TCS on sale of Motor Vehicles and goods or services

Tax Collection at Source (TCS) on sale of vehicles; goods or services

Before Finance Act, 2016, the earlier provision TCS was only collected on tendu leaves, scrap, jwellery, 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.

Some of the important related questions are as under:

Q.1   If motor vehicle sold of value Rs. 10,00,000/- whether TCS provisions will be applicable? 

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.2   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.3   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? 

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

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

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.6 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? 

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.

Republished with Amendments