Income Tax 2025

Appearance

Collection of tax ​

at source.

394(1) ​

Every person, as specified in column C of the Table below shall collect tax––

  • (a) on receipts specified in column B;
  • (b) at the rate as specified in column D; and
  • (c) at the time of debiting of the amount payable by the buyer or licensee or lessee to the account of the buyer or licensee or lessee or at the time of receipt of such amount from the said buyer or licensee or lessee in cash or by way of a cheque of a draft or any other mode, whichever is earlier. --Table--

394(2) ​

The collection of tax shall not to be made in respect of receipts specified in sub-section (1) (Table: Sl. No. 1 to 5) in respect of the buyer, who is a resident in India, if he furnishes a written declaration in duplicate in such form and manner, as prescribed, to the person responsible for collecting tax, mentioning that such goods are to be utilised––

  • (a) for the purposes of manufacturing, processing or producing articles or things or for generating power; and
  • (b) not for trading purposes.

394(3) ​

Where no collection of tax is to be made under sub-section (2), the person responsible for collecting tax shall deliver, one copy of the declaration referred to in that sub-section, to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, on or before the seventh day of the month following the month of receipt of that declaration.

394(4) ​

The collection of tax shall not be made by the authorised dealer in respect of receipt specified in serial number 7 of the Table in sub-section (1) on such amount on which tax has been collected by the seller referred to in serial number 8 of the Table in sub-section (1).

394(5) ​

The collection of tax shall not be made by the authorised dealer or seller, in respect of receipt specified in sub-section (1) (Table: Sl. No. 7 and 8), if the buyer is liable to deduct tax at source under any other provisions of this Act and he has deducted such tax.

394(6) ​

For the purposes of this sub-section, “forest produce” shall have the same meaning as defined in any State Act for the time being in force, or in the Indian Forest Act, 1927.

Explanation

Section Summary: ​

Section 394 of the new income tax law deals with the collection of tax at source (TCS). It specifies who is responsible for collecting tax, the types of receipts subject to TCS, the applicable rates, and the timing of collection. It also provides exemptions and conditions under which TCS is not required, particularly for certain buyers or transactions.

Key Changes: ​

  1. Expanded Scope of TCS: The section introduces a detailed table specifying the types of receipts, the persons responsible for collecting tax, and the applicable rates. This is a more structured approach compared to earlier provisions.
  2. Exemptions for Specific Buyers: Buyers who are residents in India and use goods for manufacturing, processing, or power generation (not for trading) can avoid TCS by submitting a written declaration.
  3. Avoidance of Double Taxation: TCS is not required if tax has already been collected by another party (e.g., seller or authorised dealer) or if the buyer has already deducted tax at source (TDS) under other provisions of the Act.
  4. Clarification on Forest Produce: The section defines "forest produce" by referencing existing state laws or the Indian Forest Act, 1927.

Practical Implications: ​

  1. For Sellers/Collectors:
    • They must collect tax at the specified rate at the time of debiting the buyer's account or receiving payment, whichever is earlier.
    • They need to verify declarations from buyers claiming exemptions and submit copies to tax authorities within the prescribed timeline.
  2. For Buyers:
    • Buyers using goods for manufacturing, processing, or power generation can avoid TCS by submitting a declaration.
    • Buyers liable to deduct TDS under other provisions can avoid TCS if they have already deducted tax.
  3. For Authorised Dealers:
    • They are exempt from collecting TCS if tax has already been collected by the seller or if the buyer has deducted TDS.

Critical Concepts: ​

  1. Collection of Tax at Source (TCS): A mechanism where the seller or collector deducts tax from the buyer at the time of transaction.
  2. Written Declaration: A formal statement by the buyer to claim exemption from TCS, stating the intended use of goods (manufacturing, processing, etc.).
  3. Forest Produce: Defined under state laws or the Indian Forest Act, 1927, this term is relevant for transactions involving such goods.

Compliance Steps: ​

  1. For Collectors:
    • Identify if the transaction falls under the specified receipts in the table.
    • Collect tax at the prescribed rate at the time of debiting the buyer's account or receiving payment.
    • Verify and process declarations from buyers claiming exemptions.
    • Submit a copy of the declaration to the tax authorities by the 7th day of the following month.
  2. For Buyers:
    • Submit a written declaration in duplicate if goods are for manufacturing, processing, or power generation.
    • Ensure TDS is deducted under other provisions if applicable to avoid TCS.

Examples: ​

  1. Scenario 1: A manufacturer purchases raw materials worth ₹10 lakhs. The buyer submits a declaration stating the materials will be used for manufacturing. The seller does not collect TCS.
  2. Scenario 2: An authorised dealer sells goods worth ₹5 lakhs. The buyer has already deducted TDS under another provision. The dealer does not collect TCS.
  3. Scenario 3: A seller receives payment for forest produce. The buyer does not provide a declaration, so the seller collects TCS at the specified rate.

This section ensures clarity and reduces the burden of double taxation while maintaining compliance for specific transactions.