Understanding tax compliance is essential for smooth business transactions. One such important provision is the Form 27C Income Tax Act, which allows eligible buyers to declare certain purchases as exempt from Tax Collected at Source (TCS).
Alongside provisions like Form 27C, understanding other tax aspects, such as tax on mutual fund investments, is equally important for overall financial planning.
What is Form 27C?
Form 27C is a declaration form that allows certain buyers to purchase specific goods without the seller collecting TCS. As per the Income Tax Act, this form can be submitted by buyers who declare that the purchased goods are not meant for trading or manufacturing and that their income is not taxable under the Income Tax Act.
It essentially helps in bypassing the requirement of paying TCS at the time of purchase if the buyer falls under the eligible category.
Purpose of Form 27C Under Income Tax Act
The primary objective of Form 27C of Income Tax Act is to help buyers avoid TCS when the goods are purchased for specific purposes. The form is used by individuals or Hindu Undivided Families (HUFs) to declare that the goods bought will not be used for trading, and their income is either nil or not taxable.
Sellers are legally required to collect TCS on certain transactions, such as the sale of scrap, coal, or liquor. However, if buyers furnish Form 27C, they can be exempt from TCS. The aim is to simplify tax compliance and avoid unnecessary tax collection on exempt transactions. Additionally, just as share market advisory services help investors make informed stock decisions, Form 27C provides clarity and relief in applicable tax scenarios.
How Form 27C Helps in Avoiding TCS
TCS can sometimes create cash flow issues for buyers, especially for those who are not liable to pay tax or operate in tax-exempt environments. Form 27C online submission helps buyers avoid this burden.
When this form is submitted in a timely manner with accurate details, the seller is not required to deduct TCS on the transaction. This way, Form 27C helps improve liquidity and reduces compliance workload for both parties.
Applicability of Form 27C
Who Can Submit Form 27C?
Form 27C Income Tax Act can be submitted by:
- Resident individuals (not companies or firms)
- Hindu Undivided Families (HUFs)
- Buyers who declare that goods are for personal use and not for trading or manufacturing
- Buyers whose income is either below taxable limits or exempt under the Income Tax Act
Eligibility Criteria for Buyers and Sellers
To be eligible to file Form 27C:
- The buyer should be a resident of India.
- The goods must not be used for business or trade.
- The buyer must submit a declaration stating that the income on such goods is not taxable.
The seller, or “collector,” should be engaged in selling goods where TCS is applicable (e.g., scrap, liquor, timber, etc.). Sellers must ensure that Form 27C is valid and properly filled before accepting it to avoid future tax complications.
When Should Form 27C be Submitted?
The Form 27C Income Tax Act should be submitted before the transaction or at the time of purchase. The buyer gives the declaration to the seller, who then forwards it to the income tax authorities.
Consequences of Late Submission
If Form 27C is not submitted on time:
- The seller is required to collect TCS.
- The buyer cannot claim exemption from TCS.
- It may lead to tax liabilities and interest for non-compliance.
- Penalties may apply under the Income Tax Act.
Information Required in Form 27C
The form begins with capturing the personal information of the buyer or declarant. These include:
- Full name
- Permanent Account Number (PAN)
- Address
- Status (individual or HUF)
This helps in verifying the identity of the declarant and confirming their eligibility for exemption from TCS.
Details of Goods Purchased and Transaction Value
The form must also include the following:
- Description of goods
- Quantity
- Value of goods
- Date of transaction
These details ensure transparency and make it easier for the seller to assess the applicability of TCS.
Declaration of Non-Taxable Status
One of the most important parts of Form 27C is the declaration that the buyer’s income is not taxable. This statement helps the seller confirm that the buyer is exempt from TCS as per the Form 27C Income Tax Act guidelines.
Verification by Buyer and Collector
Once the buyer fills the declaration, the form must be signed and verified. The collector (seller) must also verify the declaration and ensure it is genuine before forwarding it to the income tax department.
How to Submit Form 27C
Step-by-Step Process for Filing Form 27C
- Download Form: Get the Form 27C either from the Income Tax portal or your seller.
- Fill the Details: Enter personal and transaction information accurately.
- Make the Declaration: Clearly declare the purpose of purchase and confirm that the income is non-taxable.
- Sign the Form: Both buyer and seller must sign the form.
- Submit to Seller: Hand over the form to the seller before the transaction.
- Submission to the Seller/Collector
After signing, the buyer submits the form to the seller. The seller retains a copy and is responsible for forwarding the same to the Income Tax Department through the online TIN (Tax Information Network) system.
Forwarding to the Income Tax Department
The seller logs into the TIN portal and uses the Form 27c online submission facility. The scanned form or data is uploaded, and an acknowledgment is generated for record purposes.
Time Limits for Each Stage of Submission
- Buyer to Seller: Before or at the time of purchase
- Seller to IT Department: Within 7 days from the end of the month in which Form 27C is received
Failure to submit within this time may lead to the disallowance of TCS exemption.
Features of Form 27C
Key Highlights of Form 27C Structure
- It consists of two parts: one for the buyer’s declaration and one for the collector’s verification.
- PAN of both buyer and seller is mandatory.
- Purpose of goods must be declared.
- Digital submission is allowed.
Use of Form 27C in TCS Exemption Scenarios
Form 27C is primarily used in industries where TCS is applicable, such as:
- Scrap dealers
- Liquor retailers
- Timber merchants
- Coal traders
In such sectors, buyers often use this form to avoid upfront TCS if they meet eligibility conditions.
Legal Framework Governing Form 27C
Form 27C is governed under Section 206C(1A) and Section 206C(1B) of the Income Tax Act. These provisions outline the requirement of declaration for TCS exemption and the duties of both buyer and seller.
Points to Remember While Filing Form 27C
Accuracy in Information Provided
Make sure every detail filled in the form is accurate and matches official records. Mismatches in PAN, address, or transaction details can invalidate the form and nullify the TCS exemption.
Maintaining Copies for Record-Keeping
Both the buyer and the seller should maintain copies of the submitted Form 27C for future reference. These can be useful in case of tax scrutiny, audits, or disputes.
Role of Digital Signature in Online Submission
For form 27c online submission, using a valid Digital Signature Certificate (DSC) is mandatory. This ensures authenticity and non-repudiation of the document during e-filing. Digital signatures streamline the compliance process, especially for businesses that file multiple declarations.
Conclusion
Form 27C plays a critical role in tax compliance for businesses and individuals purchasing goods on which TCS is applicable.
By using Form 27C, buyers can effectively reduce their cash outflow and avoid future complications related to tax refunds or disputes. For sellers, proper verification and submission help them stay compliant with tax laws and avoid penalties.
Whether you’re a buyer or a seller, understanding Form 27C helps you manage your transactions better, just like knowing the difference between exemptions vs deductions in income tax or understanding your obligations under TDS in India.
FAQs
Is Form 27C mandatory for small value transactions?</h3>
No, Form 27C is usually applicable to transactions where TCS is mandatory under the law. Small-value transactions that don’t fall under the TCS category do not require Form 27C.
Can Form 27C be corrected after it is filed?
No, once submitted, Form 27C cannot be modified online. If there is an error, the buyer must submit a fresh declaration to the seller with the correct information.
Who is responsible for sending Form 27C to the Income Tax Department?
The seller, also known as the collector, is responsible for sending Form 27C to the Income Tax Department within the prescribed timeline after receiving it from the buyer.
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Yash Vora is a financial writer with the Informed InvestoRR team at Equentis. He has followed the stock markets right from his early college days. So, Yash has a keen eye for the big market movers. His clear and crisp writeups offer sharp insights on market moving stocks, fund flows, economic data and IPOs. When not looking at stocks, Yash loves a game of table tennis or chess.
