TCS under Section 206C(1H) & Higher TCS Rate under Section 206CCA

TCS under Section 206C(1H) and Imposing Higher Rate of TCS under Section 206CCA

As we know there are provisions which provides for collection of tax at source for certain specified category of goods however there was no provision of tax collection at source for sale of goods in general. Now with the intent to establish trail of high value sale transaction of goods, the Government of India newly introduced Tax Collection at Source (TCS) on sale of goods vide Sec. 206C (1H) w.e.f. 01.10.2020. “Tax Collection at Source” is a tax collected by a seller on the invoices issued to the buyer of goods at the time of sale and is payable to the Government Treasury on receipt of money from the buyer.

Here in this article we will discuss different aspect of this provision.

• Applicability of Section 206C (1H): 

Every person, being a seller who receives any amount as consideration for sale of any goods, in case the value or aggregate of such values exceeds ₹50 lakhs in any Previous Year is liable for collection of tax on such transaction. The provisions of this section shall not apply in case of export of goods or goods covered under Sub-Section (1), Sub-Section (1F) and Sub-Section (1G).

• Who shall be considered as Seller for the purpose of this provision?

As per the explanation to Section 206C (1H), a Seller shall be a person whose total sales, gross receipts or turnover exceeds ₹ 10 crore in the immediate preceding financial year in which the transaction takes place.

• Effective date of Applicability: The provision will be effective from 1^stOctober, 2020.
• Rate of TCS: A person being a seller is liable to collect tax at the rate of 0.1% of thesale value in excess of ₹50 lakhs. However, there is an exception to this, in case the buyer is not holding valid PAN or Aadhaar number, the rate of tax collection will be 1% under Section 206CC read with Proviso 1 to Section 206C(1H).
• When the person is liable to collect tax: The seller is required to charge TCS on the invoice value. The amount of TCS is payable to the government at the time of receipt of the amount from the buyer. In other words, the liability to pay amount of TCS arises at the time of collection of tax irrespective of the time of entering in the books of account.
• Applicability on Export of Goods:

It is evident from the provision that export of goods are excluded from the applicability of this provision. The basic reasoning behind this exception is that the buyer located outside India will not be able to take the credit advantage of the tax collected as source by the seller as he has to files its tax return in accordance with the laws of the respective country.

• Due dates for depositing TCS:

Like due dates of depositing TCS in other sections of the Income Tax Act, 1961, TCS under Section 206C(1H) shall be deposited by dates as follows:

S. No.	Period	Due Date
1.	April-March	7th of the subsequent month

•  Due dates for filing of TCS Returns:

QUARTER	PERIOD	DUE DATE
Q1	April- June	15st July
Q2	July- September	15st October
Q3	October- December	15st January
Q4	January- March	15st May

Exceptions to the applicability of Section 206C (1H):

The provisions of this section shall not apply to transactions where tax is deductible under any other section of the Act. In other words, if there transaction of sale of goods attracts deduction of TDS under any other section say 194Q, in that case provisions of 104Q shall prevail and the provisions of this section shall not apply.

Moreover, there are already certain goods on which provision of TCS are applicable. Such goods are already covered under sub-section (1), sub-section (1C), sub-section (1F) and sub section (1G) of Section 206 C of the Income Tax Act, 1961. These goods includes Timber, Tendu leaves, forest products, scrap etc. Therefore, if TCS is already collected under any other provision, TCS under Section 206C(1H) shall not be collected.

Summary of Section 206C (1H):

The provision of TCS under Section 206C (1H) shall apply if the following condition are fulfilled:

• The transaction is related to sale of goods except the goods which are exported and goods covered under sub-section (1), sub section (1C), sub section (1F) and sub-section (1G) such as Timber, Tendu leaves, forest products, scrap etc.
• The value of goods or aggregate of such values exceeds ₹50 lakhs in the year in which transaction takes place.
• The rate of TCS shall be 0.1 per cent of the value in excess of ₹50 lakhs. However, the rate shall be 1 percent in case the buyer does not hold valid PAN or Aadhaar number.
• The tax is payable on collection of consideration.
• Buyer should fall under the meaning of Buyer as provided in Explanation to this Section.
• Seller should be a person whose total sale, gross receipt or turnover exceeds ₹10 crore in immediately preceding financial year in which transaction takes place.
• This provision shall not be applicable where TDS under any other section of the Income Tax Act, 1961 is deducted.

Frequently Asked Question:

Q.1 What is the meaning of Seller for the purpose of this Section?

For the purpose of this section, buyer means a person whose total sales, gross receipts or turnover from the business, exceeds ₹10 crores during the F.Y. immediately preceding the F.Y. in which goods are sold. Further, the Central Government may, by notification in the Official Gazette, specify the list of persons who shall not be considered as seller for this matter.

Q.2 What is the meaning of Buyer for the purpose of this Section?

For the purposes of this sub-section,

(a) “Buyer” means a person who purchases any goods, but doesn’t 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) 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.

Q.3 How to calculate turnover of ₹10 crore?

It is evident that provision of TCS under this section shall apply in case the total sales, gross receipt or total turnover exceeds ₹10 crore. This can be understood as if a person engaged in sale of goods as well as rendering services in that case total value of sale of goods and gross receipt of services should be considered for calculating value of ₹10 crore.

In other words, to calculate value of ₹10 crore value of sale of goods as well services shall be cumulatively considered to work out total turnover.

Q.4 How to calculate turnover of ₹50 lakhs?

As discussed in earlier question while computing value of ₹10 crore, total turnover needs to be considered which includes total value of sale of goods and total gross receipt of services. However in case of computing ₹50 lakhs only value of sales of goods shall be considered.

Further, the provisions are applicable w.e.f. 01.10.2020, the turnover from 01.04.2020 to 31.03.2021 needs to be considered for the purpose of calculating turnover of Rs. 50 lakhs.

Illustration 1: “A” was having turnover of 10 crore in the F.Y 2019-2020. The turnover for the period from 01.04.2020 to 30.09.2020 was 80 lakhs made to “B”. The turnover made to “B” post to 01.10.2020 was 40 lakhs. Now, on which value TCS should be collected by “A”?

Answer: TCS shall be collected and payable on the amount of Rs. 40 lakhs since the limit of Rs. 50 lakhs already crossed before 01.10.2020.

Illustration 2: A was having turnover of 10 crore in the F.Y 2019-2020. The turnover for the period from 01.04.2020 to 30.09.2020 was 80 lakhs made to B. A received advance from B of Rs. 10 lakhs on 3^rd November 2020. Now, on which value TCS should be collected by A?

Answer: TCS shall be collected and payable on the amount of Rs. 10 lakhs since the limit of Rs. 50 lakhs already crossed before 01.10.2020.

Q.5 What would be the applicability of Section 206C(1H) on transactions carried through various Exchanges where there no one to one contract between the buyers and sellers?

In order to remove such difficulties, the board has exercised the power under Section 206C(1I) clarified that the provisions of section 206C(1H) of the Act shall not be applicable in relation to,-

1. transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre;

2. transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC; and

Q.6 What is the meaning of “Recognised Clearing Corporation”, “Recognised Stock Exchange” and “International Financial Services”?

For this purpose of provisions of Section 194Q, aforesaid terms are defined as:

• “Recognized Clearing Corporation” shall have the meaning assigned to it in clause (i) of the Explanation to clause (23 EE) of section 10 of the Act;
• “Recognized Stock Exchange” shall have the meaning assigned to it in clause (ii) of the Explanation I to sub-section (5) of section 43 of the Act; and
• “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005.

Q.7 Whether TCS is applicable on sale of Fuel supplied to foreign airlines in India?

There are ambiguities arises as sale of fuel to foreign airlines in India does not tantamount to export of goods. It is clarified by the government vide circular no. 17/2020 dated 29^th September 2020 that he provisions of sub-section (1H) of section 206C of the Act shall not apply on the sale consideration received for fuel supplied to non-resident airlines at airports in India.

Q.8 Whether adjustment for trade discounts, sales returns or indirect taxes are allowed for collection of TCS?

It is again clarified by the department vide circular no. 17/2020 dated 29^th September 2020  that 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.

In other words, TCS shall be collected on the amount of GST levied on the sale of goods. Further, in case if there is discount provided to the customer or sales return from the customer resulting in collection of amount below 50 lakhs even then provision of TCS shall be applicable.

Q.9 What is applicability of TCS provisions under Section 206C (1H) on sale of motor vehicles?

Under the provisions of Income Tax Act, 1961, TCS is applicable on Sale of Motor Vehicles under Section 206C (1F), now there arose an ambiguity after the introduction of Section 206C (1H) of the Income Tax Act, 1961 imposing TCS on sale of goods w.e.f. 1^st October 2020.

To remove difficulties, it is clarified that the scope of Section 206C(1F) and 206C(1H) are different. While sub-section (1 F) is based on single sale of motor vehicle, sub-section (1 H) is for receipt above 50 lakh rupee during the previous year against aggregate sale of good. While sub-section (1F) is for sale to consumer only and not to dealers, sub-section (1H) is for all sale above the threshold.

Illustration: Mr. A, being seller, sold a car to Mr. B for Rs. 15 lakhs. Apart from that Mr. A sold 7 other cars to Mr. C of aggregating value of Rs. 56 lakhs and each less than 10 lakhs. The total turnover of Mr. A is 71 lakhs.

In this case, since sale of car made to Mr. B attracts provisions of Section 206C (1F) as the value of car exceed Rs. 10 lakhs. Whereas in case of sale of car made to Mr. C, the total value exceeds amount of Rs. 50 lakhs, therefore TCS on value in excess of Rs. 50 lakhs shall be collected by Mr. A from Mrs. C.

Q.10: Whether tax under Section 206C(1H) needs to be collected in case where the income of the buyer is exempt under the Income Tax Act, 1961?

This is with respect to sub-section (1 H) of section 206C of the Act, it is clarified that the provisions of this sub-section shall not apply to sale of goods to a person, being a buyer, who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (Like RBI Act, ADB Act etc.). However, the above clarifications would not apply if only part of the income of the person (being a seller or being a buyer, as the case may be) is exempt.

Q.13: What would be the applicability of Section 206C(1H) if the turnover from the business does not exceeds Rs. 10 crore but exceeds after including non-business income?

It is evident from the definition of the “Seller” that the total sales, gross receipts or the turnover from the “business” carried on by him exceeds Rs. 10 crore. Therefore, the turnover from the receipts should be considered and if it does not exceeds Rs. 10 crore, then the provisions of this section shall not apply.

In other words, receipts or income from non-business activities should not be considered for the purpose of computing the turnover of Rs. 10 crore.

COMPARATIVE ANALYSIS-SECTION 194Q AND SECTION 206C (1H)

The government inserted a new sub- section (1H) under Section 206C of the Income Tax Act, 1961 vide the Finance Act, 2020. This Section provides that a seller having turnover of more than ₹10 Crores in the preceding Financial Year is required to collect from the buyer, TCS @ 0.1% of the consideration received against the sale of goods exceeding ₹50 lakhs and the provision was made effective from 1^st October, 2020.

In order to further ensure the trail of high value transaction, the government introduced Section 194Q in the Income Tax Act, 1961 vide the Finance Act, 2021. The provisions of Section 194Q has been made effective from 1^st July 2021 a year after the introduction of 206C (1H). With the introduction of TDS provisions under Section 194Q, there arise ambiguities regarding its applicability on different transactions.

Now, the utmost question which arises is that which section will prevail in case of overlapping between section 194Q and 206C (1H)?

The Second Proviso to Section 206C(1H) reads as ‘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.’

Whereas Section 194Q(5) reads as “The provisions of this section shall not apply to a transaction on which—

• tax is deductible under any of the provisions of this Act; and
• tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.]

The harmonious reading of both the above sections would say fetch the following answers against the situations mentioned hereunder.

Situation – 1: Transaction is subject to both the TDS under section 194Q and TCS under section 206C (1H) and the buyer has deducted tax at source under section 194Q.

Answer – 1: Since, Section 194Q overrides the Section 206C(1H), therefore the seller is not required to collect tax at source on this transaction.

Situation – 2: Transaction is subject to both the TDS under section 194Q and TCS under section 206C (1H) and the buyer has not deducted tax at source under section 194Q.

Answer – 2: The second proviso clearly states that if the buyer liable to deduct TDS and also deducted such amount in that case provision of TCS shall not apply. In the given case, the buyer is liable to deduct the TDS but failed to deduct the TDS, therefore the seller is required to collect tax at source on this transaction.

Situation – 3: Transaction is subject to both the TDS under section 194Q and TCS under section 206C (1H) and the Seller has collected tax at source under section 206C (1H).

Answer – 3: Irrespective of what the seller does, transaction is definitely subject to the TDS by the buyer under section 194Q, which can easily be understood from simultaneous harmonious reading of both the above sections.

It is ample clear that if both TCS and TDS applies on the same transaction, it will result in double tax collection. Therefore, in order to remove the difficulty in this case, a Circular no. 13 of 2021 dated 30.06.2021 issued by CBDT says in its para 4.9.5.(v) “However, if, for any reason, tax has been collected by the seller under sub-section (I H) of section 206C of the Act, before the buyer could deduct tax under section 194-Q of the Act on the same transaction, such transaction would not be subjected to tax deduction again by the buyer. This concession is provided to remove difficulty, since tax rate of deduction and collection are same in section 194Q and subsection (IH) of section 206C of the Act.”

 Comparative Table-Section 194Q & section 206C (1H)

PARTICULARS	194Q	206C(1H)
Purpose	Tax to be deducted	Tax to be collected
Responsible person	Buyer	Seller
Applicable w.e.f.	1st July, 2021	1st October, 2020
Time of deduction/ collection	Payment or credit whichever is earlier	Receipt
Rates	0.1% (5% if PAN not available)	0.1% (1% if PAN not available)
Overriding effect	194Q prevails over 206C(1H)

Section 206CCA of Income Tax Act, 1961- Imposing Higher Rate of TCS

In order to ensure strict compliance of the provisions of the Income Tax relating to filing of income tax return, the government introduced the provision of Section 206CCA. By virtue of this provision, government implemented the provision of higher rate of TCS in case the buyer fails to comply with the provision of filing of Income Tax return under Section 139(1) of the Income Tax Act, 1961.

It is quite evident from the plain reading of 206CCA that this section is a kind of special provision for collection of tax at source at a higher rate for certain non-filers (hereinafter called as specified person) of Income Tax Return.

In order to understand the provision under this section, we will discuss and analyse as follows:

• What is the effective date of both the provisions?

The provisions of Section 206CCA are effective from 1^st July 2021.

• Which section will prevail in case where TCS is applicable under any other provisions of the Income Tax Act, 1961?

Section 206AB and Section 206CCA are non-obstante sections having overriding effect to any other provision/section contrary to this under the Income Tax Act.

Sub-section (1) of Section 206CCA states that, where tax is required to be collected at source on any sum or income or amount received by any person from the specified person, then tax shall be collected at higher of the following rates:

• At twice the rates specified in the relevant provisions of the act
• At the rate of 5%

Further, Sub-section (2) of Section 206CCA provides that on Non-furnishing of PAN by the specified person, Section 206CC shall be applicable in addition to this section respectively and the tax shall be collected at higher of two rates provided in Section 206CCA and in Section 206CC.

• What is the meaning of Specified Person under Section 206CCA?

The Section 206CCA(3) specifies who shall be considered as “Specified Person”. ‘Specified person’ means a person which satisfies all the below mentioned conditions but shall not include a non-resident who does not have a permanent establishment in India:

• Person who has not filed their Income Tax Return for two previous years immediately preceding the previous year in which tax is required to be deducted/collected
• The time limit for filing of such return of income U/s 139(1) has expired.
• Aggregate of Tax deducted/collected at source in each of these two financial year is INR 50,000/- or more

For FY 2021-22 effective 1^st July 2021, “Specified person” shall mean those persons who has not filed their Income Tax Return for both the FY 2018-19 & FY 2019-20 and whose total tax deducted/collected during each of FY 2018-19 & FY 2019-20 were INR 50,000/- or more.

• How a collector under Section 206CCA will identify whether a specified has filed its return or not?

Under both the provision, it is the responsibility of collector to identify the return compliance done its Income Tax Return compliance or not. The way to identify this is to take declaration from the specified person about the Income Tax Return compliance.

Additionally, Collectee can give self-declaration to their respective tax collector about the non-applicability of Section 206CCA upon them.

SAMPLE FORMAT OF SELF-DECLARATION IS MENTIONED BELOW:

(On the letter-head of entity)

Dear XXXX (Collector’s Name)

Sub: Declaration regarding filing of Income Tax Returns for past years 

This letter is to inform you that Finance Act 2021 has introduced new provision w.e.f. 1st July 2021 vide section 206CCA under Income Tax Act 1961 for deducting/collecting TCS at higher rate for non-filing income tax return (ITR) which is otherwise required to be furnished under section 139 (1) of the Income Tax Act,1961.

In this regard, I/We                                             , having PAN:                , hereby declare that I/We have duly filled our Income Tax Return for two previous years immediately preceding the previous year in which tax is required to be deducted/collected for which time limit for filing u/s 139(1) has expired and hence TDS/TCS should not be deducted/collected at a higher rate.

Details of ITR filling has been mentioned below

Assessment Year	Acknowledgement Number	Date of Filing

Further, we do hereby declare that what is stated above is true and correct to the best of my/our knowledge and belief. In case there is any tax liability, interest or penal impositions upon you or your organisation on account of this representation/declaration, I/we undertake to fully indemnify you/organisation for the same.

Thanks,

For                          

Name of Authorized Signatory with Designation & Signature                                    ”

• Is there any other way out to identify the compliance status of the specified person?

As discussed earlier, a deductor or collector can take declaration from the specified person in the prescribed format. Since, it is a cumbersome activity to take declaration where there are large number of specified persons. Therefore in order to bring ease to this compliance, CBDT has issued a Circular regarding use of functionality under Section 206AB and 206CCA of the Income-tax Act, 1961 vide Circular No. 11 of 2021 F. No. 3701331712021-TPL dated 21^st June,2021. Wherein a new functionality “Compliance Check for Section 206AB and 206CCA” is made available through reporting portal of Income Tax department.

The tax deductor/collector can feed the single PAN (PAN search) or multiple PANs (bulk search) of the Deductee/CoIIectee and can get a response from the functionality if such Deductee/Collectee is a specified person. For PAN Search, response will be visible on the screen which can be downloaded in the PDF format. For Bulk Search, response would be in the form of downloadable file which can be kept for record. The logic of how the functionality works has also been explained in detail in the said circular.

• Is there any exception to applicability of 206CCA?

The provisions of Section 206AB/206CCA are not applicable to a non-resident who does not have a permanent establishment in India.

• What is the meaning of permanent establishment under Section 206CCA?

The term “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.’

• The relevant extract of Section 206C (1H) has been reproduced as follows:

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 PAN No 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 doesn’t 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) 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 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”.

The relevant excerpt of Section 206AB and Section 206CCA has been reproduced as follows:

‘206CCA. Special provision for collection of tax at source for non-filers of income-tax return.—(1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum or amount received by a person (hereafter referred to as collectee) from a specified person, the tax shall be collected at the higher of the following two rates, namely:-

(i)		at twice the rate specified in the relevant provision of the Act; or
(ii)		at the rate of five per cent.

(2) If the provisions of section 206CC is applicable to a specified person, in addition to the provisions of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC.

(3) For the purposes of this section “specified person” means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be collected, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years:

Provided that the specified person shall not include a non-resident who does not have a permanent establishment in India.

Explanation.—For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.’.

Disclaimer:  The information contained in this article, as provided by the author, is to provide a basic understanding of the provision in simple form. The information should not be construed as legal opinion for use. It is duly recommended to the intended users that professional advice should be taken before decision making.