Taxable Value for collection of Tax Collection at Source (TCS) under Income Tax Act-1961

There are lot of confusion over calculation of taxable value for the purpose of collection of TCS under section 206C of Indian Income Tax Act-1961. Some Deductors collect TCS on value excluding of Taxes such as GST, while some collect TCS on value inclusive of taxes.

Although CBDT has clarified vide circular no 23/2017 dt 19.07.2017 value for deduction of TDS, as per this circular Income TDS is deducted on value net of taxes (GST) if shown separately, but there is no such clarity for collection of TCS. Therefore, it is very important to analysis the section 206C to determine value for the purpose of collection of TCS to avoid short collection of TCS under Income Tax Act-1961 and penal provision.

As per section 206C(1) of income Tax “Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax:

TABLE

Sl. No. Nature of goods Percentage
(1) (2) (3)
(i) Alcoholic Liquor for human consumption One per cent
(ii) Tendu leaves Five per cent
(iii) Timber obtained under a forest lease Two and one-half per cent
(iv) Timber obtained by any mode other than under a forest lease Two and one-half per cent
(v) Any other forest produce not being timber or tendu leaves Two and one-half per cent
(vi) Scrap One per cent
(vii) Minerals, being coal or lignite or iron ore One per cent:

Provided that every person, being a seller shall at the time, during the period beginning on the 1st day of June, 2003 and ending on the day immediately preceding the date on which the Taxation Laws (Amendment) Act, 2003 comes into force, of debiting of the amount payable by the buyer to the account of the buyer or of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table as it stood immediately before the 1st day of June, 2003, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax in accordance with the provisions of this section as they stood immediately before the 1st day of June, 2003.

(1A) Notwithstanding anything contained in sub-section (1), no collection of tax shall be made in the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the goods referred to in column (2) of the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes.

(1B) The person responsible for collecting tax under this section shall deliver or cause to be delivered to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner one copy of the declaration referred to in sub-section (1A) on or before the seventh day of the month next following the month in which the declaration is furnished to him.

(1C) Every person, who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry, to another person, other than a public sector company (hereafter in this section referred to as “licensee or lessee”) for the use of such parking lot or toll plaza or mine or quarry for the purpose of business shall, at the time of debiting of the amount payable by the licensee or lessee to the account of the licensee or lessee or at the time of receipt of such amount from the licensee or lessee in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the licensee or lessee of any such licence, contract or lease of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax:

TABLE

Sl. No. Nature of contract or licence or lease, etc. Percentage
(1) (2) (3)
(i) Parking lot Two per cent
(ii) Toll plaza Two per cent
(iii) Mining and quarrying Two per cent.

Explanation 1.—For the purposes of this sub-section, “mining and quarrying” shall not include mining and quarrying of mineral oil.

Explanation 2.—For the purposes of Explanation 1, “mineral oil” includes petroleum and natural gas.

(1D) [***]

(1E) [***]

(1F) 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 per cent of the sale consideration as income-tax. 

On the analysing the words of above provision then it is clear that TCS shall be collected “on amount payable”. What is amount payable? Whether amount payable is inclusive of GST or Excluding GST? Such things are not clear.

Since TDS is deducted on income so CBDT clarified that TDS shall be deducted on value Ex-GST vide circular no 23/2017 dt 19.07.2017. But this clarification was issued for Chapter-XVII-B (TDS) while TCS comes under Chapter XVII-BB of Income Tax Act-1961 therefore same clarification may not apply for TCS. And CBDT has not clarified value for TCS collection. Similar clarification for deduction of TDS was issued before GST era vide circular no 1/2014. It means nothing is changed in respect of value for collection of TCS in pre or post GST.

But in light of various case law’s decisions pronounced by judiciary, we may come to conclusion for determining value for collection of Income Tax TCS

1. In case of Satpal & Co V. Excise & Taxation Commissioner, 1989, the hon’ble Punjab-Haryana High Court decided that “The collection of tax at source provided by section 206C is relatable to the purchase price and not to the income component thereof

2. In case of Vinod Rathore V. Union of India (2005) (MP) the hon’ble court confirmed that “since the purchase price of liquor is inclusive of excise duty, tax will be recoverable under section 206C on actual price paid by buyer inclusive of tax and excise duty. As per intent of section 206C, tax is liable to be recovered on the actual amount paid by the buyer. Therefore as and when return is submitted by the buyer and, after assessment , if it is found that some excess payment has been made toward the tax, it may be ordered to be returned by the competent authority”.

In view of clarity come out from above case laws, it may be decided that income Tax TCS should be collected on value inclusive of GST or other taxes whether shown separately or not.

The above article is education purpose only, please review law before taking any decision relying upon above view of author.

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