Section 206CB – TCS on Timber Obtained Under Forest Lease

Introduction to Section 206CB

Section 206CB of the Income Tax Act, 1961, deals with the collection of Tax Collected at Source (TCS) on the sale of timber obtained under a forest lease. This provision ensures that a portion of the payment for such timber is collected as tax at the source itself, contributing to the government's revenue from natural resources and promoting tax compliance in the forestry sector.

Key Provisions of Section 206CB

1. Applicability:

Section 206CB applies to the sale of timber obtained under a forest lease.

• This specifically targets timber extracted from forest areas where the right to harvest has been granted through a lease arrangement.

2. Who is the Seller (Collector)?

The seller responsible for collecting TCS under this section is the person who grants the forest lease (e.g., a State Government or its designated agency) or any person who sells timber obtained under such a lease in a subsequent transaction.

3. Who is the Buyer (Collectee)?

The buyer is any person who obtains timber under a forest lease, or who purchases such timber from a seller falling under the purview of this section.

4. Threshold Limit:

There is no specific threshold limit mentioned for the collection of TCS under Section 206CB. TCS is generally applicable on all sales of timber obtained under a forest lease, regardless of the value.

5. TCS Rate:

The rate of TCS to be collected under Section 206CB is 2.5% of the sale consideration.

• This rate is applied to the amount received by the seller from the buyer.

6. When TCS is Collected:

TCS is to be collected at the time of receipt of the amount from the buyer.

• This means the collection obligation arises when the payment for the timber is received by the seller.

7. PAN Requirement and Higher TCS Rate (Section 206CC):

It is mandatory for the buyer to furnish their Permanent Account Number (PAN) to the seller. If the buyer fails to provide their PAN, TCS shall be collected at a higher rate as prescribed under Section 206CC of the Act. Generally, this higher rate would be double the specified rate (i.e., 5%) or 5%, whichever is higher for specified persons who have not filed their ITRs.

8. No TCS in Certain Cases:

The provisions of Section 206CB do not apply to a buyer who is a resident and acquires the goods for the purpose of manufacturing, processing, or producing articles or things, and not for the purpose of trading such goods.

• The buyer must furnish a declaration to the seller in a prescribed form that the timber is being acquired for manufacturing/processing and not for trading. This ensures that businesses using timber as a raw material for their production are not subject to TCS under this section.

Compliance and Importance

For individuals and entities engaged in the sale or procurement of timber under forest leases, compliance with Section 206CB is crucial. Key compliance requirements for sellers include:

• Timely collection of TCS from buyers.
• Accurate deposit of the collected TCS with the government within the stipulated due dates.
• Proper filing of TCS statements (Form 27EQ).
• Issuance of TCS certificates (Form 27D) to buyers.

This section is important for ensuring better tax traceability and revenue collection from the forestry sector, which often involves significant transactions and resource extraction.