Tax Collection at Source (TCS) on Sale of Goods

In order to widen and deepen the tax net, the Finance Bill 2020 proposed to insert in section 206 of the Income Tax Act, sub-section (1H) to levy TCS on sale of goods. Section 206(1H) will be effective from 01^st April 2020.

Section 206(1H) reads as under:

Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding Rs. 50 Lakh in any previous year, other than the goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1% of the sale consideration exceeding Rs. 50 Lakh as income-tax:

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “5%”, the words “1%” had been substituted:

Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act and has deducted such amount.

Explanation.––For the purposes of this sub-section,––

(a) “Buyer” means a person who purchases any goods, but does not include,––

A. The Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

B. A local authority as defined in the Explanation to section 10(20); or

C. Any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;

(b) “Seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed `10 crore during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

ANALYSIS OF SECTION 206C(1H) WITH PRACTICAL ISSUES

1. Applicability of TCS on Sale of Goods under Section 206C(1H)

• Every person being a seller, whose total sales / gross receipts / turnover exceed `10 crore during the immediately preceding financial year (FY), AND
• who receives any amount as consideration for sale of any goods of the value or aggregate of exceeding `50 Lakh in any previous year.

2. Collectability of TCS on Sale of Goods under Section 206C(1H)

Unlike other provisions of TCS, the collectability of TCS on Sale of Goods arise at the time of RECEIPT of consideration from the buyer of Goods. The collectability of TCS at the time of receipt of consideration from the buyer raises some questions which are discussed below-

(a) Weather TCS is required to be collected on trade receivable of goods standing in books as on 31^st March, 2020?

=> As discussed above, TCS is applicable on event of collection against the sale made. Considering this, TCS is required to be collected on Trade Receivables stranding in books as on 31^st March 2020 if the receipts from a trade receivables, considering other receipts as well, exceeds Rs. 50 Lakh during the FY 2020-21.

(b) Weather TCS shall be collected at the time of billing in case of Advance from Customer standing in books as on 31st March, 2020?

=> In this case, considering the collectability of TCS, TCS is not required to be collected as the amount is received to the person on or before 31^st March 2020 and the TCS on Sales of Goods is applicable from 01^st April 2020.

3. Rate of TCS on Sale of Goods

	Rate of TCS
(a) PAN or Aadhaar number available of Buyer	0.1%
(b) PAN or Aadhaar number NOT available of Buyer	1%

4. TCS on Receipt of Consideration in Excess of Rs. 50 Lakh

Every person who is required to collect TCS on Sale of Goods shall, at the time of receipt of sale consideration, collect from the buyer TCS at 0.1% / 1% of the sale consideration exceeding Rs. 50 Lakh. For instance, XYZ Ltd. received Rs. 75 Lakh from Mr. A as a sale consideration during the FY 2020-21 and turnover of XYZ Ltd is `12.5 crore during the FY 2019-20. In this case, TCS collection shall be Rs. 2500 (25 Lakh × 0.1%).

5. TCS on Sale of Goods covered under Section 206(1)/(1F)/(1G)

Section 206(1H) amply clears that TCS on sale of goods covered under section 206(1) / (1F) / (1G) shall be collected as per the provision of respective sub-sections. In other words, TCS on sale of Alcoholic Liquor for human consumption, Tendu leaves, Timber, Scrap, Minerals (Coal or lignite or iron ore), foreign remittance through LRS, overseas tour package shall be collected according to the applicable rates and provisions as mentioned under section 206(1)/(1F) /(1G).

6. Weather TCS on sales value including GST or excluding GST?

CBIC through a circular clarified that for the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.

However, in absence of any specific provision or circular or clarification by CBDT, it is unclear as to whether TCS will be levied on GST charged in invoice or not.

There are two views whether TCS on Sales value including GST or excluding GST. Both views are supported by different analysis. However, till the clarification by CBDT, it will be more appropriate that TCS should be collected on Sales Value including GST.

Example:

View I: TCS on Sales Value excluding GST			View II: TCS on Sales Value including GST
Particulars	Rs.		Particulars	Rs.
Basic Value	90,00,000		Basic Value	90,00,000
GST @ 18%	1620000		GST @ 18%	1620000
Total Amount	1,06,20,000		Total Amount	1,06,20,000
TCS @0.1%	4,000		TCS @0.1%	5,620
Grand Total	1,06,24,000		Grand Total	1,06,25,620

7. Definition of “Goods”

TCS is required to be collected in respect of consideration received for sale of goods. Now the question arise that what will be considered as goods as the definition is not provided in section 206(1H). Further any other section of the Income Tax Act also does not provide the definition of goods.

Sale of Goods Act 1930 and Goods & Service Tax Law 2017 provides the definition of goods. In absence of definition under the Income Tax Act, definitions under either of the act will be considered.

	Explanation
Sale of Goods Act 1930	Goods means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.
Goods and Service Tax Act 2017	Goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;

A plain reading of both the definitions will demonstrate that definition of goods under both the acts is identical. It will be more appropriate if both the definitions are considered while concluding as to what constitutes goods as the definitions are identical and both the act largely deals with goods.

It’s pertinent to note that Sale of Land or Building will not attract the TCS provision as both are immovable properties. Hence Real Estate transactions is out of ambit of TCS.

8. Exemption from TCS Collection

There is no need to collect TCS under section 206(H) is both of the following conditions are satisfied-

• Buyer is liable to deducted TDS under any other provisions, AND
• Such amount has been deducted.

If either of the above conditions are not satisfied, TCS is required to be collected on under section 206(H).

Now a question arises weather requirement to collect TCS will be applicable in case Buyer has not deducted TDS on the basis of Nil / Lower TDS certificate of seller. In this case, buyer is not liable to deduct TDS under the TDS provisions. Hence 1^st condition is not satisfied and, consequently, TCS is required to be collected in the instant case.

9. TCS on Export of Goods

The provision of TCS on sale of goods does not distinguish between domestic sales and export sales. This means that TCS is required to be collected when sale consideration received from export of goods. In case of export of goods-

• PAN / Aadhaar number of the Buyer will not be available and, consequently, rate of TCS will be 1%.
• Further Buyer of the goods cannot claim the TCS credit while discharging its Income Tax liability under his State’s direct tax law.
• This means that collectability of TCS @ 1% will increase the cost of export of goods. It’s depends upon the commercial decision between buyer and seller of export of goods that who will bear this 1% extra cost.

 10. Exclusions from “Buyer”

Any sale of goods made by any person, being a seller, to following buyers shall not attract the applicability of TCS on sales of goods-

• Central Government, a State Government
• An embassy,
• A High Commission, Legation, Commission, Consulate and
• Trade representation of a foreign State
• A local authority as defined in the Explanation to section 10(20)
• Any other person notified by the Central Government.