INTRODUCTION: The provisions regarding the TCS on sale of jewellery were brought on the statute by the Finance Act, 2012 with effect from 1st July, 2012. These provisions are contained in Section 206 (1D) of the Income Tax Act. Some related provisions / explanations are contained in sub section (1E) and Explanation (ab) also. According to these provisions, if seller of the jewellery receives sale consideration in cash and such amount received in cash is in excess of Rs.5 lakhs then the seller is required to collect TCS from the buyer @ 1% of such sale consideration received in cash. Apart from the provisions regarding TCS on jewellery, the above sub section (1D) also prescribes for TCS on receipt of sale consideration in cash in respect of bullion and other goods (i.e., all goods other than bullion and jewellery). But in respect of those other goods the threshold limit for TCS is Rs. 2 lakhs only as against the threshold limit in respect of sale of jewellery at Rs. 5 lakhs.
PROPOSED AMENDMENT IN SECTION 206: Now, the Finance Bill, 2017 has proposed the following amendments in section 206C regarding TCS on Jewellery:
- Clause (ii) of sub section (1D) shall be omitted (this clause prescribes threshold limit for TCS on Jewellery); and
- Clause (ab) of Explanation to Sec 206c shall be omitted (this clause defines meaning of the word jewellery); and
- In sub section (1D) and (1E) some omissions / substitutions have been made whose final practical effect is that now the word “ jewellery” shall not be there at all.
RELEVANT CLAUSES OF SECTION 206 WHERE AMENDMENT IS PROPOSED : The relevant clauses (the words etc. to be omitted etc. are striked through / crossed here) are as under :
SUB SECTION (1D)
(1D) Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery [or any other goods (other than bullion or jewellery) or providing any service], shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration,—
(i) for bullion, exceeds two hundred thousand rupees; or
(ii) for jewellery, exceeds five hundred thousand rupees; [or]
[(iii) for any goods, other than those referred to in clauses (i) and (ii), or any service, exceeds two hundred thousand rupees:
Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B.]
SUB SECTION (1E)
[(1E) Nothing contained in sub-section (1D) in relation to sale of any goods (other than bullion or jewellery) or providing any service shall apply to such class of buyers who fulfil such conditions, as may be prescribed.
EXPLANATION (ab) to SECTION 206C
Explanation.—For the purposes of this section,—
(ab) “jewellery” shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2;
ISSUE / CONTROVERSY : Prima facie it appears that through above amendments the TCS in respect of sale of jewellery is proposed to be withdrawn. However, the above proposed amendment is also giving rise to an another view. That alternate view is that on removal of the word “jewellery”, the jewellery items may automatically be got covered in the words “any other goods (other than bullion). The effect of which may be that : (a) there may not be withdrawal of TCS provisions on jewellery and (b) instead of that, the threshold limit for TCS on jewellery might have been reduced from Rs. 5 lakhs to Rs. 2 lakhs only.
FACTS GIVING RISE TO THE SECOND VIEW : This second view is strengthened by the fact that the jewellery items may very well got covered in the definition of “goods” as given in The Sale of Goods Act, 1930. The definition of the word “goods” as given in that Act is as under :
“goods” means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.
An another reason for generation of the second view is that in memorandum explaining clauses etc. nowhere it has been specifically mentioned that the TCS provisions on jewellery have been withdrawn.
FACTS IN SUPPORT OF THE FIRST VIEW : There are also some facts in support of the first view. The first one is that since inception the limit for TCS on Jewellery was kept higher than other items. In respect of jewellery it was at Rs. 5 lakhs whereas at the same time it was kept at Rs. 2 lakhs only in respect of bullion. Later on, when other goods were brought in the ambit of TCS provisions, the threshold limit for those other goods were also kept at lower amount of Rs. 2 lakhs but the threshold limit for jewellery items was not reduced. It remained at the same higher amount of Rs. 5 lakhs. Now, looking the above history and the trend, it may be positively presumed that the intention of the government might not have been to reduce the threshold limit for jewellery from Rs. 5 lakhs to Rs. 2 lakhs.
Secondly, in clause 71 of the memorandum explaining clauses, it has been mentioned that the above amendments are consequential to the insertion of new section 269ST which prohibits receipts in cash at Rs. 3 lakhs and more. The effect of section 269ST is that due to compliance with that section, there may not be any receipt in cash for Rs. 3 lakhs or more. In that situation, the threshold limit for TCS on jewellery may not be reached. Therefore, (due to compliance with section 269ST), there may not be any occasion for TCS on jewellery.
Considering this situation, the provisions for TCS on jewellery might have been considered as impracticable and as such might have been withdrawn. There may not be any intention to reduce the threshold limit. If there would have been any such intention, the probable limit (as per the earlier trend mentioned above) for the same might had been kept at maximum practicable higher amount i.e., around Rs. 3 lakhs above which cash receipt is not permissible.
CONCLUSION : In such a situation, the CBDT is required to make the necessary clarifications to avoid unnecessary hardship to the tax payers.
The author has prepared his own video lecture on the above topic in hindi language. The link for the same is : https://youtu.be/OY_FZY5lvrw
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