Understanding Tax Collected at Source (TCS) under Section 206C(1) and Section 206C(1H) for steel manufacturers, scrap dealers, and rice millers in Raipur and Urla Industrial Area.
In This Article
4 SectionsSection 206C(1H) vs Section 206C(1) TCS on Scrap & Goods: Iron & Steel Compliance
Industrial clusters in Chhattisgarh, such as Urla, Siltara, and Bhanpuri, handle large-scale manufacturing and trading of sponge iron, billets, TMT bars, and scrap. Managing Tax Collected at Source (TCS) under the Income-tax Act, 1961 requires distinguishing between mandatory scrap TCS under Section 206C(1) and general goods TCS under Section 206C(1H).
1. Statutory Difference: Section 206C(1) vs Section 206C(1H)
| Particulars | Section 206C(1) (Scrap / Specified Goods) | Section 206C(1H) (Sale of Any Goods) |
|---|---|---|
| Applicable Goods | Scrap, waste, timber, minerals, tendu leaves | Any goods (not covered under 206C(1)) |
| Turnover Threshold | Applicable to all business sellers (No prior turnover limit) | Seller turnover > ₹10 Crore in preceding FY |
| Buyer Transaction Limit | No threshold; TCS on every single rupee | Consideration received > ₹50 Lakhs from a single buyer |
| Rate of TCS | 1% (Scrap & Waste) | 0.1% (with PAN) / 1% (without PAN) |
| Trigger Point | At the time of debiting buyer or receipt, whichever is earlier | Strictly on receipt of consideration |
| Exemption Mechanism | Form 27C declaration for manufacturing use | Not applicable |
2. Scrap TCS Compliance: Definition of "Scrap"
Under Section 206C(1), scrap is statutorily defined as:
"waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons."
Manufacturing Buyers vs Scrap Traders
- If a buyer purchases iron scrap to use directly as raw material for manufacturing ingots or billets, the buyer can furnish Form 27C to the seller to claim TCS exemption.
- The seller must submit duplicate copies of Form 27C to the Principal Chief Commissioner or Chief Commissioner of Income Tax within 7 days of the end of the month.
- Scrap sold to traders for resale does not qualify for Form 27C exemption and attracts mandatory 1% TCS.
3. Section 194Q vs Section 206C(1H) Hierarchy
When both the buyer's turnover exceeds ₹10 Crore (triggering Section 194Q TDS) and the seller's turnover exceeds ₹10 Crore (triggering Section 206C(1H) TCS):
- Section 194Q takes statutory precedence: The buyer deducts 0.1% TDS on purchase exceeding ₹50 Lakhs.
- Once the buyer deducts Section 194Q TDS, the seller shall not collect Section 206C(1H) TCS on the same transaction.
4. Quarterly TCS Returns & Form 27D Certificates
- TCS Deposit: Collected TCS must be deposited with the Central Government by the 7th of the following month (and by 30th April for March collections).
- Form 27EQ Quarterly Return: Due quarterly (15th July, 15th October, 15th January, and 15th May).
- TCS Certificate (Form 27D): Must be downloaded from TRACES and issued to the buyer within 15 days of filing Form 27EQ.
For specialized industrial tax compliance and Section 206C audit defense in Raipur, consult our TDS & TCS Advisory practice.
Authored by CA Rabi Agrawal & Practice Team
Rabi Agrawal & Associates, Chartered Accountants — Head Office Raipur (CG), Branch Office Jayapatna (Odisha).