CENTRAL UNIVERSITY OF SOUTH BIHAR

PROJECT TOPIC: Tax Collection at Source

UNDER GUIDANCE OF :
Prof. Mani Pratap

ARCHIT VIRENDRA SHARMA

SEMESTER-9TH
ENROLLMENTNO –CUSB1513115022
SESSION-2015-20

ACKNOWLEDGEMENT
The success and final outcome of this project required a lot of guidance and assistance from
many people and I am extremely privileged to have got this all along the completion of my
project. All that I have done is only due to such supervision and assistance and I would not
forget to thank them.

 I respect and thank PROF. MANI PRATAP sir for providing me an opportunity to do the
project work on the topic “TAX COLLECTION AT SOURCE” and giving us all support
and guidance which made me complete the project duly. I am extremely thankful to her for
providing such a nice support and guidance, despite having a busy schedule

I owe my deep gratitude towards my classmates, who took keen interest on our project work
and guided us all along, till the completion of our project work by providing all the necessary
information.

 I would not forget to remember Saurabh for his encouragement and more over for their
timely support and guidance till the completion of our project work.

 I am thankful to and fortunate enough to get constant encouragement, support and guidance
from my parents who helped me in successfully completing this project work

INTRODUCTION
The Indian income tax act has many provisions through which tax can be collected from
person. Tax deduction at source, advance tax, tax on income and tax collection at source
(hereinafter mentioned as TCS) is some the provision, as mentioned. Tax collection at source
dealt under section 206C of the Income Tax Act. It provides specified rates at which specified
goods will be taxed accordingly. Tax collection at source or TCS, as the name implies, means
collection of tax at source by the seller from the buyer of the goods. As prescribed under
income tax act 1961, it is mandatory on the part of buyer to pay a predetermined value of
TCS to the seller, while purchasing a particular commodity. TCS is generally set for
businesses or trade in alcoholic liquor, forest produce, scraps, etc. Various lease, license and
contract related to area like parking lot, mines, toll plaza etc. also falls under the umbrella of
TCS in India. TCS is income tax collected by seller in India on sale on specified items. The
seller has to collect tax at specified rate from the payer who purchased these items.

The TCS is a kind of direct tax

collection. Direct tax means the tax, which is levied on the income or profits of the person
who pays it, rather than on goods or services while indirect tax is that kind of tax, which is
collected by an intermediary from the person who bears the ultimate economic burden of the
tax.
 TCS: ITS Understanding and Contents of SECTION 206C
Section 206C relating to tax collection at source is applicable in the following two cases:

(A) Tax be collected by seller from the buyer in respect of sale of specified goods.
(B) Tax to be collected by the person granting lease/license right in case of Parking lot,
Toll Plaza or Mining and Quarrying.

So firstly the TCS by seller from the buyer will be discussed. Section 206C(1) of the Income
Tax Act says as :

Every person, being a seller shall, at the time of debiting of the amount payable by the buyer
to the account of the buyer or at the time of receipt of such amount from the sid, buyer,
whichever is earlier, collect from the buyer as income tax. The sum specified in the following
table on the goods mentioned therein:

Nature of Goods Percentage

Alcoholic liquor for human consumption 1%

Tendu leaves 5%

Timber obtained under forest lease 2.5%

Timber obtained by any other mode other than under 2.5%

forest lease
Any other forest produce not being timber or tendu 2.5%
leaves
Scraps 1%

Minerals, being coal or lignite or iron ore 1%

Meaning of Scrap: It means and scrap from the manufacture or mechanical working of
materials which is definitely not usable as such because of breakage, cutting up, wear and
other reasons{explanation (b) to section 206C}.
Note: No surcharge, health and education cess shall be added to the above rates. Hence, tax
will be collected at source at the basic rate.

Self declaration by buyer if relevant goods are purchased for manufacturing or producing
any articles or things [Section 206C(1A) & rule 37C]

Notwithstanding anything contained in section 206C(1), no collection of tax shall be made in

the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible
for collecting tax, a declaration in writing in duplicate in the prescribed form (Form No. 27C)
and verified in the prescribed manner to the effect that the goods referred to in column (2) of
the aforesaid Table are to be utilized for the purposes of manufacturing, processing or
producing articles or things or for the purpose of generation of power and not for trading
purposes.

Declaration furnished under section 206C(1A) to be delivered to the Principal Chief

Commissioner or Chief Commissioner or Principal Commissioner or Commissioner [Section
206C(1B)|

The person responsible for collecting tax under this section shall deliver or cause to be
delivered to the Principal Chief Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner one copy of the declaration referred to in section 206C(1A)
on or before the seventh day of the month next following the month in which the declaration
is furnished to him.

(2) TCS on sale of motor vehicle exceeding the value of 10,00,000 [Section
206C(1F)] [W.e.f. 1.6.2016]

Every person, being a seller, who receives any amount as consideration for sale of a motor
vehicle of the value exceeding 10,00,000, shall, at the time of receipt of such amount, collect
from the buyer, a sum equal to 1% of the sale consideration as income-tax.
[B]Tax to be collected at source in case of Parking Lot, Toll
Plaza or Mining and Quarrying [Section 206C(1C)]
The scope of section 206C has been further extended by inserting the following sub-section
(1C). Every person, who grants a lease or a license or enters into a contract or otherwise
transfers any right or interest either in whole or in part in any parking lot or toll plaza or mine
or quarry, to another person, other than a public sector Company (hereafter in this section
referred to as "licensee or lessee") for the use of such parking lot or toll plaza or mine or
quarry for the purpose of business shall, at the time of debiting of the amount payable by the
licensee or lessee to the account of the licensee or lessee of at the time of receipt of such
amount from the licensee or lessee in case or by the issue of a cheque or draft or by any other
mode, whichever is earlier, collect from the licensee or lessee of any such licensee, contract
or lease of the nature specified in column (2) of the Table below, a sum equal to the
percentage, specified in the corresponding entry in column (3) of the said Table, of such
amount as income-tax:

Table

Nature of contract or licensee or Percentage

lease, etc.
Parking lot 2%
Toll plaza 2%
Mining and quarrying 2%

Higher rate of TCS if PAN is not furnished by collectee [Section 206CC]

[W.r.e.f. A.Y. 2017-18]

Higher rate of TCS if the collectee does not furnish PAN (Section 206CC(1)]:
Notwithstanding anything contained in any other provisions of this Act, any person paying
any sum or amount, on which tax is collectible at source under Chapter XVII-BB (herein
referred to as collectee) shall furnish his Permanent Account Number to the person
responsible for collecting such tax (herein referred to as collector), failing which tax shall be

collected at the higher of the following rates, namely:

(i) at twice the rate specified in the relevant provision of this Act; or
(ii) at the rate of 5%

(3) Consequences if the declaration furnished is invalid [Section 206CC(3)]: In case any
declaration becomes invalid under section 206CC(2), the collector shall collect the tax at
source in accordance with the provisions of section 206CC(1).

(4) Application for obtaining certificate for lower deduction of TCS (Section 206CC(4)]: No
certificate under section 206C(9) shall be granted unless the application in Form No. 13 made
under that section contains the Permanent Account Number of the applicant.

(5) Collector and collectee to indicate PAN in all correspondence, bills, etc. (Section
206CC(5)]: The collectee shall furnish his Permanent Account Number to the collector and
both shall indicate the same in all the correspondence, bills, vouchers and other documents
which are sent to each other.

(6) Invalid or wrong PAN will attract TCS as per section 206CC(1) |Section 206CC(6)]:
Where the Permanent Account Number provided to the collector is invalid or does not belong
to the collectee, it shall be deemed that the collectee has not furnished his Permanent Account
Number to the collector and the provisions of sub-section (1) shall apply accordingly.

(7) Provisions not applicable in case of non-resident have been no PE in India [Section
206CC(7)): The provision of this section shall not apply to a non-resident who does not have
permanent establishment in India.

Meaning of Seller and Buyer

Meaning of "seller" (Explanation (c) to section 206C): "Seller" means

(i) the Central Government, or

(ii) any local authority, or

(iii) corporation or authority established by or under a Central, State or Provincial Act, or

(iv) any company, or

(v) Co-operative society, or

(vi) a State government ,or

(vii)firm

It 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) are sold.

Meaning of "buyer"

"Buyer" with respect to-

(i)section 206C(1) means a person who obtains in any sale, by way of auction, tender or any
other mode, goods of the nature specified in the Table in sub-section (1) or the right to
receive any such goods but does not include,-

(A) a public sector company, the Central Government, a State Government, and an
embassy, a High Commission, legation, commission, consulate and the trade representation,
of a foreign State and a club; or

(B) a buyer in the retail sale of such goods purchased by him for personal consumption;

(ii) omitted;

(iii) "sub-section (IF) means a person who obtains in any sale, goods of the nature specified
in the said sub section, but does not include,-

(A) the Central Government, a State Government and an embassy, a High Commission, legal
commission, consulate and the trade representation of a foreign State; or
(B) a local authority as defined in Explanation to clause (20) of section 10, or

(C) a public sector company which is engaged in the business of carrying passengers."

In other words, the Act has exempted the following class of buyers such as the Central
Government, a Government, an embassy, a High Commission, legation, commission,
consulate and the trade representation foreign state; local authority as defined in explanation
to clause (20) of section 10; a public sector company which is engaged in the business of
carrying passengers, from the applicability of the provision of sub-section (IF) of section
206C of the Act (relating to TCS on motor vehicle).

Time and mode of payment to Government account of tax collected at

source under section 206C [Section 206C(3) and Rule 37CA]

(A) Time of payment

All sums collected in accordance with the provisions of section 206C(1), or (1C), or (ID)
[(ID) omitted w.e.f.1.4.2017] shall be paid to the credit of the Central Government as under.

(1)Where tar is collected by an office of the Government

(a)on the same day where the tax is so paid without production of an income-tax challan;
and

(b) on or before seven days from the end of the month in which the collection is made,
where tax is paid accompanied by an income-tax challan.

(ii)In any other case within one week from the last day of the month in which the collection is
made.

(B) Mode of payment

1. Where office of the Government makes the payment without production of challan

In case of an office of the Government where tax has been paid to the credit of the Central
Government without the production of a challan i.e. through book entry [Rule 37CA(3)]

Where tax has been paid to the credit of the Central Government without the production of a
challan, the pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and
Disbursing Officer or any other person by whatever name called to whom the collector
reports the tax so collected and who is responsible for crediting such sum to the credit of the
Central Government, shall 'submit a statement in Form No. 24G to the agency authorized by
the Principal Director of Income-tax (Systems) in respect of tax collected by the collectors
and reported to him.

(2) Where the tax is to be deposited accompanied by income tax challan: The tax collected
under sub-section (1) or sub-section (IC) or sub-section (ID) [(ID) omitted w.e.f. 1.4.2017] or
sub-section (IF)1 of section 206C shall be deposited to the credit of the Central Government
by remitting it within the time specified in clause (b) of sub-rule (1) or in sub-rule (2) into
any branch of:

(i) the Reserve Bank of India, or

(ii) the State Bank of India, or

(iii) any authorized bank.

(3) Where tax is to be deposited electronically by person referred to in rule 125(1): The
amount collected shall be electronically remitted into the Reserve Bank of India or the State
Bank of India or any authorized bank accompanied by an electronic income-tax challan.

Who is required to make electronic payment of tax (Rule 125(1)]

The following persons shall pay tax electronically on or after 1-4-2008:-

(a) a company; and

(b) a person (other than a company), to whom provisions of section 44AB are applicable.

(i)Due date of filing quarterly statement [Rule 31AA(2)

Quarterly statement in Form No. 27EQ should be delivered or caused to be delivered within
the due date specified as under:

Quarter of the financial year Due date

1
Sub section(IF) should have been mentioned in section 206C(3).
 ended
30th June 15th July of the financial year
30th September 15th October of the financial year
31st December 15th January of the financial year
31st March 15th may the financial year immediately
following the financial year in which
collection is made

(ii) Manner of filing quarterly statement (Rule 31AA(3)(i)].

The statement referred to in rule 31AA(1) may be furnished in any of the following manners,
namely:

(a) furnishing the statement in paper form;

(b)furnishing the statement electronically under digital signature in accordance with the
procedures, formats and standards specified under rule 31AA(5);

(c) furnishing the statement electronically along with the verification of the statement in
Form 27A or verified through an electronic process in accordance with the procedures,
formats and standards specified

under rule 31AA(5).

(iii) E-filing of quarterly statements of TCS mandatory in certain cases [Rule 31AA(3)(ii)]:
Where,-

(a) the collector is an office of the Government; or

(b) the collector is the principal officer of a company; or

(c) the collector is a person who is required to get his accounts audited under section 44AB in
the immediately preceding financial year;

(d) the number of collectee's records in a statement for any quarter of the financial year are
twenty or more, the collector shall furnish the statement in the manner specified in item (b) or
item (c) of clause (i) of rule 31AA(3).

The collector shall furnish the statement in the following manner:

(1) furnishing the statement electronically under digital signature in accordance with the
procedures, formats and standards specified under rule 31AA(5).
(2) furnishing the statement electronically along with the verification of the statement in
Form 27A or verified through an electronic process in accordance with the procedures,
formats and standards specified under rule 31AA(5).

Collectors other than the above may also opt to file statement on computer media [Rule
31AA(3)(ii)): A person other than the above, responsible for collecting tax at source, may at
his option, deliver or cause to be delivered the statements electronically along with the
verification of statement in Form 27A.

(iv) Procedure for filing quarterly statement [Rule 31AA(4)]: The collector at the time of
preparing statements of the tax collected shall,-

(i) quote his deduction and collection account number(TAN) in the statement;

(ii) quote his permanent account number (PAN) in the statement except in the case where the
collector is an office of the Government;

(iii) quote the permanent account number of all collectees;

(iv) furnish particulars of the tax paid to the Central Government including book
identification number or challan identification number, as the case may be.

(v) furnish particulars of amount received or debited on which tax was not collected in view
of the furnishing of declaration in Form 27C under section 206C(IA) by the buyer.

Procedure for e-filing of statement

The collector at the time of preparing statements of tax collected shall,-

(i) quote his permanent account number (PAN) in the statement except in the case where the
collector in office of the Government;

(ii) quote his tax deduction and collection account number (TAN) in the statement;
(iii) furnish particulars of the tax paid to the Central Government including book
identification number or challan identification

(iv) quote the permanent account number of all collectee, as the case may be.

(v) furnish particulars of amount received or debited on which tax was not collected in view
of the furnishing of declaration under section 206C(1A) by the buyer.

The Principal Director General of Income-tax (Systems) or Director General of Income-tax

(Systems) shall specify the procedures, formats and standards for the purposes of furnishing
and verification of the statements and shall be responsible for the day-to-day administration
in relation to furnishing and verification of the statements in the manner so specified.

Issue of TCS certificate [Section 206C(5) & rule 37D]:

The person responsible for collecting the tax is required to issue a certificate of collection of
tax a from the due date of furnishing the statement of tax collected at source specified under
rule 31AA(2). [Rule 37D(1) & (3)] source to the collectee in Form No. 27D within 15 days

In other words, certificate in Form No. 27D should be issued within the time limit specified
as under:

Quarter ending 30th June 30th July

Quarter ending 30th September 30th October

Quarter ending 31st December 30th January

Quarter ending 31st March

As per rule 37D(2) the above certificate shall specify:

(a) valid permanent account number (PAN) of the collectee;

(b) valid tax deduction and collection account number (TAN) of the collector;

(c) (i) book identification number or numbers where deposit of tax collected is without
production of challan in case of an office of the Government; (ii) challan identification
number or numbers in case of payment through bank;
(d) receipt number of the relevant quarterly statement of tax collected at source which is
furnished in accordance with the provisions of rule 31AA.

further, prescribed income-tax authority or person authorized by such authority shall prepare
and deliver to the buyer or license or lessee as the case may be, a statement in Form 26AS
specifying the amount of tax collected and such other particulars as may be prescribed.

Issue of duplicate certificate (Rule 37D(4)) : The collector may issue a duplicate
certificate in Form No. 27D If the collectee has lost the original certificate so issued and
makes a request for issuance of a duplicate certificate and such duplicate certificate is
certified as duplicate by the collector.

Conclusion
So after the whole discussion about tax collection source, we got very much idea about this
concept of collection of tax and how it is collected. It talks about payment of tax by the seller
which is actually paid by the buyer and the same is submitted to the government to use it in
benefit and development of the nation. The provision of tax collection source is covered
under section 206C of the Income Tax Act, 1961 and the same is discussed above. It is part of
direct tax collection where the tax is paid directly the person or organization to the imposing
entity.

TCS contributes huge amount revenue for the development of the nation. Tax
collection at source is a part of the direct taxes and the object behind keeping it in the direct
taxes is that, such kind of taxes are not easy to collect indirectly or there are chances of non
recovery of the taxes and keeping of record of such taxes is not a easy task for the
government. Finally we conclude that it is special kind tax collected directly from the seller
and that has been already collected by the seller from the on buying of specified goods. It has
major contribution to development of the nation.