1. Understanding Section 206C(1F) – Collection of TCS on Sale of Motor Vehicles:


    • Section 206C(1F) of the Income Tax Act requires a seller of a motor vehicle to collect tax at source (TCS) from the buyer if the value of the motor vehicle exceeds INR 10 lakhs.
    • The TCS rate is 1% of the sale consideration.
    • The buyer, in this case, refers to a person obtaining the motor vehicle through a sale.

    Exceptions to the Definition of “Buyer”:

    • The definition of “buyer” excludes certain entities:
      • Central Government, State Government, Embassy, High Commission, etc.
      • Local authorities.
      • Public sector companies engaged in the business of passenger transport.

    CBDT Circular No. 22/2016:

    • The CBDT issued Circular No. 22/2016 to provide clarity on the application of Section 206C(1F).
    • It clarified that the section is meant to cover retail sales and does not apply to sales of motor vehicles by manufacturers to dealers/distributors.

    Ambiguity Regarding Sales to Car Dealers:

    • A potential ambiguity arises concerning whether the circular applies to sales by vehicle dealers to other dealers since a vehicle dealer is not a manufacturer.

    Interpretation of “Retail Sales”:

    • The circular refers to the application of Section 206C(1F) to all transactions of retail sales.
    • The term “retail” is not defined in the Act, so reliance is placed on dictionary definitions.
    • Definitions suggest that retail sales involve selling in small quantities directly to consumers for personal consumption.

    CBDT Circular No. 17/2020:

    • Circular No. 17/2020 on Section 206C(1H) clarifies that Section 206C(1F) applies only to sales to consumers and not to dealers.
    • Sales to car dealers fall under Section 206C(1H) subject to conditions specified in the circular.

    Examples for Clarity:

    1. Sale to Individual (Consumer):

      • TCS is applicable at 1% when selling a BMW car to an individual for self-consumption exceeding INR 10 lakhs.
    2. Sale to Car Dealer (B2B):

      • TCS is not applicable when a car dealer sells a BMW car to another car dealer. However, TCS/TDS under Section 194Q and 206C(1H) at 0.1% may apply.
    3. Sale by Car Dealer to Consumer:

      • TCS is applicable at 1% when a car dealer sells a BMW car to an individual for self-consumption exceeding INR 10 lakhs.


    • Section 206C(1F) is designed to cover retail sales of motor vehicles.
    • The application of TCS under this section is intended for transactions involving end consumers.
    • Sales between dealers are not subject to TCS under Section 206C(1F), but other provisions like Section 206C(1H) may apply.