The Centre is expected to give a significant tax break to the domestic liquor industry after bringing it under the ambit of tax collected at source in 2003-04.

Liquor companies will be allowed to set off excise and other costs from the expected profit of retailers. Under Section 206CC of the Income-Tax Act, 1961, the companies are expected to recover the tax from liquor vendors at the rate of 10 per cent of the value of sale.

The notification will soften the impact of the amendment moved in the Finance Bill, 2003, by Finance Minister Jaswant Singh. The finance ministry's move will benefit not only the liquor vendors but also the scrap industry, which has been brought into the tax net.

The Centre charges TCS in industries where the final sale is cash-based, like in liquor, scrap disposal and forest products. This is because it is not possible to recover income tax from the widely dispersed sellers, and so the government imposes an income tax of 10 per cent on the final seller, but collects it from the liquor companies.

Revenue officials said the set-off was a major demand of the IMFL lobby in the run-up to the Budget for 2002-03. But since only auctioned vends were under the purview of the tax at the time, the demand was not accepted.

In the amended Finance Bill, Jaswant Singh has done away with that exception and has held that all retail sellers of such goods would also have to pay TCS.

Shyamal Mukherjee, partner at PricewaterhouseCoopers said the Section put a big onus on the liquor companies. He said for a Rs 100 bottle of liquor, a company would have to recover Rs 110 from the retailer. He also agreed that the ministry could not change the 10 per cent rate without an amendment to the Finance Bill.

However, there was an exemption under which any seller who could prove that he was selling the commodities at a price imposed by the state, was out of the purview of 206 CC of the Income Tax Act, 1961. This exemption has now been removed.