TCS on Sale of Goods- Income Tax Provisions

As per Section 206(1H), with effective from 1st October 2020 goods sellers whose total sales, gross receipts or turnover from the business carried on by it exceed 10 crore rupees during the financial year 2019-20 shall be liable to collect such TCS at a rate of 0.075%(0.1% from  1st April 2021) on consideration received from a buyer in a previous year in excess of 50 lakh rupees. In non-PAN/ Aadhaar cases, the rate shall be 1%.

Note: TCS to be collected on [Total Sale Receipt (Minus) ₹ 50 Lakhs]

The term ‘seller’ is defined in the provision itself to mean any person. Thus, an individual, firm, HUF, company, trust, AoP, BoI, society, – all are covered, who sells goods to buyers whether in wholesale or retail.Only sellers of goods are covered by this provision. Services are not covered. If a person sells goods as well as render services, then tax shall be collected only on the sale of goods. No tax shall be collected on the sale of services.

The seller must sell the goods to the buyer. Thus, if the seller draws the goods for personal consumption, it will not come under the purview of TCS.Thus, if there is any inter-company/ branch transfer under same PAN no TCS is applicable.

The buyer is any person who purchases any Goods but does not include:

• The Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State
• a local authority
• a person importing goods into India i.e.No TCS is to be collected from the importer of any goods into India.

No such TCS is to be collected in following cases:

1. If the seller is liable to collect TCS under other provision of section 206C or
2. The buyer is liable to deduct TDS under any provision of the Act and has deducted such amount.

Compliances after collecting TCS

Payment of Tax Collected:

The TCS collected by the seller shall be paid to the account of the Government by the 7th of the next month.

The seller deposits the TCS amount in Challan 281 within 7 days from the last day of the month in which the tax was collected.

Note: If the tax collector responsible for collecting the tax and depositing the same to the government does not collect the tax or after collecting doesn’t pay it to the government as per above due dates, then he will be liable to pay interest of 1% per month or a part of the month

Return filing of Tax Collected:

Every tax collector has to submit quarterly TCS return i.e. in Form 27EQ in respect of the tax collected by him in a particular quarter. The interest on delay in payment of TCS to the government should be paid before filing of the return.

Also, seller has to provide buyer TCS certificate i.e. Form 27D.

Due date for filing return:

Quarter Ending	Due Date for Filing Return	The date for generating Form 27D
30th June	15th July	30th July
30th September	15th October	30th October
31st December	15th January	30th January
31st March	15th May	30th May

PRACTICAL IMPLEMENTATION & ACCOUNTING:

Case Study – In the books of M/s A

M/s A makes sale of INR 75 Lakhs to M/s B upto 30th September 2020. Out of INR 75 Lakhs, it has already received 45 Lakhs upto 30th September 2020. On 15th October 2020, it makes sales of INR 45 Lakhs to M/s B.

On 15th December 2020, M/s A receives the full pending payment of INR 75 Lakhs.

Solution:

LOGIC: TCS is to be collected on payment basis, but for better practical control we advise to charge TCS in the invoice and account it in TCS (Accrued) Liability Account – Control account. Actual TCS collection will happen on receipt from party, on receipt we will transfer the amount from TCS (Accrued) Liability Account to TCS (Actual) Liability Account i.e. from control account to actual liability account. Amount of Tax collected and reflecting in TCS (Actual) Liability Account will be paid to government on respective due dates.

Journal Entries upto 30/09/20:

Transaction	Particulars		Rs. in Lakhs	Rs. in Lakhs
Sales	B’s A/c To Sales A/c	Dr. Cr.	75	75
Receipt	Bank A/c To B’s A/c	Dr. Cr.	45	45

 On 01/10/2020 Identify all parties where receipts of more than Rs. 50 Lakhs has been received from April 2020 to September 2020 and further payment is pending to be receivedorparties whose total receipt in the year is expected to cross 50 Lakhs. Calculate the amount of TCS to be collected on balance payment receivable as on 01/10/2020 and raise a debit note to the party for the same.

Journal Entries on 01/10/20:

Transaction	Particulars		Rs. in Lakhs		Rs. in Lakhs
Debit note for TCS	B’s A/c To TCS (Accrued) Liability A/c	Dr. Cr.	0.0225	0.0225

Calculation of TCS:

Total Sales up to 30/09/2020 – 75 crores

Amount received upto 30/09/2020 – 45 Crores.

TCS applicable on receipt above 50 crores.

Therefore, Tax to be collected on balance 25 crores (75 cr – 50 cr).

TCS = 25cr X 0.075%

Accounting for Transaction after 01/10/2020:

TCS will be charged in all invoices raised on or after 01/10/2020 and accounted in control account. on receipt we will transfer the amount from TCS (Accrued) Liability Account to TCS (Actual) Liability Account i.e. from control account to actual liability account.

Journal Entries on or after 01/10/20:

Transaction	Particulars		Rs. in Lakhs		Rs. in Lakhs
Sale on 15/10/2020	B’s A/c To Sales A/c To TCS (Accrued) Liability A/c	Dr. Cr. Cr.	45.034	45 0.034
Receipt on 15/12/2020	Bank A/c TCS (Accrued) Liability A/c To B’s A/c To TCS (Actual) Liability A/c	Dr. Dr. Cr. Cr.	75.056 0.0565	75.056 0.0565
Payment of TCS	TCS (Actual) Liability A/c To Bank A/c	Dr. Cr.	0.0565	0.0565

TDS (Accrued) Liability A/c (control account) created in the books of accounts which will be cleared on receipt of consideration from party on 15/12/2020.

Since the amount is received on 15/12/2020 the TCS liability is recorded in the TCS (Actual) Liability A/c.

On 31th December 2020, the balance in the Ledger TCS (Actual) Liability A/c is the TCS liability to pay for the month of December 2020.

You need to pay off the ledger balance in TCS (Actual) Liability A/c on or before 7th January 2020 in compliance with the provisions of the Law.

As at year end:

In case there is any balance outstanding in the TDS (Accrued) Liability A/c as at year end, credit notes need to be issued to all the parties whose balance in TCS Ledger is outstanding and the balance in the ledgerneeds to be reversed and made zero. This is done since TCS liability is extinguished on any consideration not received during the year.

Pro-Tip:

You can claim exemption of first 50 Lakhs received in consideration, and again commence passing entries as passed above.

It is advisable to avoid reversing the TCS liability at year end and again claim exemption party-wise for Rs. 50 lakhs in the next year and then start collecting TCS. It is practically impossible to do such an exercise every year. You are advised to continue collecting TCS from a party once you commence, unless you are sure that turnover threshold of INR 50 Lakhs will not cross in that year. 

FAQ

How to check applicability of the provision under sec 206(1H)?

Provision of section 206C(1H) for the FY 2020-21 shall be applicable, ifturnover for the FY 2019-20 exceed 10 Crore.In computing the threshold limit of Rs. 10 crores, the sale of goods, as well as sale of services, will be counted and added.In computing the total turnover, the amount of GST shall be included. 

Whether TCS shall be collected on export of goods?

No, TCS shall not be collected on export sales being made outside India.

Whether TCS shall be collected at the time of debiting the buyer with the sale value or at the time of collection?

Section 206C(1H) specifically provides that the seller shall collect from the buyer a sum equals to 0.075% of the sales consideration at the time of receipt of such amount. That means the liability to collect TCS will arise even in case of advance payment received though the goods will be physically delivered at a later date.

In case, the advance has to be refunded as the sale is not affected?

Where the seller receives an advance for selling the goods and he deposits the TCS thereon, however later on such deal stands cancelled, in such a case no refund of the TCS can be made to a buyer. Even if it is collected on higher amount, the same will be deposited with the government. The buyer can claim credit for the TCS amount in his IT return. 

Whether the rate of TCS shall be reduced by 25% in line with the Covid-19 relief measures announced by the government?

CBDT vide Press Release dated 13.05.2020 has reduced the rate of TCS under section 206C(1H) from 0.1% to 0.075% which shall be applicable from 01-10-2020 to 31-03-2021 

Is TCS applicable in case of sale of Fixed Asset?

Yes. As per section 206C(1H) TCS shall be collected on sale of ‘Any Goods’. Thus, in the absence of any clarifications from CBDT regarding the meaning of goods and to be on the safer side, it can be reasonable presumed that TCS shall also be collected on sale of fixed assets as well. 

In case part payment received before 01/10/2020?

TCS shall be collected under various situations as given below

Amount Collected from 1-4-2020 to 30-9-2020	Amount collected from 1-10-2020 to 31-03-2021	Remarks
Rs. 30 Lakh	Rs. 30 Lakh	TCS on Rs. 10 Lakh (Rs. 60 Lakh – Rs. 50 Lakh) shall be collected
Rs. 55 Lakh	Rs. 20 Lakh	TCS shall be collected on Rs. 20 Lakh. since the threshold limit already crossed before 1st Oct., all the subsequent collection shall attract TCS.
Rs. 15 Lakh	Rs. 30 Lakh	No TCS shall be required since the threshold limit of Rs. 50 Lakh not crossed.

TCS on Purchase is not an additional Tax

It has been reported in certain section of the media that this TCS is an additional tax.This is obviously not correct. In this regard, it may be noted that TCS is not an additionaltax butis in the nature of advance income-tax/TDS for which the buyer would get thecredit against his actual income tax liability and if the amount of TCS is more than histax liability, the buyer would be entitled for refund of the excess amount along with interest.

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