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

Under the Income-tax Act, 2025, Mahalaxmi Steels, a resident manufacturer, buys scrap worth Rs 8,00,000 from Kishore Traders. Mahalaxmi gives the seller a written declaration in the prescribed form that the scrap will be used for manufacturing and not for trading. What is the position on collection of tax at source?

No tax is collected, because the resident buyer has given the prescribed declaration of manufacturing use. The seller must still deliver one copy of the declaration to the Commissioner on or before the seventh day of the month following the month of receipt.

  1. ATax of Rs 16,000 is collected at 2%
  2. BNo tax is collected, and the seller delivers a copy of the declaration to the Commissioner by the 7th of the following monthCorrect
  3. CTax of Rs 8,000 is collected at 1%
  4. DNo tax is collected, and no copy of the declaration need be sent to any authority

Explanation

For sale of scrap (Sl. No. 4), collection is not made from a resident buyer who furnishes a declaration that the goods are for manufacturing, processing, producing or power generation and not for trading. The seller must then deliver a copy of the declaration to the Commissioner (or equivalent) on or before the seventh day of the following month. Option 4 ignores this requirement.

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