Download Notification and Circulars on Section 206C(1H) of Income Tax Act 1961

Section 206C(1H) of Income Tax Act: Notification, Download and FAQs

If you are a seller of goods in India, you might have heard about a new provision in the Income Tax Act that requires you to collect tax from your buyers. This provision is known as section 206C(1H) of Income Tax Act and it came into effect from October 1, 2020. In this article, we will explain what this provision is, who is liable to collect tax under it, what is the rate and time of tax collection, how to download the notification and circular related to it, and some frequently asked questions (FAQs) on this topic.

section 206c(1h) of income tax act notification download

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Introduction

What is section 206C(1H) of Income Tax Act?

Section 206C(1H) of Income Tax Act is a provision that mandates a seller of goods to collect tax from the buyer at the time of receipt of sale consideration, if the value or aggregate value of such sale exceeds Rs. 50 lakh in a financial year. This provision is applicable only to those sellers whose total sales or gross receipts or turnover from the business carried on by them exceed Rs. 10 crore in the preceding financial year. This provision is also known as Tax Collection at Source (TCS) on sale of goods.

Who is liable to collect tax under section 206C(1H) of Income Tax Act?

The seller who is liable to collect tax under section 206C(1H) of Income Tax Act is defined as a person whose total sales or gross receipts or turnover from the business carried on by him exceed Rs. 10 crore during the financial year immediately preceding the financial year in which the sale of goods is carried out. The seller can be an individual, Hindu undivided family (HUF), company, partnership firm, limited liability partnership (LLP), cooperative society, local authority, association of persons (AOP), body of individuals (BOI), trust, artificial juridical person, or any other person.

What is the rate and time of tax collection under section 206C(1H) of Income Tax Act?

The rate of tax collection under section 206C(1H) of Income Tax Act is 0.1% of the sale consideration exceeding Rs. 50 lakh in a financial year. However, if the buyer does not provide his Permanent Account Number (PAN) or Aadhaar number to the seller, then the rate of tax collection will be 1%. The tax collection is required to be made at the time of receipt of amount of sale consideration from the buyer. The seller has to deposit the tax collected to the government within one week from the last day of the month in which the tax was collected.

Notification and Download

How to download the notification and circular related to section 206C(1H) of Income Tax Act?

The Central Board of Direct Taxes (CBDT), which is the apex body for direct the amount of tax that he was required to collect and deposit. - If the seller wilfully fails to collect or pay the tax or furnishes false information, he will be liable to prosecution and imprisonment for a term ranging from three months to seven years and a fine.

How to obtain lower or nil tax collection certificate under section 206C(1H) of Income Tax Act?

If the buyer is of the opinion that the tax collected by the seller under section 206C(1H) of Income Tax Act is higher than his tax liability, he can apply for a lower or nil tax collection certificate from the Assessing Officer (AO) having jurisdiction over his case. The buyer has to furnish the details of his income, tax liability, tax paid or deducted at source, and any other relevant particulars in Form 13. The AO may issue a certificate in Form 27C specifying the lower or nil rate of tax collection applicable to the buyer. The buyer has to provide a copy of this certificate to the seller, who will then collect tax at the lower or nil rate as specified in the certificate.

How to deal with cross-border transactions under section 206C(1H) of Income Tax Act?

If the seller and the buyer are both non-residents and the sale of goods takes place outside India, then section 206C(1H) of Income Tax Act is not applicable and no tax collection is required. However, if either the seller or the buyer is a resident in India or the sale of goods takes place in India, then section 206C(1H) of Income Tax Act is applicable and tax collection is required. In such cases, the seller has to consider the following points: - If the seller is a non-resident and the buyer is a resident in India, then the seller has to appoint an agent in India who will be responsible for collecting and depositing the tax on behalf of the seller. - If the seller is a resident in India and the buyer is a non-resident, then the seller has to collect tax from the buyer at the time of receipt of sale consideration in India or abroad, whichever is earlier. - If the sale of goods involves more than one contract or invoice, then the seller has to aggregate the sale consideration received from each contract or invoice for determining the threshold limit of Rs. 50 lakh in a financial year.

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Conclusion

Section 206C(1H) of Income Tax Act is a new provision that requires a seller of goods to collect tax from the buyer if the value or aggregate value of such sale exceeds Rs. 50 lakh in a financial year. This provision is applicable only to those sellers whose total sales or gross receipts or turnover from the business exceed Rs. 10 crore in the preceding financial year. The rate of tax collection is 0.1% or 1% depending on whether the buyer provides his PAN or Aadhaar number or not. The tax collection is required to be made at the time of receipt of amount of sale consideration from the buyer. The seller has to deposit the tax collected to the government within one week from the last day of the month in which the tax was collected. The seller has to furnish a quarterly statement in Form 27EQ and issue a certificate in Form 27D to the buyer. The seller has to comply with the notification and circular issued by the CBDT on this provision. The seller has to also consider the exemptions, exclusions, lower or nil tax collection certificate, and cross-border transactions under this provision. If the seller fails to comply with this provision, he may face interest, penalty, and prosecution. Therefore, it is advisable for the sellers and buyers of goods to be aware of this provision and its implications.

We hope that this article has helped you to understand section 206C(1H) of Income Tax Act and its notification, download and FAQs. If you have any queries or feedback, please feel free to contact us.

FAQs

Here are some FAQs on section 206C(1H) of Income Tax Act:

Q1. Is section 206C(1H) applicable to sale of services?

A1. No, section 206C(1H) is applicable only to sale of goods and not to sale of services.

Q2. Is section 206C(1H) applicable to sale of goods through e-commerce platforms?

A2. Yes, section 206C(1H) is applicable to sale of goods through e-commerce platforms, if the seller meets the threshold limit of Rs. 10 crore turnover in the preceding financial year and the buyer meets the threshold limit of Rs. 50 lakh sale consideration in the current financial year. However, if the e-commerce operator is already collecting and depositing tax under section 194-O on behalf of the seller, then section 206C(1H) will not apply.

Q3. Is section 206C(1H) applicable to advance payments received for sale of goods?

A3. Yes, section 206C(1H) is applicable to advance payments received for sale of goods, as the tax collection is required to be made at the time of receipt of amount of sale consideration from the buyer, irrespective of the date of invoice or agreement.

Q4. Is section 206C(1H) applicable to sale of goods by a branch or division or unit of a seller?

A4. Yes, section 206C(1H) is applicable to sale of goods by a branch or division or unit of a seller, if the total sales or gross receipts or turnover of the seller (including all branches or divisions or units) exceed Rs. 10 crore in the preceding financial year and the value or aggregate value of sale by such branch or division or unit exceed Rs. 50 lakh in the current financial year.

Q5. Is section 206C(1H) applicable to sale of goods by a seller who is registered under Goods and Services Tax (GST)?

A5. Yes, section 206C(1H) is applicable to sale of goods by a seller who is registered under GST, if he meets the threshold limit of Rs. 10 crore turnover in the preceding financial year and Rs. 50 lakh sale consideration in the current financial year. However, for calculating these limits, only those sales that are liable for GST will be considered and not those sales that are exempt from GST. 44f88ac181