TCS on Motor Vehicles wef 01.06.2016

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.

In the earlier provision TCS was only collected on tendu leaves, scrap, jewellery, bullion, parking In recent years, the scope of TCS is being extended in an effort to curb tax evasion and black money transactions. In 2012, certain transactions affecting customers—receipts in cash, for sale of bullion exceeding Rs.2 lakh, and of jewellery exceeding Rs.5 lakh—was brought within its ambit. In Budget 2016, from 1 June 2016,  The transactions are sale of a motor vehicle of value exceeding Rs.10 lakh, and receipt of money for sale of goods or provision of services exceeding Rs.2 lakh. In such cases, besides the sale price, the seller is required to collect an additional 1% from the purchaser, and pay it to the government.

This provision relating to vehicles applies not only to businesses that sell goods or provide services, but to all types of sellers. Even a salaried employee who sells a car for more than Rs.10 lakh, would need to collect TCS. Even a vehicle manufacturer selling vehicles to dealers, and a dealer selling those vehicles to customers, would need to collect TCS.

It would also apply to sale to all buyers, with certain exceptions. In case of sale of vehicles, government departments, public sector undertakings, clubs, and some others are excluded, and do not have to pay TCS. There is also an exclusion for a retail buyer purchasing goods for personal consumption. It may be possible to claim that a retail buyer of a car, buying the car for his personal use, does not have to pay the TCS. However, for the purchase of goods or services exceeding Rs.2 lakh in cash, these exclusions would not apply.

The use of the term “motor vehicle” would include all types of vehicles—two-wheelers (such as high-end motorcycles), motor cars, SUVs, trucks and buses. Second hand sales would also be subject to TCS, if the sale value exceeds Rs.10 lakh.

Q.1 If full value of Sales Consideration received through cheque or mode other than Cash, whether TCS provisions will be applicable.

A.1    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.

Q.2 If motor vehicle sold of value Rs. 10,00,000/- whether TCS provisions will be applicable? 

A.2    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”.

Q.3 Whether TCS to be collected, if Motor vehicle of value exceeding Rs. 10,00,000 purchased for personal consumption from Retail Buyer? 

Yes, still Tax is to be collected at Source; as definition of Buyer isamended 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.

Q.4 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.4    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.

Q.5 Limit of Rs. 10,00,000/- will be considered on amount inclusive of Tax or exclusive of Tax?

A.5 For Limit, amount will be considered inclusive of VAT i.e. Sales Consideration.

Q.6 Rate of 1% for collection of TCS to be charged on Ex-showroom Price or On-Road Price? 

A.6    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”.

Q.7 Whether TCS to be collected only on sale of Passenger vehicle? 

A.7  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.

Q.8 From which date TCS on Sale of Motor Vehicle of value exceeding Rs. Ten Lakh is applicable? 

A.8 It is applicable from 1^st June, 2016.

Q.9 In case Invoice generated before applicability of law and amount received on and after 1st June, 2016; whether TCS provision will be applicable? 

A.9    No liability arises to collect TCS; as event (Sale of Car) arises already before applicability of law.

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

Q.10 In case complete invoice amount of Motor Vehicle, received before June, 2016 and Invoice generated on or after 1^st June, 2016; whether liability to collect TCS arises? 

A.10  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 25^th May, 2016 and invoice generated on 5^th  June, 2016, TCS to be collected from customer of Rs. 11,000 (1% of Rs. 11,00,000)

Q.11 Whether Manufactures will also collect TCS?

A.11  Yes, Manufacturers will also collect TCS from Dealers; as everyone is covered.

Q.12 Whether supplier will also collect TCS? 

A.12     Yes, Suppliers will also collect TCS.

Q.13 Whether Inter Dealer Seller will also collect TCS? 

A.13     Yes, in case of Inter dealer Sale TCS will be collected.

Q.14 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.14  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.

Q.15 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.15  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.

Q.16 Amount of Sale Consideration received in parts/stages, whether TCS to be collected on 1st receipt itself or in stages? 

A.16  No regards to amount received in stages or in one pay, TCS to be collected at the time of first receipt itself.

Q.17 Whether amount of TCS to be collected at the time of Receipt of Booking Amount? 

A.17 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.

Compiled by Nikhil Agarwal

Republished with Amendments