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.
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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.