Section 206CC – TCS on Timber Obtained Other Than Forest Lease

Introduction to Section 206CC

Section 206CC of the Income Tax Act, 1961, mandates the collection of Tax Collected at Source (TCS) on the sale of timber obtained by any mode other than under a forest lease. This distinguishes it from Section 206CB, which specifically covers timber from forest leases. This provision aims to broaden the tax net within the timber industry, ensuring that sales not covered by forest lease arrangements are also subject to TCS.

Key Provisions of Section 206CC

1. Applicability:

Section 206CC applies to the sale of timber obtained by any mode other than under a forest lease.

• This typically includes timber obtained from private lands, agricultural lands (e.g., farm-grown trees), or any source not categorized as a government forest lease.

2. Who is the Seller (Collector)?

Any person who is a seller of timber obtained by any mode other than under a forest lease, and who receives consideration for such sale, is liable to collect TCS.

• This could include farmers selling trees from their land, private timber merchants, etc.

3. Who is the Buyer (Collectee)?

Any person who is a buyer of timber from such a seller is liable to pay TCS.

4. Threshold Limit:

Similar to Section 206CB, Section 206CC also does not specify a separate threshold limit for the collection of TCS. The obligation to collect TCS arises on every sale of timber obtained otherwise than under a forest lease.

5. TCS Rate:

The rate of TCS to be collected under Section 206CC 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.

• The collection event is linked to the payment received for the timber.

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 206CC 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.

• Similar to the forest lease provision, a declaration must be furnished by the buyer to the seller stating that the timber is for manufacturing/processing and not for trading. This ensures that businesses using timber as a raw material are not subjected to TCS on such procurements.

Compliance and Importance

For sellers of timber obtained otherwise than under a forest lease, ensuring compliance with Section 206CC is essential. This includes:

• Timely collection of TCS from buyers.
• Accurate deposit of the collected TCS with the government.
• Proper filing of quarterly TCS statements (Form 27EQ).
• Issuance of TCS certificates (Form 27D) to buyers for the collected tax.

This section is critical for expanding the scope of tax collection in the timber industry, covering a wider range of transactions beyond just forest leases, thereby strengthening the overall tax compliance framework.