the above, as per this view, the sales made to car dealer/ distributors will be outside the purview of Section 206C(1F) of the Act as per the relaxations provided by the CBDT Circular.
Please find certain below examples on applicability of Section 206C (1F) for your understanding.
Example 1– Whether TCS @1% will be applicable on sales of BMW car to Karan for self-consumption amounting to INR 118 Lakhs (100 Lakhs plus 18 Lakhs GST)?
Answer – Yes TCS will be applicable @1% from Karan under section 206C(1F) on INR 118 Lakhs as Karan is consumer of car and not a car dealer.
Example 2– James enterprises (Car dealer) sold a BMW car to Kartina and bill was raised amounting to INR 212 Lakhs (Including GST). What will be the TCS implication?
Answer – James enterprises shall collect TCS under section 206C(1F) @1% on 212.40 Lakhs as the same is sold to Katrina who will use this car for self-consumption.
Example 3– Car Ltd. sell 20 BMW cars INR 100 lakhs each plus 18% GST to Mahendra Pvt. Ltd (Car Dealer).
Answer – TSC @1% will not be applicable on this transaction as the transaction is with dealers and not with consumer of the car. However, TCS/TDS @0.1% will be applicable on this transaction under section 194Q and 206C(1H) subject to terms and conditioned.
In the above article, it is tried to explain the concepts in a similar manner from the understanding taken the section/circular of the income tax Law.
Author Bio
if abc pvt ltd company sold two cars during the financial year One Car value Rs. 9 lcs and another car Value Rs. 3.50 lacs as second hand cars to one second hand car dealer who work as individual capacity,. Tcs applicable ?
206C(1F) applies to retail sales of motor vehicles exceeding ₹10 lakh, calculated on the total invoice value including GST. Or excluding GST
The author has done a commendable job by explaining multiple issues covered under this section and also by providing elaborate answers to the readers’ queries.
Thank you..!
I have a query.
I am planning to buy a car shortly. The exshowroom price of car is 11.45 lacs approx. the dealer is giving discount of 1.50 lacs. Now the doubt is whether I am liable. to pay TCS in advance as after discount the car is costing me below 10 lacs ex showroom. Dealer says I have to pay because they show the actual exshowroom price and then less discount. I feel something wrong in this caalculation.
If I sold a car to X ltd for RS 12lacs and collected TCS u/s 206C(1F) and also I sold another 5 cars for total Rs. 45lacs. whether this transaction attracts TDS u/s 194Q.
Since the total sale (Rs 12 lakhs + Rs 45 lakhs = Rs 57 lakhs) exceeds Rs 50 lakhs, TDS u/s 194Q may apply if X Ltd’s turnover exceeds Rs 10 crores. Confirm X Ltd’s turnover and applicability.
Hi. My question is that I as an individual am purchasing car from my friend (who is the first owner) and the price of transaction has been fixed at Rs 22 lacs. Do I have to pay 1% TCS? Is TCS applicable for transaction between individuals also if the price is above Rs 10 lacs?
No, you are not required to pay 1% TCS in this case.
Lets understand
Understanding Section 206C(1F):
Every seller, who receives consideration for sale of a motor vehicle of the value exceeding ₹10 lakh, shall collect 1% TCS from the buyer at the time of receipt of such amount.
Who is considered a “seller”- The term “seller” for this section refers to a person engaged in the business of selling motor vehicles.
It includes only those who are traders or dealers of motor vehicles — such as a car showroom, car dealer, or car manufacturer.
It does not include individuals selling their personal vehicles, even if the value exceeds ₹10 lakh.
Your Case:
– You (individual buyer) are buying a used car from your friend (individual seller).
– Your friend is not a dealer, but the first registered owner of the car.
– The sale value is ₹22 lakhs, but since this is a personal transaction between two individuals, TCS is not applicable.
Thanks – Md Jamshed
Hello, I am an individual selling my car to another individual of company. Do I have to collect TCS @1% from the buyer? I do not even have a TAN …
Given that you are an individual seller without TAN, you would not be required to collect TCS.
1.In case a company xyz(not dealt in sale/purchase of motor vehical) is selling motor vehical to Dealer of motor vehical in exchange of new vehical. In that case will tcs is applicable on company?
2. If above company xyz sold old vehical to customer tcs to be charged or not?
Please suggest
1. Company XYZ selling motor vehicle to dealer in exchange for a new vehicle: TCS u/s 206C(1F) is applicable if the sale value exceeds Rs 10 lakhs per vehicle, regardless of the exchange.
2. Company XYZ selling old vehicle to a customer: TCS u/s 206C(1F) applies if the sale value exceeds Rs 10 lakhs. If the buyer is not a dealer, TCS might not apply.
what will be the Adjustment for sale return in case of Section 206C(1H)
My question is that, if any dealer sold motor vehicle worth rupees 57 Lac, to a consumer who is registered under GST (he is not dealer of any vehicle). Do both the section of 206C(1H) & 206C(1F) applicable or only 206C (1H) applicable ? please clear it.
Hi Nitesh- Section 206C(1F) does not apply if the vehicle buyer is a registered vehicle dealer, not a regular custome. A buyer’s GST registration alone does not confirm their status as a vehicle dealer.
Considering the above, TCS at 1% will be applicable for a single vehicle valued at INR 57 lakh under Section 206C(1F).
Thank your for your reply, I have one another question that is TCS U/S 206C(1H) applicable if we give
1. discount to customer
2. passing credit note for sales return.
Please clarify my this question also, and if you have any notification or circular regarding this reversal of TCS then please share. It will be very thankful.
My question is that, if any dealer sold motor vehicle worth rupees 57 Lac, to a consumer who is registered under GST (he is not dealer of any vehicle). is both the section of 206C(1H) & 206C(1F) applicable or only 206C (1H) applicable ? please clear it.
How much TCS is to be collected by a Car Dealer on sale of Car costing 50 Lakhs to an NRI having a Valid (Not Linked to Aadhaar) and Active PAN (PAN status is Inoperative). The NRI status is known when the loan for purchase of car was sanctioned by bank to the purchaser as an NRI
How much TCS is to be collected by a Car Dealer on sale of Car costing 20 Lakhs to an NRI having a Valid (Linked to Aadhaar) and Active PAN (ITR is filed for last 2 years). The NRI status is known when the loan for purchase of car was sanctioned by bank to the purchaser as an NRI
1% TCS will be applicable.
I am buying a second hand car,
By paying 4Lakhs to the owner & remaining amount i am repaying the balance loan which the owner originally took(by converting that loan into my name).The value of car is more than 10lakhs
will TCS be applicable on my case also?
Yes, TCS is applicable to the value of the vehicle, not the method of payment.
Helpful article… Thank you sir
A Registered Firm TO Exceeding 15 Crores Transfers, Second hand Car for 15 Lakhs to Partners firm TO Exceeding 12 Crores . TCS applicable ? .under which section
The TCS at 1% under Section 206(1F) will be applicable since both firms have distinct PANs, and considering that the turnover for the preceding financial year exceeds 10 crores.
Hi we’re planning to buy a new car, suppose if I’m getting consumer discount on new car and exchange value of my old vehicle with exchange bonus, which collectively bring ex-showroom price below 10 lakh, so after that also I’m liable to pay TCS? if yes then on ex-showroom price or discounted price?
The words ‘consideration for sale’ is not defined under the Income Tax Act. However, under general parlance, sale consideration would mean the amount for which the buyer has agreed to pay for the purchase of goods, which would include any other charges or any taxes etc.
In the given case, TCS @1% will be applicable if the total value of car (After adjusting consumer discount but before adjusting exchange bonus for old car) is exceeding INR 10 Lac. You can also refer my comments dated 18 April 2023.
pl clarify whether TCS is applicable on resale of a articulated crane
I understand that you wish to understand the applicability of section 206 1F on sales of articulated crane wherein the value is exceeding INR 10 Lac.
Please note that the said section is applicable on sale of motor vehicles. 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.
From the above, it can be said that TCS under section 206(1f) will be applicable on all vehicles (value exceeding 10 Lac) which could be run on roads including articulated crane and excludes only the following category.
1. Vehicle running upon fixed rails.
2. Special type of vehicle for which is used only in factory or any enclosed premises.
3. Vehicle having less than four wheels fitted with engine capacity of not exceeding 35 cubic centimetres.
Hi Deepak. Thanks for your comment. It is to be noted that CBDT Circular No. 17 of 2020 dated 29 September 2020 [F. No.370133/22/2020-TPL] provides that no adjustment on account of indirect taxes including GST is required to be made for collection of tax under the provisions of section 206C(1H) of the Act since the collection is made with reference to receipt of amount of sale consideration.
However, the words ‘consideration for sale’ is not defined under the Act. However, under general parlance, sale consideration would mean the amount the buyer has agreed to pay for the purchase of goods, which would include any other charges or any taxes etc.
Accordingly, TCS should be collected on the total consideration received i.e., on the amount inclusive of GST . Example 2 of the article can be referred for the same.
Thanks,
Jamshed
article is good but the author forget to explain that wheher income tax is applicable on gst or not and why??
whether a tax can be charged on other tax too??
or TCS should charge on assessable value of invoice.