Section 206C of ITA, 1961 : Section 206C: Profits And Gains From The Business Of Trading In Alcoholic Liquor, Forest Produce, Scrap, Etc

Explanation using Example

Imagine a scenario where a wine retailer (the seller) sells alcoholic liquor to a restaurant (the buyer). According to Section 206C(1) of the Income-tax Act, 1961, the wine retailer is required to collect a sum equal to one percent of the sale amount as income tax from the restaurant at the time the restaurant is either debited for the amount or at the time of payment, whichever comes first.

For example, if the restaurant purchases liquor worth ₹1,00,000, the wine retailer must collect ₹1,000 as income tax (1% of ₹1,00,000) from the restaurant and deposit this tax with the government as per the guidelines provided in the Act.

If the restaurant provides a declaration stating that the liquor will be used for manufacturing, processing, or producing things and not for trading, as per Section 206C(1A), the wine retailer will not collect this tax. However, the retailer must then submit a copy of the declaration to the income tax authorities under Section 206C(1B).