Buyers of cars and premium two-wheelers who pay more than Rs 2 lakh of purchase price in cash will be levied 1 per cent tax as part of the government's drive to stifle the black economy .

Finance minister Arun Jaitley had announced 1 per cent tax collected at source (TCS) on cars costing more than Rs 10 lakh in his budget speech.

Now, Central Board of Direct Taxes (CBDT) has clarified that car dealers have to collect this tax on every motor vehicle sale to individuals where payment exceedsRs 10 lakh or there is a cash payment of over Rs 2 lakh.

The apex direct taxes body has issued detailed clarification in form of frequently asked questions on the applicability and scope of TCS on sale of motor vehicles following an amendment in this regard in the Finance Act, 2016. The Finance Act has expanded the scope of Section 206 C of the Income Tax Act to include in its ambit sale of goods and service exceeding Rs 2 lakh and sale of motor vehicles over Rs 10 lakh.

Thus, any high-end sale of any goods or service of over Rs 2 lakh in cash would now face 1 per cent TCS.

The move is to discourage deployment of cash in high-end purchases as part of the Narendra Modi-led NDA government's drive against black money.

CBDT has said that TCS on motor-vehicle sale shall apply only at retail level and not on sale by manufacturers to dealers or distributors. It would apply on each sale of motor vehicle and not on aggregate value of sale made during the year by the retailer.

TCS provisions on sale of services and goods was introduced to kill the deployment of domestic black money through high-end purchases in India and therefore discourage its generation itself, said Amit Maheshwari, partner at Ashok Maheshwary & Associates LLP.