TCS on Sale of Goods – Detailed Analysis

In today’s date, the most popular and most discussed topic is TCS on Sale of Goods since it is applicable with effect from 01 October, 2020. Though the topic is the most discussed one, there are so many confusions in the mind of readers regarding this new section and its practical implementation. Hence today I am writing this article with the intention that it will help everyone to understand this concept in better way.

Extract of Section 206C(1H) of Income Tax Act, 1961:

“206C(1H) 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 fifty lakh rupees in any previous year, other than the goods being exported out of India or 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 per cent of the sale consideration exceeding fifty lakh rupees 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 “five per cent”, the words “one per cent” 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 on the goods purchased by him from the seller 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 clause (20) of section 10; or

(C) a person importing goods into India or 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 ten crore rupees 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.”

Point-wise Analysis of Section 206C(1H):

• A seller of goods is liable to collect TCS at the rate of 0.1 per cent (0.075% from 01.10.2020 to 31.03.2021 due to COVID-19) on consideration received from a buyer in a previous year in excess of fifty lakh rupees.
• In non-PAN/ Aadhaar cases the rate shall be one per cent.
• Only those sellers whose total sales, gross receipts or turnover from the business carried on by it exceed ten crore rupees during the financial year immediately preceding the financial year, shall be liable to collect such TCS.
• Central Government may notify person, subject to conditions contained in such notification, who shall not be liable to collect such TCS.
• No TCS is to be collected from the Central Government, a State Government and an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to conditions as prescribed in such notification.
• No such TCS is to be collected, if the seller is liable to collect TCS under other provision of section 206C such as Section 206C (1), 206C (1F) and 206C (1G) or the buyer is liable to deduct TDS under any provision of the Act and has deducted such amount.

Some Key Points in form of question and answer relating to Section 206C(1H):

1. Whether Section 206C(1H) is applicable on provision of services?

Ans: This section is not applicable on provision of services; hence all service provider should keep in mind that they are not covered under prevue of Section 206C(1H).

2. Whether TCS has to be collected on the amount of consideration received before 01 October, 2020?

Ans: TCS u/s 206C(1H) shall be applicable only on the amount received on or after 1^st October, 2020.

E.g. If a seller has received 80 Lakhs before 01^st October, 2020 from a particular buyer and receives 10 lakhs after 01^st October, 2020. Then in such case the seller would be required to collect tax on Rs. 10 lakhs only and not on Rs. 40 lakhs [i.e. Rs 90 lakhs – Rs 50 lakhs (Threshold)]

[Refer – Clarification on doubts arising on account of new TCS provisions issued by CBDT]

3. Threshold limit of Rs 50 lakhs for sales consideration is calculated from which date?

Ans: Though the section is effective from 01^st October, 2020, the threshold limit of Rs 50 lakhs of sale consideration will be computed from 01 April, 2020. i.e. from beginning of the financial year.

4. Whether the GST amount will be considered as a part of sales consideration or not for the purpose of calculation of threshold limit and TCS?

Ans: Yes GST component should be considered as a part of sale consideration for the purpose of calculation of threshold limit and TCS

5. Whether any adjustment for sales return, discount or indirect taxes required for purpose of TCS?

Ans: No adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax under sub-section (1H) of section 206C of the Act since the collection is made with reference to receipt of amount of sale consideration. [Refer – CBDT Circular No. 17/2020 dtd. 29-09-2020]

6. If Mr. A has sale the goods in the month of July, 2020 and he has received the payment in the month of October, 2020 then whether the TCS will be applicable in this case? If the threshold limit has already complied in the month of September.

Ans: Yes, TCS has to be calculated on the amount of receipts since as per the section 206C(1H), the TCS applicable on actual receipt of sale consideration and not on merely raising the invoice of the same.

7. Can Advance received before October and sales is completed after October will be eligible for the TCS u/s 206C(1H)?

Ans: Yes, in such situation if the total amount is above threshold limit then the TCS will be applicable in such situation.

E.g. If sale upto 30th September – Rs. 70,00,000,

Sales on 15 October 50,00,000

Amount Received on 25 September – Rs. 1,20,00,000/- (Incl Advance against sales of October month)

The TCS will be applicable in this case on amount of Rs 70,00,000 (Rs. 1,20,00,000 – Rs 50,00,000)

[Refer – CBDT Circular No. 17/2020 dtd. 29-09-2020]

8. What compliance are required with respect to Section 206C(1H)?

Ans: The due date of payment of TCS is on or before 7th day of the next month in which tax has been collected. TCS return shall be filed in Form 27EQ on a quarterly basis. The due date of filing of quarterly return is within 15 days of the end of the quarter. Further, when the tax collector files his quarterly TCS Returns in Form 27EQ, he has to provide a certificate of TCS in Form 27D to the buyer within 15 days of the date of filing.

I hope the above all the analysis will help you to understand this critical section in easy way.

(Article is co-Authored by CA Prapti Raut)