Solutions to Frequently Asked Question on TCS On amendment in Section 206C, sub section 1 of the Income Tax Act, 1961 for Sale of Motor Vehicle of Value exceeding Rs. 10,00,000 Finance minister, Mr. Jaitley had proposed to impose a provision for collection of Tax at source at the rate of 1%, in case of Sale of Motor Vehicle and finally it was passed and law amended. Effective date is 1st June, 2016. In this article, I am trying to answer most commonly asked questions on this Amendment. Act 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. - Sub Sec. 1F of Section 206C. Q1. Rate at which tax to be collected at source A 1. At the rate of 1%, on Sales consideration tax is to be collected at source. Q2. Value means for collection of tax at source A 2. Value means Sales Consideration i.e. Invoice Amount. Q3. Definition of Motor Vehicle A 3. 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 read as under : motor vehicle or vehicle means 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 thirty five cubic centimetres. It includes trucks, buses, two-wheelers and cars.
Q4. If full value of Sales Consideration received through cheque or mode other than Cash, whether TCS provisions will be applicable. A 4. 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. Q5. If motor vehicle sold of value Rs. 10,00,000/- whether TCS provisions will be applicable A 5. 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. Q6. Whether TCS to be collected, if Motor vehicle of value exceeding Rs. 10,00,000 purchased for personal consumption from Retail Buyer A 6. Yes, still Tax is to be collected at Source; as definition of Buyer is amended 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. Q7. 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 7. 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. Q8. Limit of Rs. 10,00,000/- will be considered on amount inclusive of Tax or exclusive of Tax A 8. For Limit, amount will be considered inclusive of VAT i.e. Sales Consideration. Q9. Rate of 1% for collection of TCS to be charged on Ex-showroom Price or On-Road Price A 9. 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. Q10. Whether TCS to be collected only on sale of Passenger vehicle A 10. 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. Q11. From which date TCS on Sale of Motor Vehicle of value exceeding Rs. Ten Lakh is applicable A 11. It is applicable from 1st June, 2016. Q12. In case Invoice generated before applicability of law and amount received on and after 1st June, 2016; whether TCS provision will be applicable A 12. No liability arises to collect TCS; as event (Sale of Car) arises already before applicability of law. Example Car Invoice generated on 25th May, 2016 (Event arises before 1st June, 2016) of Rs. 11,00,000 and Rs. 1,00,000 received on 5th June, 2016 (receipt after or in 1st June, 2016); no need to collect TCS only collect Rs. 1,00,000/-. Q13. In case complete invoice amount of Motor Vehicle, received before June, 2016 and Invoice generated on or after 1st June, 2016; whether liability to collect TCS arises A 13. 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 Cars complete invoice amount Rs. 11,00,000/- received on 25th May, 2016 and invoice generated on 5th June, 2016, TCS to be collected from customer of Rs. 11,000 (1% of Rs. 11,00,000). Q14. Whether Manufactures will also collect TCS A 14. Yes, Manufacturers will also collect TCS from Dealers; as everyone is covered. Q15. Whether supplier will also collect TCS A 15. Yes, Suppliers will also collect TCS. Q16. Whether Inter Dealer Seller will also collect TCS A 16. Yes, in case of Inter dealer Sale TCS will be collected. Q17. 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 17. 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. Q18. 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 18. 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. Q19. Amount of Sale Consideration received in parts/stages, whether TCS to be collected on 1st receipt itself or in stages A 19. No regards to amount received in stages or in one pay, TCS to be collected at the time of first receipt itself. Q20. Whether amount of TCS to be collected at the time of Receipt of Booking Amount A 20. 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, its 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. Act 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.: - Sub Sec. 1F. Example car booked of value Rs. 11,00,000 on 7th June, 2016 with receipt of Rs. 11,000 (here booking amount is Rs. 10891 100% and tax Rs. 109 1%) & On 11th June, 2016 amount received Rs. 5,00,000/- and on 5th July, 2016 rest amount, Rs. 589000/- received. Here on 11th June, 2016 along with Rs. 5,00,000 (1st receipt after booking amount) TCS of Rs. 10890/- (1% of Rs. 1089000/-) to be collected and so on 11th June,2016 net amount to be taken is Rs. 510890/- (500000+10890) On 5th July, only Rs. 5,89,000/-. Yet this matter needs to be clarified by CBDT. Q21. In case, car financed and amount received from Financer, when and how TCS to be collected A 21. As from above answer, tax is to be collected at the rate of 1% on booking amount at the time of booking and rest amount of TCS i.e. 1% on sales consideration, after deducting TCS collected at the time of booking; but in Finance case, part of the amount is received from Financer, here at the time of receiving margin money (before receiving money from Financer) from customer tax at the rate of 1% can be collected, considering practical situation. This matter needs further CBDTs clarification. Q22. In case booking amount refunded to customer after payment of TCS to Government A 22. To customer, amount refundable will be Booking Amount only, not amount collected from customer for TCS can be refunded to customer, as tax collected from customer would being already paid to Government and in Act there is no provision of refund of TCS deposit or to adjust such TCS deposit, only provision for TDS is specified. So practically, it would not be possible to refund tax to customer on cancellation of booking of motor vehicle of value exceeding Rs. Ten Lakh after depositing it with Government. Final thoughts In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees - However, it doesnt help much to the various government initiatives aimed at simplification of business process. It would require some additional upfront payment from the customer. Coupled with increasing administrative hassles, it could impact ease of doing business," What do you think of this new Tax Collect at Source Please feel free to share your thoughts in comments section below.