SECTION 206C(1F) TCS ON SALE OF MOTOR VEHICLES Understanding Section 206C(1F) – Collection of TCS on Sale of Motor Vehicles: Overview: 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: Sale to Individual (Consumer): TCS is applicable at 1% when selling a BMW car to an individual for self-consumption exceeding INR 10 lakhs. 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. 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. Conclusion: 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.