Section 206CJ – Sale of Certain Minerals

Introduction to Section 206CJ

Section 206CJ governs the collection of Tax Collected at Source (TCS) on the sale of specific minerals: mineral oil, lignite, and iron ore. This provision falls under the broader Section 206C of the Income Tax Act, 1961, aimed at ensuring tax compliance for transactions in key mineral sectors.

Key Provisions of Section 206CJ

1. Applicability and Rate:

• As per Section 206C(1C), every person who sells mineral oil, lignite, or iron ore is required to collect TCS from the buyer.
• The TCS rate on the sale of these specified minerals is 1% of the sale consideration.
• The tax must be collected at the earlier of the following two events:
  • At the time of debiting the amount payable by the buyer to their account.
  • At the time of receiving the payment from the buyer (whether in cash, cheque, draft, or any other mode).

2. Key Considerations:

• The obligation to collect TCS lies with the seller of mineral oil, lignite, or iron ore.
• This section specifically targets the sale of these three critical minerals, playing a role in the taxation of the mining and energy sectors.
• Exemption: Similar to other subsections of Section 206C(1C), this provision is generally not applicable if the buyer is a public sector company.
• If the buyer does not furnish their Permanent Account Number (PAN) to the seller, 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 situations where both TDS and TCS could potentially apply to a transaction, departmental circulars have clarified that TCS under Section 206C(1C) shall take precedence if the transaction clearly falls within its scope.

Compliance and Importance

For businesses involved in the sale of mineral oil, lignite, or iron ore, ensuring compliance with Section 206CJ is critical. Key compliance requirements include:

• Timely collection of TCS from the buyers of these minerals.
• Accurate deposit of the collected TCS with the government within the prescribed deadlines.
• Proper filing of quarterly TCS statements (Form 27EQ).
• Issuance of TCS certificates (Form 27D) to the buyers for the collected tax, enabling them to claim credit for the tax paid.

This section is an important tool for the tax authorities to monitor and collect tax from the organized and unorganized trade of these essential minerals, thereby contributing to the overall tax revenue and fostering transparency in the sector.