TCS on Sale of motor Vehicle above Rs 10 Lakh w.e.f 01.06.2016

By | May 17, 2016

TCS on Sale of motor Vehicle above Rs 10 Lakh

Related Post : TCS on sale of Motor Vehicle : CBDT clarify via FAQ

Analysis of provision on TCS on Sale of motor Vehicle above Rs 10 Lakh :-

  1.  TCS on Sale of motor Vehicle above Rs 10 Lakh
  2. TCS on Sale of motor Vehicle above Rs 10 Lakh to be collected  by Seller
  3. TCS on Sale of motor Vehicle above Rs 10 Lakh  to be collected  by Seller at the time of receipt of such amount
  4. TCS on Sale of motor Vehicle above Rs 10 Lakh to be collected by seller w.e.f 01.06.2016
  5. TCS on Sale of motor Vehicle above Rs 10 Lakh to be collected by seller @ 1% of the sale Consideration ( Sale consideration not defined. but in general sale consideration means total invoice value which includes Vat )
  6.  TCS on Sale of motor Vehicle above Rs 10 Lakh The transaction may be in cash or by the issue of a cheque or draft or by any other mode. 
  7. Finance Minister in his Budget Speech has used the word ” Luxury Cars ” but , having regard to the language used in provision of Section 206C (1F) , it will apply to all motor vehicles whether they are luxury cars or not. TCS on Sale of motor Vehicle above Rs 10 Lakh ,if it is a truck , buses ,two weelers , passenger vehicle or any other motor vehicle .
  8. If the manufacturer sell motor vehicle to dealers than also TCS on Sale of motor Vehicle above Rs 10 Lakh to be collected by manufacturer . Even if dealer sells to another dealer any motor vehicle above Rs 10 Lakh than he is required to collect TCS on sale of motor vehicle to another dealer.
  9. Sometimes discount on the sale of motor vehilce are given and it may happen that after discount the value of sale consideration is less than Rs 10 Lakh . Thus there may be two cases
    1. when discounts are given by Credit Note , then the invoice value is not reduced and the person selling motor vehicle is required to collect TCS on sale of motor vehicle
    2. When discounts deducted from the invoice value , then it can be said that there is no need to collect TCS on the sale of motor vehicle if the net sale consideration is less than Rs 10 Lakh after giving discounts.
  10. TCS on sale of any motor vehicle is to be collected @ 1 % on sale consideration of a motor vehicle exceeding ten lakh rupees. whether part of the payment is made in cash and part is made by cheque , it does not make any difference as this provision is not dependent on mode of payment .
  11. sometimes single bill may be raised for two parts of motor vehicle ( in case of trucks for chasis and body ). If the total sale consideration of this bill exceeds Rs 10 Lakh than the person selling motor vehicle is required to deduct TCS on sale of Motor Vehicle.
  12. TCS on sale of any motor vehicle shall not apply in case of sale to  Government, institutions notified under United Nations ( Privileges and Immunities) Act 1947, and Embassies, Consulates, High Commission, Legation, Commission and trade representation of a foreign State.
  13. Section under which  TCS to be deducted on sale of any motor vehicle if payment is in cash is explained as follow :-
    • Example 1:-if the value of motor vehicle is 20 lakh rupees , out of which 5 lakh rupees has been paid in cash and balance amount by way of cheque, the tax shall be collected at source at the rate of 1 % on total sale consideration of 20 lakh rupees only under sub-section (1F) of section 206C of the Act.
    • Example 2:However, if a vehicle is sold for 8 lakh rupees and the consideration is paid in cash, tax shall be collected at source at the rate of 1 % on 8 lakh rupees as per sub-section(l D) of section 206C of the Act
  14.  when the sale consideration is received in installments. when installments are received , TCS on Sale of motor Vehicle above Rs 10 Lakh, has to be collected from the customers, as the section 206C(IF) mention , TCS is to be collected ” at the time of receipt of such sum . “Illustration: Motor vehicle worth 20 lakh is sold and for which payments are made in instalments, one at the time of booking and the other at the time of delivery. At the time of booking 5 lakh rupees are paid and 15 lakh rupees are paid at the time of delivery. Tax at the rate of 1 % on 5 lakh rupees at the time of booking and at the rate of 1 % on remaining 15 lakh rupees at the time of delivery shall be collected at source.
  15. TCS on Sale of motor Vehicle above Rs 10 Lakh is to be collected even at the time of booking . As the section 206C (1F ) read as follows ” 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 per cent of the sale consideration as income-tax.”;”

But there is need of CBDT clarification as to what will happen if the booking is cancelled after payment of TCS to the government. The only option as of now is to claim this amount as refund when filing Income tax Return.

TCS on Sale of motor Vehicle : Section 206C(1F) inserted by Section 88, Finance Acts – 2016

In section 206C of the Income-tax Act, with effect from the 1st day of June, 2016,

The following sub-sections shall be inserted, namely:—

(1F) 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 per cent of the sale consideration as income-tax.”;

TCS Tax Collected at Source Flow chart Diagram

Para 149 of Budget Speech (Union Budget 2016-2017 – Speech of Shri Arun Jaitley, Minister of Finance, dated 29-2-2016)  : TCS on Sale of motor Vehicle above Rs 10 Lakh

“149 . I also propose to collect tax at source at the rate of 1% on purchase of luxury cars exceeding value of Rs.ten lakh and purchase of goods and services in cash exceeding Rs.two lakh. For compliant taxpayers with resources, this levy not only advances collection of tax when the expenditure is incurred, but it provides data to the tax authorities to identify the persons who incur such expenditure, but may be missing from the tax base. Farmers and notified class of persons will have an option of giving a form by which TCS will not be charged.

Whether  TCS on Sale of motor Vehicle applies to all motor vehicles or only Luxury Cars ?

Finance Minister in his Budget Speech has used the word ” Luxury Cars ” but , having regard to the language used in provision of Section 206C (1F) , it will apply to all motor vehicles whether they are luxury cars or not.

 What is the meaning of seller for collecting TCS on Sale of motor Vehicle ?

As per Explanation (C) to section 206C :-

(c) “seller” means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D) are sold or services referred to in sub-section (1D) are provided.

Definition of Buyer for TCS on Sale of motor Vehicle above Rs 10 Lakh

As per Explanation (aa) of Section 206C

(aa) “buyer” with respect to—

…….

(ii) sub-section (1D) or sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section;

 TCS on Sale of motor Vehicle but Motor Vehicle not Defined under Income tax Act

‘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 reads 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 avehicle 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.”

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