Complete Analysis of TCS under Section 206C(1H)

Complete Analysis of Tax Collected at Source under Section 206C (1H) of the Income Tax Act, 1961

Tax Collected at source (TCS) is Income Tax which is required to be collected by the seller (Collector) from the Buyer along with the Price of Goods and applicable taxes. Provisions relating to tax Collected at Source has been enumerated in section 206C of the Income Tax Act, 1961. There are various goods on which tax has to be collected at source which is given below :-

In the Finance Act, 2020 new sub section (1H) has been inserted in the above section which is applicable W.E.F 01^st October 2020, for covering the remaining goods which are not covered above. Therefore it can be said that this Sub section is a General Collection sub-section under which all the goods are covered which are not covered above.

Before going to the explanation let us have a look into the Bare Act of Sub section (1H) :-

(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,—

“Buyer” means a person who purchases any goods, but does not include,—

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

2. a local authority as defined in the Explanation to clause (20) of section 10; or

3. 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.

A perusal of the above provisions of Sub Section (1H) of section 206C would reveal the following 4 Point summary for applicability of the provisions :-

• Turnover :- Turnover (Including GST Component) of the Seller exceeds 10 Crores in the Previous Financial year.
• Goods Covered :- The Goods sold to the buyer is not covered under any other Sub Section of 206C on which tax is collected at source in accordance with their specific provision
• Threshold :- TCS is to be collected from Buyers if the Value/Aggregate Value of the goods supplied is more than 50 Lakhs in the Financial year to that particular customer.
• Rate of TCS :- TCS is to be collected at the rate of 0.1% of the Value determined above or 1% in case of PAN/Aadhaar Number not on record. (In Respect of F.Y 2020-21 TCS rates have been reduced by 25% from the existing rates on account of the ongoing Pandemic COVID-19, therefore reduced rate of 0.075% would be applicable in this case)

Implementation of Provision for compliance :-

• Checking the Sales/Gross Receipts/Turnover of the Assessee for the Previous Financial Year, if the same exceeds 10 Crore during the Previous Financial Year, then the provision of this Sub Section would be applicable. (i.e during F.Y 2020-21 turnover for F.Y 2019-20 has been to be seen).
• Checking whether the goods are not covered under any other sub section of section 206C on which Tax is collectible as per their specific provision.
• Identifying the Customers from whom total receipt during the Financial year exceeds 50 Lakhs or Potential Customers from whom estimated turnover would exceed 50 Lakhs during the Financial year.
• Intimating the Identified Customers regarding the applicability of the provisions and Collection of tax at source in the Invoice or On Receipt of amount via a Debit Note
• Creating a separate Line item in the Invoice to charge TCS from the Customers identified in point No. (3)
• Creating a separate Ledger in the Accounts as “TCS on sale of Goods” under current Liabilities and deposit the amount of credit Outstanding in ledger at the end of month on or before 7^th day of the Succeeding month.

Legal Compliances relating to Tax Collected at Source :-

• TAN Number :- Obtain a TAN Number by applying to NSDL if the seller does not have any TAN Number
• TCS Collection :- Collection of tax at the time of Receipt of sales consideration, Alternatively a seller may collect TCS on Invoice itself if the consideration is received after Issuance of Invoice.
• Depositing the Tax :- The Tax collected during the month has to be deposited before 7^th Day of Next month or the extended date as the case may be.
• Filling TCS Return :- Quarterly TCS returns has to be filled within 15 days of month after the end of each Quarter. (Form 27EQ).

• Issuance of TCS Certificate :- TCS Certificate has to be issued  to the buyer relating to tax collected during the Quarter within 30 Days of month after the end of each Quarter. (Form 27D)

Frequently Asked Question :-

Q.1 Whether for calculating the Turnover Limit of Rs 10 Crore , Turnover relating to services would also be included ?

Ans. Yes, in the Turnover Criteria of Rs 10 Crore both the Turnovers i.e Goods and Services would be taken into account for calculating the applicability of the provisions.

Q.2 Whether for calculating the threshold limit of Rs 50 lakhs per Customer , Turnover relating to services would also be included ?

Ans.  No, turnover/Gross Receipt of Service with the Identified Customer need not be taken in account for calculating the Threshold limit of Rs 50 lakhs.

Q.3 Whether in case of Goods being returned (Issuance of Credit Note) the TCS collected has also to be reversed ?

Ans.  No, TCS once collected has to be deposited to the credit of Govt and the Buyer can take credit of the same while assessing the Advance Tax/Final tax Liability

Q.4 Whether TCS shall be collected by the seller where the buyer is also obliged to deduct TDS on payment being made ?

Ans.  No TCS shall be collected where the buyer is obliged to deduct TDS on payment being made, as specifically said in the 2^nd Proviso to sub section (1H).

Q.5 Whether TCS has to be collected on the amount of sale including GST ? 

Ans.  Yes, TCS has to be collected on amount including GST. Several courts have previously unanimously held regarding TDS that No tax can be deducted on amount of VAT/Service tax/GST. Further CBDT vide Circular No. 23/2017 dated 19^th July 2017 has clarified that no tax shall be deducted under chapter XVII-B on amount of GST, however the above clarification relates to Chapter XVII-B whereas the provisions relating to TCS has been enumerated under Chapter XVII-BB . Therefore TCS has to be collected on amount of GST also.

Q.6 Whether TCS is required to be collected on amount of Sales during the period 01.04.2020 to 30.09.2020 ?

Ans.  No, TCS would not be required to be collected on sales made prior to 1^st October 2020, however TCS would required to be collected on amount outstanding as on 30^th Sept 2020 of the identified Customer in case the Turnover or the estimated turnover during the Financial year exceeds 50 lakhs.