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TCS on car purchase

TCS on car purchase

Pay 1% TCS on motor vehicle purchase from June1, 2016

Over the past few years, the government of India has been extending the scope of tax collection at source (TCS) in an effort to curb tax evasion and black money transactions.

Earlier, certain specified persons were required to collect tax at specified percentages, ranging from 1% to 5%, from the opposite parties in respect of certain specified transactions. Most of these are business transactions, not affecting the common man. The person from whom the TCS is collected gets credit for the TCS in his income tax return. In 2012, certain transactions affecting customers—receipts in cash, for sale of bullion exceeding Rs.2 lakh, and of jewelry exceeding Rs.5 lakh—was brought within its ambit.

And now, from 1 June 2016, 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 are covered under TCS provisions.

Statutory position

Section 206C of the Income Tax Act, 1961 has been amended to include the following clauses:

“(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”

Section Analysis

  • TCS on sale of motor Vehicle above Rs 10 Lakh
  • Tax to be collected  by seller
  • Tax to be collected  by seller at the time of receipt of such amount
  • Tax to be collected  w.e.f 01.06.2016
  • Tax to be collected by seller @ 1% of the sale consideration
  • The transaction may be in cash or by the issue of a cheque or draft or by any other mode.
  • Second hand sales would also be subject to TCS, if the sale value exceeds Rs.10 lakh.

Refer following link to jump to the entire Section 206C

http://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx

Let’s us discuss the definition in detail.

Definition of motor vehicle

‘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 reads as under:

“ 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 twenty five cubic centimeters.”

It means even motor cycles and other vehicles like trucks and buses will also be covered under the provision if sale consideration exceeds Rs 10 Lac.

Definition of seller

Sec 206C defines seller as:

  • the Central Government, a State Government or any local authority or
  • corporation or
  • authority established by or under a Central, State or Provincial Act, or
  • any company or
  • firm or
  • co-operative society and also
  • an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D) are sold or services referred to in sub-section (1D) are provided.

From the definition, it appears that:

  1. Even a vehicle manufacturer selling vehicles to dealers, and a dealer selling those vehicles to customers, would need to collect TCS
  1. If a seller is a firm or company or other entity as specified in first limb of the definition, it will be covered even if the car he is selling is its personal or business asset or stock or asset after use as there is no restriction as to turnover as well as to applicability to any sub-section under Section 206C
  1. The second limb of definition includes individuals and HUF with turnover exceeding the prescribed limit under Sec 44AB. But the definition is restricted to sub-section(1d) of Section 206C and does not include reference to subsection (1F) which covers transactions involving sale of motor vehicles. Thus, if a salaried person sells his car for more than Rs 10 lakhs, he would not be covered.

Sale Consideration

Sale consideration has not been defined.  But in general, it means price including VAT.

Sometimes discount on the sale of motor vehicle are given and it may happen that after discount the value of sale consideration is less than Rs 10 Lakh. Thus there may be two cases:

  1. When discounts are given by Credit Note , then the invoice value is not reduced and the person selling motor vehicle is required to collect TCS on sale of motor vehicle
  2. When discounts deducted from the invoice value , then it can be said that there is no need to collect TCS on the sale of motor vehicle if the net sale consideration is less than Rs 10 Lakh after giving discounts.

Even in some cases, single bill may be raised for two parts of motor vehicle (e.g. in case of trucks for chasis and body). If the total sale consideration of this bill exceeds Rs 10 Lakh then the person selling motor vehicle is required to deduct TCS on sale of Motor Vehicle.

Time of collection

Time of collection is the time of receipt of amount collected from the buyer.

There may be the issue of time of collection of TCS on Sale of motor Vehicle above Rs 10 Lakh, when the sale consideration is received in installments.

  • One view is that as and when installments are received, TCS has to be collected from the customers, as the section 206C(1F) mention , TCS is to be collected ” at the time of receipt of such sum .
  • Other view is that entire TCS has to be collected at the time of first instalment.

Workflow

A

Applicability in case of import or export of car or high sea sales

Section 206C does not put any embargo upon transactions which are in nature of import or export. In case of import of car, where seller is based outside India, the provisions of the Act cannot be extended beyond India.

In case of export of car, where buyer is based outside India, enforcing deposit of tax on behalf of buyer who has no income chargeable to tax in India cannot be sustained in the Court of law, because TCS is tax collected  and paid on behalf of buyer.

High Sea Sales take place before the goods cross the Custom Frontiers of India. Although the Income Tax Act does not extend beyond India and the word “India” is defined u/s 2(25A) as “ the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters” . Section 206C(ID) does not place any embargo upon such transactions and hence shall be covered by TCS.

Applicability on amount collected at the time of booking

TCS on sale of motor Vehicle above Rs 10 Lakh is to be collected even at the time of booking as the section 206C (1F ) read as follows ” 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.

And what if the booking gets cancelled after payment of TCS? Though it needs clarification but only option as of now is to claim this amount as refund when filing Income tax Return.

Appendix

Illustrative List of few mid segment models where 1% TCS would be applicable

  • Fiat Linea Tjet Emotion petrol
  • Fiat Linea Dynamic, Emotion Diesel
  • Honda BRV Diesel Model except Base Diesel
  • Honda BRV Petrol except E, S Model
  • Honda City SV Diesel and Onwards
  • Honda City Automatic 
  • Hyundai Verna Sx Option petrol
  • Hyundai Verna Diesel all except Base
  • Hyundai Creta all Model except Base Petrol, Diesel
  • Mahindra Scorpio all except Base
  • Mahindra XUV500
  • Maruti S Cross DDIS 320
  • Nissan Terrano all except Base
  • Renault Duster Diesel except Base Rxe
  • Tata Safari Storme
  • Toyota Innova Crysta
  • Vento DSG Automatic
  • Vento Diesel except Trendline

Sources:

www.incometaxindia.gov.in

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2 Responses to TCS on car purchase

  1. Please tell whether TCS @1% will be calculated on ex showroom price or on road price in case of motor vehicles??

  2. TCS is to be collected on sale consideration. Though “sale consideration” has not been defined, we draw inference from Sec 145A which includes VAT in value of sales and purchases. Hence the price of car plus the VAT is to be considered as sale consideration which, in other words, is the ex-showroom price.

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