Section 206CG – Toll Plaza Contracts

Introduction to Section 206CG

Section 206CG pertains to the collection of Tax Collected at Source (TCS) on specific transactions, particularly those involving the granting of a lease, license, or entering into a contract for toll plazas. This provision falls under the broader Section 206C of the Income Tax Act, 1961, which governs TCS provisions to ensure tax compliance and revenue collection.

Key Provisions of Section 206CG

1. Applicability and Rate:

• Section 206C(1C) mandates that every person who grants a lease or a license or enters into a contract or otherwise transfers any right or interest in any toll plaza to another person (referred to as licensee or lessee) is required to collect TCS.
• The TCS rate for toll plaza contracts is 2% of the amount received as consideration.
• The tax must be collected at the earlier of the following two events:
  • At the time of debiting the amount payable by the licensee or lessee to their account.
  • At the time of receiving the payment from the licensee or lessee (whether in cash, cheque, draft, or any other mode).

2. Key Considerations:

• The obligation to collect TCS lies with the lessor or licensor (the person granting the rights), not the lessee or licensee.
• This section specifically covers transactions related to toll plazas, parking lots, and mining/quarrying.
• Exemption: This provision is generally not applicable if the licensee or lessee is a public sector company.
• If the collectee (buyer/licensee) does not furnish their Permanent Account Number (PAN) to the collector, a higher rate of TCS may apply as per Section 206CC.

3. TCS vs. TDS:

It is important to differentiate between TCS and Tax Deducted at Source (TDS). While TDS involves deduction of tax at the time of making a payment, TCS involves collection of tax by the seller at the point of sale of specified goods or services. In certain cases, if both TDS and TCS could potentially apply (e.g., some mining or toll contracts), departmental circulars have clarified that TCS under Section 206C(1C) shall take precedence if the transaction falls within its scope.

Compliance and Importance

For individuals or entities involved in granting rights for toll plazas, ensuring compliance with Section 206CG is essential. This includes:

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

This section plays a significant role in formalizing and bringing tax transparency to the management of toll facilities by ensuring tax collection at the source.