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

Under the Income-tax Act, 2025, Meera Timbers Ltd sells timber obtained under a forest lease to a buyer for Rs 8,00,000, and the amount is received in cash. At what rate, and on how much, must the seller collect tax at source?

The seller must collect 2% on the full Rs 8,00,000, which is Rs 16,000. Sale of timber obtained under a forest lease carries a 2% rate with no monetary threshold. The Rs 10 lakh limit relates only to motor vehicles and other notified goods.

  1. A1% on Rs 8,00,000, i.e. Rs 8,000
  2. B2% on Rs 8,00,000, i.e. Rs 16,000Correct
  3. C2% on nothing, as the amount is below Rs 10 lakh
  4. D5% on Rs 8,00,000, i.e. Rs 40,000

Explanation

Sale of timber under a forest lease is item 3 of the TCS table at 2%, with no threshold. Tax = 2% x 8,00,000 = Rs 16,000. The Rs 10 lakh threshold applies only to motor vehicles and notified goods, so the 'nothing collected' option is wrong.

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