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CMA Final · Direct Tax Laws and International Taxation · Collection, Recovery and Refund of Tax

Under the Income-tax Act, 2025, a seller of a motor vehicle is required to collect tax at source only if the sale consideration exceeds a specified threshold. Which statement is correct?

The seller must collect tax at source at 1% when the sale consideration of a motor vehicle exceeds ten lakh rupees. Below that threshold no collection arises. The 2% and 20% rates relate to other receipts, not motor vehicles.

  1. ATax at 1% is collected where the sale consideration exceeds ten lakh rupeesCorrect
  2. BTax at 2% is collected on every motor vehicle sale irrespective of value
  3. CTax at 1% is collected where the consideration exceeds fifty lakh rupees
  4. DTax at 20% is collected where the consideration exceeds ten lakh rupees

Explanation

Section 394 Table Sl. No. 6 requires the seller to collect 1% where the sale consideration of a motor vehicle exceeds ten lakh rupees. The 2% rate applies to items such as scrap and liquor, and 20% applies to certain LRS remittances, so those options are wrong.

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