Ever since TCS on receipt of sale consideration came to existence, there has be a debate on two questions
1. Whether GST will be charged on TCS Value?
2. Whether TCS be collected on GST Value?
Answer to 1st question is very clear as CBIC itself had issued a circular in Dec 2018, which was later corrected in March 2019 through corrigendum, and in this circular CBIC has said that TCS is an interim levy not in nature of tax, thus TCS will not be included for valuation purpose under GST.
However answer to second question is bit tricky. To understand this let us first read the extract of provisions of sec 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:
We can see that TCS should be collected on receipt of sale consideration for any goods. Now interestingly consideration is not defined in this section nor in Sec 2. At few places Net consideration is defined and that too for limited purpose of that section and always is in respect for capital asset. Thus those definitions are not applicable on this section.
So what is consideration?
Consideration means something in return i.e. quid pro quo. GST charged on goods sold is not something which I receive in return for those sold goods, but it is a tax which was to be paid by buyer, which seller is depositing.
We can understand consideration in other way in respect of goods. Consideration is an asset received in exchange of other asset, however GST received by me is not my asset but is in fact is my liability which I have to pay to government.
Sec 2(d) of Indian contract act define consideration which reads:-
“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”
Against the sale of the goods what is desired by the seller is only the taxable value, GST is later calculated later on the amount so desired by the seller. Thus GST is in addition to consideration but is not a part of consideration.
Till now I hope I am able to explain that consideration does not include GST. Now one might question then why there is so confusion and why everyone is saying that TCS will be collected on GST value too?
This confusion was raised due to provisions of Sec 145A of Income tax act. 1961. This section basically says that for the purpose of calculation income under head PGBP, stock shall be valued inclusive of indirect tax, and purchase and sales shall be adjusted to include any amount of tax paid or incurred to bring the goods to place of its location and condition as on date of valuation.
Since this section says that indirect tax shall be included in sales valuation, everyone is of the opinion that GST form part of the sale consideration, but as per my opinion, it is not, as this section is applicable for limited purpose of calculation of income under PGBP, and not for calculation of the tax collection to be done.
Someone now may ask about the clarification issued by the department. Before we discuss that clarification, we need to understand that circulars can complement the law, but it cannot substitute the law.
Now let see what that circular read:
No adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax under section 206C(1H) of the Act since the collection is made with reference to receipt of amount of sale consideration.
Circular is very clear that no adjustment is required to be made on account of indirect tax, but question rises what kind of adjustment on account of indirect tax should not be made? To which my answer is adjustment which was required by clause (ii) of sec 145A of Income Tax Act.
For reference provisions of clause (ii) of sec 145A has been produced below:
“the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation”
Now if we go by circular and make no adjustment as referred in sec 145A, then too GST is not included in sale consideration and thus no TCS collection should be made on GST amount.
Further, department had issued a clarification for TDS on service tax which was later made applicable in GST regime also. In this clarification department said that Service tax paid by the tenant doesn’t par take the nature of “income” of the deductor. The deductor only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) would be required to be made on the amount paid/payable without including the service tax. Initially this clarification was issued for TDS on rent, later it was applicable on all section dealing with TDS. In of such circular department was very clear that TDS will not be deducted on service tax component only if, service tax is separately charged on invoice.
On the same rationale one can argue that TCS is not collectable on GST component, if GST is collected separately on invoice.
Based on all of the above facts, in my opinion TCS is not collectable on GST component. However, if in case GST is not reflected separately on invoice, (which is not possible as sec 31 of CGST Act, r/w rule 46, specifically require that Tax should be mentioned separately), then TCS would be required to be collected on GST component as well.
The above views are of author himself. This article is written for knowledge purpose only and in no case should be treated as consultation from the author. Please consult appropriately before acting or not acting based on the view formed by the author in this article.