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Introduction : 206cq of income tax act
In the complex world of taxation, the Income Tax Act of India plays a crucial role in governing and regulating various tax-related matters. Among its numerous provisions, Section 206CQ stands out due to its impact on the collection of tax at source (TCS). This article provides an in-depth look at Section 206CQ of the Income Tax Act, explaining its significance, implications, and the practical aspects involved in its implementation.
What is Section 206CQ of the Income Tax Act?
Section 206CQ of the Income Tax Act, 1961, is a provision related to the collection of tax at source by sellers of goods. Introduced by the Finance Act, 2020, this section mandates that any person who sells goods (other than those covered under Section 206C of the Act) is required to collect tax at source if the sale exceeds a specified threshold. This provision aims to enhance tax compliance and widen the tax base by ensuring that tax is collected at the point of sale.
Purpose and Objectives
The primary objectives of Section 206CQ are:
- Enhancing Tax Compliance: By making sellers responsible for collecting tax at the point of sale, the provision aims to improve compliance and ensure that taxes are collected systematically.
- Widening the Tax Base: The provision helps in broadening the tax base by capturing transactions that might otherwise go unreported. This contributes to the government’s efforts to increase revenue collection and reduce tax evasion.
- Facilitating Transparency: Collecting tax at source helps in maintaining transparency in financial transactions. It ensures that the tax collected is reported to the tax authorities, thereby reducing the chances of underreporting.
Applicability of Section 206CQ
Section 206CQ applies to the following categories of sellers and transactions:
- Sellers of Goods: The section applies to individuals or entities selling goods, including companies, partnerships, and sole proprietors. It is important to note that the provision is specific to the sale of goods and does not cover the sale of services.
- Threshold Limit: The provision mandates tax collection at source only if the value of the sale exceeds a specified threshold limit. As of the latest amendments, this threshold is set at Rs. 50 lakhs. Sellers must collect tax if the aggregate sale value to a buyer in a financial year exceeds this amount.
- Exclusions: Certain transactions are excluded from the provisions of Section 206CQ. For instance, the sale of goods covered under other specific sections of the Income Tax Act may be exempt from this provision.
Is TCS on LRS refundable?
You can do foreign remittances via the LRS scheme under a minimum exemption without any tax liability. However, if you transfer more funds outside the country under LRS beyond the limit, you are subject to a TCS deduction.
To answer the question of how to claim TCS refund on foreign remittance in ITR, you can transfer up to USD 250,000 in a single financial year under the LRS of the RBI. This limit includes transfers under; money transfers for a personal trip, gifts or donations, foreign travel for employment, medical costs and business trips, and foreign education. If you need to remit beyond this amount, you should have prior permission from the RBI.
You can adjust your tax amount under the new TCS rules against your overall tax liability. You can claim an income tax refund or avail of credit at the time of return filing. Your dealer provides a TCS certificate at the time of deduction, which you can use to claim TCS in your ITR filing.
Who pays the TCS buyer or seller?
The seller deposits the TCS amount in Challan 281(206CQ) within one week of the last day of the month in which he collects the tax. The seller can pay in any branch of RBI, SBI, or any other authorized bank. He can also pay TCS electronically.
What is the penalty for TCS’s late payment?
You should pay your TCS within the due date as the Income Tax Department says.
If you fail to file within the due date, you must pay the late fees. Filing your TCS after the due date suggests you pay a minimum penalty of Rs 10,000 which may extend to Rs 1,00,000. This penalty added to the late fee is what your total TCS amount is.
Thus, to avoid these situations, pay your TCS within the due date.
What is TCS tax with an example?
TCS means Tax Collected at Source. The seller should pay this TCS tax who collects in turn from the buyer. The goods that require TCS are specified under section 206C of the Income Tax Act, 1961.
Here is an example to better understand the TCS process. If the purchase value of a box of chocolates is Rs. 100, the buyer eventually pays Rs. 20 where Rs. 20 is the tax collected at the source. The seller remits the amount to the designated branch of the bank that has the authorization to receive the payments. The seller is only responsible for collecting this tax from the buyer and not paying it himself.
You may have a question regarding 206cq of income tax act applicability. TCS is applicable when selling goods, transactions, when given a receipt of a sum in cash from the buyer, or when issuing a cheque or draft, whichever mode is paid by the earliest.
This provision is under Section 206C of the Income Tax Act 1961.
Bottomline
Section 206CQ of the income tax actcomes under Part B of Form 26AS. Form 26AS deals with Tax Collected at Source(TCS). A Seller collects TCS from the buyer during the purchase and remits the amount to the bank. It has a clause 206CQ which is a TCS deposit challan code. The seller deposits this challan in the bank, for the tax that he has collected during the purchase from the buyer.