Circular No. Cirular No. 22/2016

Amendment in Section 206C vide Finance Act 2016 - Clarifications

What this is

Circular No. Cirular No. 22/2016 was issued by the Central Board of Direct Taxes on 8 June 2016. Its subject is Amendment in Section 206C vide Finance Act 2016 - Clarifications.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Explains the tax collection at source changes made by the Finance Act, 2016, which took effect from 1 June 2016. Sub-section (1D) of section 206C was widened so that a seller collects one per cent from the purchaser on a cash sale of any goods, other than bullion and jewellery, or on providing any service, other than a payment on which tax is deducted under Chapter XVII-B, where the amount exceeds two lakh rupees; for bullion and jewellery the pre-amendment position continues, that is one per cent on a cash sale of bullion above two lakh rupees and of jewellery above five lakh rupees. A new sub-section (1F) requires a seller receiving consideration for the sale of a motor vehicle exceeding ten lakh rupees to collect one per cent from the buyer. The Board then answers queries: the motor vehicle levy is on retail sale and does not apply to sales by manufacturers to dealers or distributors; it is not confined to luxury cars but covers any motor vehicle above ten lakh rupees; Government, institutions notified under the United Nations (Privileges and Immunities) Act, 1947, and embassies, consulates, high commissions, legations, commissions and trade representations of a foreign State are not liable to collection under sub-sections (1D) and (1F); and the levy attaches to each sale, not to the aggregate of sales in the year.

Why it was issued

The amendments were made to reduce cash transactions in the sale of goods and services and to bring high value transactions into the tax net, and a number of queries were received on their scope and on the procedure to be followed.

Who it reaches

Motor vehicle dealers selling vehicles above ten lakh rupees
Sellers taking cash of more than two lakh rupees for goods or services
Jewellers and bullion dealers, who stay on the old position
Individuals and Hindu undivided families liable to audit under section 44AB in the preceding financial year, who are sellers for this purpose
Buyers whose payments suffer the one per cent collection

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.44AB	s.2, s.58, s.63
s.206C	s.2, s.390, s.394, s.395, s.397, s.398, s.400, s.402

The instrument, as the Board published it

The department publishes this one only as a PDF, so the words below were read out of that PDF by machine. That reading can carry its own mistakes — a misread number, a broken line. Check the signed document before you rely on a figure in it.

F.No 370142/17/2016-TI'L Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes (TPL Division) Circular No 22/2016 Dated 8th June 2016 Sub: Amendment in Section 206C vide Finance Act 2016 - Clarifications regarding Section 206C of the Income-tax Act, 1961 (hereafter referred to as 'Act'), prior to amendment by Finance Act, 2016 provided that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items such as alcoholic liquor for human consumption, tender leaves, mineral being coal or lignite or iron ore etc. It also provided for collection of tax at source at the rate of one per cent on sale in cash of bullion exceeding 2 lakh rupees and jewellery exceeding 5 lakh rupees. In order to reduce the cash transactions in sale of goods and services, Finance Act 2016 has expanded the scope of section 206C (1D) to provide that the seller shall collect tax at the rate of one per cent from the purchaser on sale in cash of any goods (other than bullion and jewellery) or providing of any services (other than payment on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees. So far as sale of Jewellery and bullion is concerned, the provisions of sub-section (1D) of section 206C prior to its amendment by the Finance Act, 2016 shall continue to apply. Further, with a view to bring high value transactions within the tax net, it has been provided in sub-section (1F) of section 206C of the Act that the seller who receives consideration for sale of a motor vehicle exceeding ten lakh rupees, shall collect one per cent of the sale consideration as tax from the buyer. Any person who obtains in any sale, the goods of the nature specified in sub-section (1D) or (1F) of section 206C is a buyer. The seller for the purposes of collection of tax under section 206C shall be - (i) A Central Government or a state Government, (ii) Any local authority, or corporation or authority established under any Central, State or Provincial Act, (iii) Any company, firm or cooperative society, (iv) An individual or Hindu undivided family who is liable to audit as per provisions of section 44AB during the financial year immediately preceding the financial year in which the goods are sold or the services are provided. The amendments brought in section 206C by Finance Act, 2016 are applicable from 1st June 2016. In this regard a number of queries have been received about the scope of the provisions and the procedure to be followed. The board has considered the same and decided to clarify the points raised by issue of a circular in the form of questions and answers as follows: Question 1: Whether tax collection at source ('TCS') at the rate of 1% is on sale of Motor Vehicle at retail level or also on sale of motor vehicles by manufacturers to dealers/distributors, Answer: To bring high value transactions within the tax net, section 206C of the Act has been amended to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees, This is brought to cover all transactions of retail sales and accordingly it will not apply on sale of motor vehicles by manufacturers to dealers/distributors. Question 2: Whether TCS at the rate of 1% is on sale of Motor Vehicle is applicable only to Luxury Cars? Answer: No, As per sub section (1F) of Section 206C of the Act the seller shall collect the tax at the rate of one per cent from the purchaser on sale of any motor vehicle of the value exceeding ten lakh rupees. Question 3: Whether TCS at the rate of 1% is applicable in the case of sale to Government Departments, Embassies, Consulates and United Nation Institutions for sale of motor vehicle or any other goods or provision of services? Answer: Government, institutions notified under United Nations (Privileges and Immunities) Act 1947, and Embassies, Consulates, High Commission, Legation, Commission and trade representation of a foreign State and shall not be liable to levy of TCS at the rate of 1% under sub-section (1D) and (1F) of section 206C of the Act. Question 4: Whether TCS is applicable on each sale of motor vehicle or on aggregate value of sale during the year? Answer: Tax is to be collected at source at the rate of 1% on sale consideration of a motor vehicle exceeding ten lakh rupees. It is applicable to each sale and not to aggregate value of sale made during the year. This can be explained by way of an illustration: Illustration: Motor vehicle worth 20 lakh is sold and for which payments are made in instalments, one at the time of booking and the other at the time of delivery. At the time of booking 5 lakh rupees are paid and 15 lakh rupees are paid at the time of delivery. Tax at the rate of 1% on 5 lakh rupees at the time of booking and at the rate of 1% on remaining 15 lakh rupees at the time of delivery shall be collected at source. Similar will be the position with regard to collection of tax at source under sub-section (1D) of section 206C. Question 5: whether TCS at the rate of 1% on sale of motor vehicle is applicable in case of an individual? Answer: The definition of "Seller" as given in clause (c) of the Explanation below sub-section (II) of section 206C shall be applicable in the case of sale of motor vehicles also Accordingly, an individual who is liable to audit as per the provisions of section 44AB of the Act during the financial year immediately preceding the financial year in which the motor vehicle is sold shall be liable for collection of tax at source on sale of motor vehicle by him. Question 6: How would the provisions of TCS on sale of motor vehicle be applicable in a case where part of the payment is made in cash and part is made by cheque? Answer: The provisions of TCS on sale of motor vehicle exceeding ten lakh rupees is not dependent on mode of payment. Any sale of Motor Vehicle exceeding ten lakh would attract TCS at the rate of 1%. Question 7: As per section 206C(1D), tax is to be collected at source at the rate of 1% if sale consideration received in cash exceeds 2 lakh rupees whereas as per section 206C(1F) tax is to be collected at source at the rate of 1% of the sale consideration of a motor vehicle exceeding 10 lakh rupees. Whether TCS will be made under both sub-section(1D) and (1F) of the section 206C @ 2%, where part of the payment for purchase of motor vehicle exceeds 2 lakh rupees in cash? Answer: Sub-section (1F) of the section 206C of the Act provides for TCS at the rate of 1% on sale of motor vehicle of value exceeding 10 lakh rupees. This is irrespective of the mode of payment. Thus if the value of motor vehicle is 20 lakh rupees, out of which 5 lakh rupees has been paid in cash and balance amount by way of cheque, the tax shall be collected at source at the rate of 1% on total sale consideration of 20 lakh rupees only under sub-section (1F) of section 206C of the Act. However, if a vehicle is sold for 8 lakh rupees and the consideration is paid in cash, tax shall be collected at source at the rate of 1% on 8 lakh rupees as per sub-section(1D) of section 206C of the Act. Lakshmi Narayanan Under Secretary TPL-III CBDT Copy To: 1. The Chairman, Members and officers of the CBDT of the rank of Under Secretary and above. 2. OSD to Revenue Secretary 3. All principal commissioners of Income-tax & all Director General of Income-tax with the request to bring to notice of all officers. 4. The Pr. Director General of NADT, Nagpur 5. The Pr. Director General of Systems, ARA, Jhandewalan Extension, New Delhi 6. The Pr. Director General of Vigilance, 7. The ADG (PR, PP&OL), Mayur Shawan, New Delhi for printing in the quarterly tax bulletin and for circulation as per mailing list. 8. Comptroller and Auditor General of India. 9. ADG (Systems) for uploading on ITO website. 10. The Guard File. Under Secretary TPL-III CBDT

What to watch

Being a 'seller' for section 206C is a defined class - for an individual or a Hindu undivided family it turns on liability to audit under section 44AB in the immediately preceding financial year.
Sub-section (1F) on motor vehicles is not limited to cash; sub-section (1D) is a cash provision.
The two lakh rupee limb of sub-section (1D) excludes bullion and jewellery, which keep their own pre-amendment thresholds, and excludes payments already subject to deduction under Chapter XVII-B.
The copy before me is clipped at 5,000 characters part way through the answers, so the later questions and answers must be read from the published circular.

Where you meet it

On a demand for failure to collect tax at source under section 206C in a dealership or trading business, or when a buyer questions the one per cent added to his invoice.

An example

Ours, not the Board’s: a worked case built from the rule the instrument sets, to show how it falls out.

A motor vehicle worth twenty lakh rupees is sold and paid for in two instalments, five lakh rupees at booking and fifteen lakh rupees at delivery. The seller collects one per cent on five lakh rupees at booking and one per cent on fifteen lakh rupees at delivery. The test is the value of the vehicle sold, not the size of each instalment.

What it names

It mentions. Circular No. 22/2016

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No.15/2025 — Extension of timelines for filing of various reports of audit and income tax returns ITRS for the assessment year 2025 2 29 October 2025
Circular No. 2/2025 — Extension of due date for filing of form no. 56F under the income tax act 1961 18 February 2025
Circular No. 18/2023 — Circular No. 1 g of 2023 20 October 2023
Circular No. 5/2021 — Order under section 119 of the income tax act 1961 25 March 2021
Circular No. 19/2020 — Condonation of delay under section 119 2 b of the income tax act 1961 in filing of form no. 10BB for assessment year 201 3 November 2020
Circular No. 10/2020 — Order under section 119 of the income tax act 1961 regarding reporting requirement under clause 30C and clause 44 of the 24 April 2020

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.