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CHAPTER – 7C: TAX COLLECTION AT

SOURCE
a. WHAT IS TCS?
Tax Collection at Source (TCS) means collection of tax at source at prescribed rates by the seller
from the buyer of certain specified

i. Goods; or
ii. Services; or
iii. a motor vehicle; or
iv. Overseas remittance for education and other purposes; or
v. Overseas remittance for tour package; or
vi. Sale of goods above Rs.50 lacs

b. Goods specified under section 206C(1):

Nature of Goods specified Rates 14.05.20

to
31.03.20
(a) Alcoholic liquor for human consumption 1% 1%
(b) Tendu leaves 5% 3.75%
(c) Timber obtained under a forest lease 2.5% 1.875%
(d) Timber obtained by any mode other than (c) 2.5% 1.875%
(e) Any other forest produce not being timber or tendu leaves 2.5% 1.875%
(f) Scrap 1% 0.75%
(g) Minerals, being coal or lignite or iron ore 1% 0.75%

c. Non-applicability of TCS [Section 206C(1A)]

No TCS if goods referred to in section 206C(1) 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. The resident buyer should furnish a declaration to
the seller that such goods are to be used for the purpose of manufacturing of any article or
thing.

Problem:
M/s.PMPC, a Partnership firm, is engaged in the manufacture of cardboard carton boxes used in
packaging industry. During the year, it has sold cutting waste generated amounting to Rs.30 lakhs
to XYZ Ltd, a paper manufacturing company. XYZ Ltd uses such cutting waste purchased as raw
material for its production. Discuss the implication of this transaction with respect to tax collected
at source.

Answer: A seller is required to collect tax @ 0.75% from the buyer on sale of scrap. However, tax
is not required to be collected at source if the resident buyer furnishes to the person responsible for
collecting tax, a declaration in the prescribed form that such scrap is to be utilised for the purpose
of manufacturing of any article or thing. Hence no tcs.
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d. Sub-section (1C) provides for collection of tax by every person who grants a lease or a licence or
otherwise transfers any right or interest in any:

- parking lot or
- toll plaza or
- a mine or a quarry

to another person for the use of such parking lot or toll plaza or mine or quarry for the purposes of
business. The applicable TCS rate is 2% (1.5% between 14.05.2020 to 31.03.2021).

REMITTANCE UNDER LIBERALISED FOREIGN REMITTANCE SCHEMES (LFRS) W.E.F.

01.10.2020 - Section 206C (1G):

Purpose of Remittance Rate of TCS collected Threshold limit

By Authorised Dealer

With PAN No PAN

a. Overseas tour programme 5% 10% no exemption limit

b. Other remittances 5% 10% Rs.7 lakhs

(education; medical treatment; (in excess of Rs.7 lakhs)
investment in shares; immovable
property; gift)

c. Remittances out of loan 0.5% 5% Rs.7 lakhs

borrowed from FI for education (in excess of Rs.7 lakhs)

Note: TCS shall not be applicable if the buyer is liable to deduct tax at source.

Section 206C (1H): TCS on sale of goods – (w.e.f. 01.10.2020):

Who is liable to collect TCS: Seller of goods from buyer provided the turnover (including
GST) of the Seller exceed Rs.10 crores during the
immediately preceding previous year.

Limit: Above Rs.50 lakhs

TCS rate: 0.1% on consideration received in excess of Rs.50 lakhs

(covid rate 0.075%)
If PAN not furnished tcs rate is 1%

TCS not applicable: On goods exported out of India

On goods specified u.s.206C(1); 206C(1F) and 206C(1G)
Buyer is liable to deduct tds
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d. MOTOR CAR - Section 206C(IF) provides that every person, being a seller, who receives any
amount as consideration for sale of a MOTOR VEHICLE of the value exceeding Rs.10 lakhs, shall
collect tax from the buyer @ 1% of the sale consideration (0.75% covid rate).

OTHER PROVISIONS IN RESPECT OF TCS ON SALE OF MOTOR VEHICLE:

a. TCS is applicable only at retail level and not on sale of motor vehicles by manufacturers to
dealers or distributors.

b. It is applicable on sale of any motor vehicle (luxury or non-luxury) of the value exceeding
Rs.10 lakhs.

c. It is applicable on each sale of a Motor Vehicle and not on aggregate value of sale during
the year.

d. Provisions are applicable whether the payment is made in cash or by any other mode.

e. An individual, if his turnover in business exceeds Rs.1 crore or gross receipts exceeds Rs.50
lakhs in profession in the immediately preceding financial year, is also liable to collect tax at
source @ 1% on sale of motor car by him.

1. When a motor car is sold for Rs.12 lakhs by a dealer to a buyer holding PAN, the amount of tax
collectible at source shall be:
(a) Rs.9,000 (0.75%)
(b) Rs.24,000 (2%)
(c) Rs.1,20,000 (10%)
(d) Nil option A

2. Rahil & Co., a partnership firm is having a car dealership show-room. They have purchased cars for
Rs.2 crores from XYZ Ltd., car manufacturers, the cost of each car being more than Rs.12 lakhs.
They sell the cars to individual buyers at a price yielding 10% margin on cost. State whether there
will be any obligation to collect tax in the above two situations.

Answer:
TCS is applicable only at retail level and not on sale of motor vehicles by manufacturers to dealers
or distributors. Hence there is no obligation to collect tax when the cars are sold by car
manufacturers to Rahil & Co. (the dealers). However, tax is required to be collected by Rahil & Co
from individual buyers when they sell the cars to them (at retail level).

3. H Ltd., a manufacturer of luxury cars sold 50 cars on 01.09.2020 to NMP Ltd, its dealer, each car
cost Rs.20 lakhs.

Answer:
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H Ltd., a manufacturer, is not required to collect tax at source from NMP Ltd., the dealer on receipt
of consideration for sale of motor cars.

4. Amin Co. (p) Ltd is a dealer of motor cars manufactured by Zeet Ltd. Amin Co. (P) Ltd paid through
banking channel Rs.110 lakhs to Zeet Ltd. for purchase of cars in January 2021. Of the total motor
cars so purchased, 4 motor cars cost Rs.11 lakhs each and 7 motor cars are for the balance amount.
Decide whether any TDS/TCS provisions will apply. Will your answer be different if Amin Co. (P)
Ltd. is not a dealer of motor cars and had acquired the same for the purpose of plying cars on hire?

Answer:
A. If Amin Co (P) Ltd is a dealer of motor cars: No TCS

B. If Amin Co (P) Ltd is not a dealer of motor cars but uses for plying cars on hire:
TCS (11 lakhs x 0.75% x 4) Rs.33,000
For the remaining 7 cars: TCS is nil (cost is < 10 lakhs each)

5. What are clarifications made by CBDT with respect to Section 206C (1F) relating to the following
issues:

i. Whether TCS on sale of motor vehicle is applicable only to luxury car?

ii. Whether TCS is applicable on each sale or aggregate value of sale of motor vehicle,
exceeding Rs.10 lakhs?
iii. Whether TCS is applicable in case of an individual?
iv. Whether TCS on sale of motor vehicle is at retail level also or only by manufacturer to
distributor or dealer?

Answer:
i. It is applicable on sale of any motor vehicle (ordinary or luxury)

ii. It is applicable on each sale and not on aggregate value of sale.

iii. An individual, if his turnover in business exceeds Rs.1 crore or gross receipts in profession
exceeds Rs.50 lakhs in the immediately preceding financial year, is also liable to collect tax
at source @ 1% or 0.5% on sale of motor car by him.

iv. TCS is applicable only at retail level and not on sale of motor vehicles by manufacturers to
dealers or distributors.

Additional sums:
1. State the rate at which the tax is collected at source?
A partnership firm making sales of the timber which was procured and obtained under a
forest lease.

Answer: A firm selling timber obtained under forest lease is required to collect TCS @ 1.875%.
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2. Tulsi Private Ltd., a company engaged in ship breaking activity, sold some old and used
plates, wood, etc., in respect of which it did not collect tax from the buyer. The company
claimed that such items are usable as such. Hence these are not ‘scrap’ to attract the
provisions for collection of tax at source. The Assessing Officer treated such items in the
nature of ‘scrap’ and raised a demand u.s.201(1) and interest u.s.201(1A). Is the action of
the Assessing Officer in treating such items as ‘scrap’ tenable in law? Discuss. CA final

Answer: The High Court held that any material which is usable as such would not fall within the
ambit of ‘scrap’ and therefore, no TCS is required to be collected on the same.

Therefore, in view of the above-mentioned judgement, the action of the Assessing Officer in treating
the item as scrap is INCORRECT. The demand raised by the Assessing Officer is not valid.

3. KLS Ltd. gives a multilevel parking building in front of a shopping mall in Delhi to PQR Ltd.
on a lease of 90 years. PQR Ltd. is liable to pay Rs.3 crores as one time lease premium in
addition to an annual lease rent of Rs.26 lakhs. What will be the TDS/TCS liability in the
hands of KLS Ltd, as well as in the hand of PQR Ltd.? What will be your answer if PQR Ltd.
does not have PAN? Nov. 2019 CA final

Answer:
Every person who grants a lease in respect of a “parking lot” to another person for the use of such
parking lot shall collect tax at source @ 2% / (1.5%). (5% if PAN not furnished).

KLS Ltd. has to collect TCS @ 1.5% on 3.26 crores in the first year from PQR Ltd. Thereafter every
year KLS Ltd shall collect TCS @ 1.5% on annual lease rent of Rs.26 lakhs from PQR Ltd.

If PQR Ltd does not have a PAN, then TCS shall be collected @ 5%

PQR Ltd shall also deduct TDS @ 7.5% / 10% on Rs.26 lakhs under section 194-I every year.