Simplifying Tax for C.A's and Taxpayers
Amendment in Section 206C vide Finance Act 2016

Amendment in Section 206C vide Finance Act 2016

Amendment in Section 206C vide Finance Act 2016

Circular no. 23/2016 dated 24.06.2016

Clarifications regarding Section 206C of the Income-tax Act, 1961 (hereafter referred to as ‘Act’)

In order to curb the cash economy, Finance act, 2016 has amended section 206C of the act to provide that seller shall collect tax @1% from the purchaser on sale in cash of certain goods or provision of services exceeding two lakh rupees.

Subsequent to amendment a number of representations were received from various stakeholders with regard to scope of the provisions and the procedure to be followed in case of amended provisions of section 206C of the act. The Board, after examining the representations of the stakeholders, issued FAQ’s vide circular No.22/2016 dated 08.06.2016. The board has further decided to clarify the issue as regards applicability of the provisions relating to levy of TCS where the sale consideration received is partly in cash and partly in cheque by issue of an addendum to the above circular in the form of question and answer as under:

Question I: Whether tax collection at source under section 206C(1D) at the rate of 1% will apply in cases where the sale consideration received is partly in cash and partly in cheque and the cash receipt is less than two lakh rupees?

Answer: No. Tax collection at source will not be levied if the cash receipt does not exceed two lakh rupees even if the sale consideration exceeds two lakh rupees.
Illustration: Goods worth Rs.5 lakh is sold for which the consideration amounting to Rs.4 lakh has been received in cheque and Rs.1 lakh has been received in cash. As cash receipt does not exceed Rs.2 lakh no tax is required to be collected at source under section 206C (1D).

Question2: Whether tax collection at source under section 206C (1D) will apply only to cash component or in respect of whole of sales consideration.

Answer: Under section 206(1D), the tax is required to be collected at source on cash component of the sales consideration and not on the whole of sales consideration.

Illustration: Goods worth Rs.5 lakh is sold for which the consideration amounting to Rs.2 lakh has been received in cheque and Rs.3 lakh has been received in cash. Tax is required to be collected under section 206C (1D) only on cash receipt of Rs.3 lakh and not on the whole of sales consideration of Rs.5 lakh.

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