No tax will be collected at source when cash component of the payment for goods and services is less than Rs.2 lakh even if the total consideration is more than this amount.
CBDT has issued a new circular on Tax Collected at Source (TCS) clarifying that the levy will not be applicable when cash part of the payment for certain goods or services is less than Rs.2 lakh, even when the total payment is more than this amount.
“TCS will not be levied if the cash receipt does not exceed Rs. two lakh even if the sale consideration exceeds Rs. two lakh,” the Central Board of Direct Taxes said.
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It illustrated this statement by an example that in a case where a good worth Rs.5 lakh is sold for which the consideration amounting to Rs.4 lakh has been received in cheque and Rs.1 lakh has been received in cash.
“As the cash receipt does not exceed Rs.2 lakh, no tax is required to be collected at source as per Sec. 206C (1D),” the Central Board of Direct Taxes said.
The circular added that TCS is “required to be collected at source on cash component of the sales consideration and not on the whole of sales consideration“.
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The Income Tax Department has been levying 1 per cent TCS on cash purchase of bullion in excess of Rs 2 lakh and jewellery in excess of Rs 5 lakh since July 1, 2012 and there has been no change in that position.
However, Finance Minister Arun Jaitley in his Budget 2016-17, had imposed TCS of one per cent on goods and services purchased in cash in excess of Rs 2 lakh.