Tax collection at source [Section 206C] :
Under section 206C(1), sellers of certain goods are required to collect tax from the buyers at the specified rates. The specified percentage for collection of tax at source is as follows:
| Nature of Goods | Percentage |
| (i) Alcoholic liquor for human consumption | 1% |
| (ii) Tendu leaves | 5% |
| (iii) Timber obtained under a forest lease | 2.5% |
| (iv) Timber obtained by any mode other than (iii) | 2.5% |
| (v) Any other forest produce not being timber or tendu leaves | 2.5% |
| (vi) Scrap | 1% |
| (vii) Minerals, being coal or lignite or iron ore | 1% |
However, no collection of tax shall be made in the case of a resident buyer, 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 goods referred to in column (2) of the above Table are to be utilised for the purpose of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes. [Sub-section (1A)]
“Buyer” means a person who obtains in any sale, by way of auction, tender, or any other mode, goods of the nature specified in the Table in sub-section (1) or the right to receive any such goods but does not include –
(i) a public sector company, the Central Government, a State Government, and an embassy, a high commission, legation, commission, consulate and the trade
representation, of a foreign State and a club, or
(ii) a buyer in the retail sale of such goods purchased by him for personal consumption.
“Seller” means 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 includes an individual or a HUF 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.
“Scrap” means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons;
The person responsible for collecting tax under this section shall deliver or cause to be delivered to the Chief Commissioner or Commissioner one copy of the declaration referred to in sub-section (1A) on or before 7th of the month next following the month in which the declaration is furnished to him [Sub-section (1B)].
Sub-section (1C) provides for collection of tax by every person who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest in any parking lot or toll plaza or a mine or a quarry to another person (other than a public sector company) for the use of such parking lot or toll plaza or mine or quarry for the purposes of business. The tax shall be collected as provided, from the licensee or lessee of any such licence, contract or lease of the specified nature, at the rate of 2% at the time of –
(1) debiting of the amount payable by the licensee or lessee to his account or
(2) at the time of receipt of such amount from the licensee or lessee –
(a) in cash or
(b) by the issue of a cheque or draft or
(c) by any other mode,
whichever is earlier.
Two Explanations have been inserted w.e.f. 1.6.2007 to clarify the scope of the term ‘mining and quarrying‘. Explanation 1 excludes mining and quarrying of mineral oil from the scope of ‘mining and quarrying‘. Explanation 2 clarifies that ‘mineral oil‘ includes petroleum and natural gas.
These Explanations seek to relieve the oil exploration and incidental services from the applicability of TCS provisions, since these services are in the organised sector.
Section 206C(1D) provides that tax is to be collected at source@1% of sale consideration by the seller from the buyer, where the sale of jewellery or bullion is in cash and the sale consideration –
(1) for jewellery exceeds Rs 5 lakh,
(2) for bullion exceeds Rs 2 lakh
In such cases, tax has to be collected at source by the seller from the buyer irrespective of the purpose of its use, whether for manufacturing or trading or for personal use .
The purpose of this requirement is to reduce the quantum of cash transaction in bullion and jewellery sector and curb the flow of unaccounted money in the trading system of bullion and jewellery. Buyer for the purpose of this transaction shall mean a person who obtains in any sale, goods of the nature specified therein.
The power to recover tax by collection under sub-section (1) or (1C) or (1D) shall be without prejudice to any other mode of recovery [Sub-section (2)].
Any amount collected under sub-section (1) or (1C) or (1D) shall be paid within the prescribed time to the credit of the Central Government or as the Board directs [Sub-section (3)].
All sums collected in accordance with section 206C(1)/(1C) /(1D) by an office of the Government, shall be paid to the credit of the Central Government on the same day where the tax is paid without production of an income-tax challan and on or before 7 days from the end of the month in which the collection is made, where tax is paid accompanied by an income -tax challan; and all sums collected in accordance with the provisions of section 206C(1)/(1C) /(1D) by collectors other than an office of the Government, shall be paid to the credit of the Central Government within one week from the last day of the month in which the collection is made [Rule 37CA].
A person collecting tax in accordance with the provisions of the section is vested with the responsibility of preparing such statements for such periods as may be prescribed after paying the tax collected to the credit of the Central Government within the prescribed time. The statement should be delivered or caused to be delivered to the prescribed income-tax authority or the person authorised by such authority. The statement should be in the prescribed form and verified in the prescribed manner. The statement should set forth the prescribed particulars and should be filed within such time as may be prescribed.
Quarterly statement in prescribed form (Form No.27EQ) shall be delivered, or cause to be delivered, to the DGIT (Systems) or any person authorized by him in accordance with t he proviso to section 206C(3). The time limit for furnishing such quarterly statements shall be 15th of the month following each quarter in respect of the first three quarters and 15th May for the last quarter ending on 31st March. The due dates would therefore be 15th July, 15th October, 15th January and 15th May for the quarters ending 30th June, 30th September, 31st December and 31st March, respectively [Rule 31AA].
For the purpose of improving the reporting of payment of TDS/TCS made through book entry and to make existing mechanism enforceable, sub-section (3A) has been inserted in section 206C. Accordingly, where the tax collected has been paid without the production of a challan, the PAO/TO/CDDO or any other person, by whatever name called, who is responsible for crediting such sum to the credit of the Central Government, shall furnish within the prescribed time a statement in the prescribed form for the prescribed period to the prescribed income-tax authority or the person authorised by such authority by verifying the same in the prescribed manner and setting forth prescribed particulars.
The person collecting tax at source who is required to prepare statements to be delivered to Director General of Income-tax(Systems)/ NSDL after paying the tax collected to the credit of the Central Government, may also deliver to the said authority, a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement so delivered in the specified form and verified in the specified manner [Section 206C(3B)].
Any amount collected in accordance with the provisions of this section and paid to the credit of
the Central Government shall be deemed to be payment of tax on behalf of the person from
whom the amount has been collected. The CBDT may prescribe the rules based on which
credit shall be given to such person for the amount so collected in a particular assessment
year [Sub-section (4)].
Every person collecting tax in accordance with the provisions of this section shall, within such period as may be prescribed from the date of debit or receipt of the amount, furnish to the buyer or licensee or lessee to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed [Sub-section (5)].
Certificate of tax collected at source under section 206C(5) in Form No.27D shall be furnished by the collector within 15 days from the due date for furnishing the quarterly statement of TCS under Rule 31AA [Rule 37D].
The prescribed income-tax authority or the person authorized by such authority have now been vested with the responsibility to prepare and deliver a statement in the prescribed form specifying the amount of tax collected and such other particulars as may be prescribed, within the prescribed time after the end of each financial year beginning on or after 1.4.2008.
The CBDT is empowered to frame a scheme for the purpose of filing of returns with such other authority or agency, if it considers necessary or expedient to do so.
Sub-section (5B) provides that the person responsible for collecting tax (other than a company/Central Government/State Governments) has the option to deliver or cause to be delivered such return on a floppy, diskette, magnetic cartridge tape, CD-ROM or any other computer readable media to the prescribed income-tax authority in accordance with such scheme as may be specified by the Board in this behalf.
The proviso to the said sub-section provides that where the person collecting tax is a company or the Central Government or a State Government, then such person is responsible to deliver or cause to be delivered, within the prescribed time after the end of each financial year, such returns on computer media under the said scheme.
Thus, filing of returns on computer media is compulsory where the seller is a company or the Central Government or a State Government. In every other case, the filing of returns on computer media is optional.
As per sub-section (5C), a return filed on computer media is deemed to be a return for the purposes of sub-section (5A) and the rules made thereunder. Such a return is also admissible as evidence in any proceedings made thereunder, without further proof of production of the original.
Rectification of defective TCS return [Section 206C(5D)]
Sub-section (5D) empowers the Assessing Officer, in case he considers that the return delivered or cause to be delivered under sub-section (5B) is defective, to –
(i) intimate the defect to the person collecting tax and
(ii) give him an opportunity of rectifying the defect within a period of –
(1) fifteen days from the date of such intimation or
(2) within such further period which the Assessing Officer may, in his discretion, allow on an application made in this behalf and
if the defect is not rectified within the said period of fifteen days or within such further period so allowed, then, such return would be treated as an invalid return. The provisions of the Income-tax Act, 1961 would apply as if such person had failed to deliver the return.
A person who is responsible for collecting the tax in accordance with the provisions of this section shall be liable to pay the tax to the credit of the Central Government, even if he has failed to collect the tax [Sub-section (6)].
Sub-section (6A) provides that any person responsible for collecting tax shall be deemed to be an assessee in default in respect of the tax if such person –
(1) does not collect the whole or any part of the tax or
(2) fails to pay such tax after having collected the tax.
Any person responsible for collecting tax at source, other than a seller of jewellery or bullion, would not be deemed to be an assessee-in-default for failure to collect tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licensee or lessee, if such buyer or licensee or lessee has furnished his re turn of income under section 139, taking into account such amount for computing income and paid the tax due on the income declared by him in such return of income. Further, the person should also furnish a certificate to this effect from an accountant in the prescribed form.
Further, no penalty shall be charged under section 221 from such person unless the Assessing Officer is satisfied that the person has without good and sufficient reasons failed to collect and pay the tax.
If the person responsible for collecting tax does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of 1% p.m. or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub – section (3) [Sub-section (7)].
In such cases where a person is not deemed to be an assessee-in-default on account of the tax being paid by the buyer/licensee/lessee, interest shall be payable by the collector from the date on which tax was collectible to the date of furnishing return of income by such buyer or licensee or lessee.
Where the tax has not been paid as aforesaid, after it is collected, the amount of tax together with the amount of simple interest thereon referred to in sub-section (7) shall be a charge upon all the assets of the person responsible for collecting tax [Sub-section (8)].
Further, sub-section (9) provides for issue of certificates by Assessing Officer for collection of tax at a lower rate than those specified in sub-section (1)/(1C)/(1D). Such certificate shall be issued on an application made by the buyer or licensee or lessee in this behalf.
Sub-section (10) provides that the person responsible for collecting tax shall collect the same at the rate specified in such certificate until such certificate in cancelled by the Assessing Officer.
Sub-section (11) empowers the Board to make rules specifying the cases in which and the circumstances under which an application maybe made for the grant of such certificate and the conditions subject to which certificate may be granted.