FAQs on Section 206C(1F) of the Income Tax Act, 1961
1. What is Section 206C(1F) of the Income Tax Act?
Section 206C(1F) mandates that a seller collect Tax at Source (TCS) at the rate of 1% of the sale consideration from the buyer for the sale of motor vehicles or other specified goods (effective from April 22, 2025) with a value exceeding INR 10 lakh. This provision aims to track high-value transactions and improve tax compliance.
2. Which transactions are covered under Section 206C(1F)?
- Motor Vehicles: Sale of any motor vehicle (e.g., cars, bikes, or other automobiles) valued above INR 10 lakh.
- Other Specified Goods vide recent CBDT Notification No. 36/2025 dated 22.4.2025 SO 1825(E) (effective from April 22, 2025): Sale of a single item of notified goods exceeding INR 10 lakh, including:
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- Wristwatches
- Antiques or artworks
- Coins or stamps
- Sunglasses
- any yacht, rowing boat, canoe, helicopter
- Shoes
- Handbags or purses
- Sportswear or sports equipment
- Home theatre systems
- Horses
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- The TCS applies to the entire sale consideration, irrespective of the mode of payment (cash, cheque, or digital).
3. Who is responsible for collecting TCS under Section 206C(1F)?
The seller of the motor vehicle or specified goods is responsible for collecting TCS from the buyer at the time of receipt of the sale consideration.
4. What is the rate of TCS under Section 206C(1F)?
The TCS rate is 1% of the total sale consideration for transactions exceeding INR 10 lakh.
5. Does TCS apply to all motor vehicle sales?
No, TCS under Section 206C(1F) applies only to:
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- Retail sales of motor vehicles exceeding INR 10 lakh.
- Sales by manufacturers to dealers/distributors (as clarified by CBDT Circular No. 22/2016).
6. Who is exempt from TCS under Section 206C(1F)?
TCS is not collected from the following buyers:
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- Central Government, State Government, or their agencies.
- Embassies, High Commissions, Consulates, or trade representations of a foreign state.
- Local authorities as defined under Section 10(20) of the Income Tax Act.
- Public sector companies engaged in the business of carrying passengers.
7. Is GST included in the sale consideration for calculating TCS?
Yes, the sale consideration for TCS calculation includes GST and other indirect taxes. No adjustments are made for discounts or indirect taxes, as TCS is calculated on the total amount received. For example, if a motor vehicle is sold for INR 10 lakh + 18% GST (total INR 11.8 lakh), TCS is calculated on INR 11.8 lakh.
8. When should the TCS be collected?
TCS must be collected at the time of receipt of the sale consideration from the buyer, regardless of whether the payment is made in full or in installments. For example, if a buyer pays INR 5 lakh at booking and INR 15 lakh at delivery for a INR 20 lakh vehicle, TCS of 1% is collected on INR 5 lakh at booking and 1% on INR 15 lakh at delivery.
9. When and how should the seller deposit the TCS?
- The TCS collected must be deposited by the 7th of the following month in which the tax is collected.
- For example, TCS collected in August 2025 must be deposited by September 7, 2025.
- If the seller is a government office, the TCS must be deposited on the same day of collection.
10. What are the compliance requirements for sellers?
Sellers must:
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- Obtain a Tax Collection Account Number (TAN).
- Collect TCS at the time of receipt of payment.
- Deposit TCS within the due date (7th of the following month).
- File TCS returns using Form 27EQ quarterly
Quarterly TCS Statement/returns filing schedule:Sl. No. Quarter Ended Due Date 1 30th June 15th July 2 30th September 15th October 3 31st December 15th January 4 31st March 15th May
- Issue a TCS certificate (Form 27D) to the buyer within 15 days of filing the quarterly return.
11. Can a buyer claim credit for TCS paid?
Yes, the buyer can claim credit for the TCS paid against their income tax liability when filing their Income Tax Return (ITR). The TCS amount is reflected in the buyer’s Form 26AS, which can be used to verify the credit.
12. What happens if the seller fails to collect or deposit TCS?
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- Non-collection of TCS: The seller may face a penalty equal to the TCS amount under Section 271CA.
- Non-deposition of TCS: A penalty equal to the TCS amount may be imposed, along with interest at 1% per month (or part thereof) for late deposition.
- Non-compliance with filing returns: Penalties and potential imprisonment (up to 7 years under Section 276BB) may apply for willful non-compliance.
13. Does Section 206C(1F) apply to transactions before April 22, 2025?
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- For motor vehicles, Section 206C(1F) has been effective since June 1, 2016.
- For other specified goods (e.g., wristwatches, antiques), the provision applies to transactions from April 22, 2025, as per the recent amendment.
14. Is there an option to apply for a lower or nil TCS certificate?
Currently, the provisions of Section 206C(9), which allow applications for nil or lower TCS certificates, do not extend to Section 206C(1F). Buyers cannot apply for a lower or nil TCS certificate for transactions covered under this subsection.
15. Whether TCS is applicable on each sale of motor vehicle or on aggregate value of sale during the year?
Tax is to be collected at source at the rate of 1% on sale consideration of a motor vehicle exceeding ten lakh rupees. It is applicable to each sale and not to aggregate value of sales made during the year.
16. What is the threshold limit for TCS under Section 206C(1F)?
The threshold limit is INR 10 lakh per transaction for motor vehicles or specified goods. TCS applies to the entire sale consideration (not just the amount exceeding INR 10 lakh) for each qualifying transaction.
17. Does TCS apply to second-hand motor vehicles?
Yes, TCS applies to the sale of second-hand motor vehicles if the sale consideration exceeds INR 10 lakh, provided the sale is a retail transaction (not between manufacturers and dealers).
18. How does the recent amendment (effective April 22, 2025) affect taxpayers?
The amendment expands the scope of Section 206C(1F) to include high-value luxury goods (e.g., antiques, sunglasses, horses) in addition to motor vehicles. This increases the compliance burden for sellers of such goods and helps the government track high-value transactions to curb tax evasion.
Critical Perspective: While Section 206C(1F) enhances tax compliance by tracking high-value transactions, it increases the compliance burden for sellers, particularly small businesses dealing in luxury goods post-April 2025. The inclusion of GST in the TCS calculation may also inflate the tax burden for buyers, though they can claim credit later.
