Complexities in newly introduced TCS on sale of any goods in Budget 2020

Introduction

In order to widen and deepen the tax net, Finance bill 2020 has proposed to insert sub-section (1H) in Section 206 to levy TCS on sale of goods, which was to be effective from 1st April 2020. However, the Parliament while passing the Bill in the Lok Sabha has amended the said section and has also deferred the date from which it becomes operative to 1st October, 2020 instead of 1st April, 2020.

The new Section 206(1H), as amended by the Parliament, reads as under:

(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% 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 Aadhar 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 “5%”, the words “1%” 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, –

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 from 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 ’10 crore 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.

Brief analysis of Section 206(1H):

  • A seller of goods is liable to collect TCS @ 0.1% on consideration received from a buyer in a previous year in excess of Rs. 50 lakhs. However, in non-PAN/ Aadhaar cases the rate shall be 1%.
  • Only those sellers whose total sales, gross receipts or turnover from the business carried on by him exceed Rs. 10 crore rupees during the financial year immediately preceding the financial year in which sale of goods is carried out, 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 or the buyer is liable to deduct TDS under any provision of the Act and has deducted such amount.
  • The above provision will not be applicable in case of export sales.
  • The person who is importing goods from India is excluded from the definition of buyer.

Frequently Asked Questions:

Q 1. Which goods are covered under this section?

Ans: All goods will be covered under this section except those goods which are covered under other clauses of this section.

Q 2. Whether TCS is required to be collected on trade receivables of goods standing in books as on 30th September, 2020?

Ans: As the provisions are applicable from 1st October 2020, hence the provisions will not be applicable for the sales which will be completed up to 30th September 2020. Accordingly, TCS is not required to be collected on trade receivables of goods standing in books as on 30th September, 2020.

Q 3. What would be the point of collection of tax?

Ans: The Sub Section will trigger if any amount is received as a consideration in the course of completing the sale of goods.

Q 4. Whether the consideration will include the amount collected towards GST?

Ans: The word ‘consideration’ is not defined. Hence, the consideration amount will be inclusive of GST for the purpose of collection of TCS.

Q 5. How the impact of sales return, credit note, debit note would be considered in collecting TCS?

Ans: If sales return/credit note/debit note is before receipt of any consideration, then the impact thereof will be included in the amount of consideration and accordingly on receipt of the revised consideration, the provisions of TCS would be applicable. If the amount of consideration is already received and TCS is collected and paid, no impact thereof will be required to be made at the time of passing entry for sales reserved return/credit note/debit note.

Example: M/s JPK Ltd. Has turnover of Rs. 25 crores in FY 2019-20 and has made sale of goods to Mr. Jai worth Rs 55 Lakhs on 1st December 2020 and receives the consideration as under:

1. 40 lakhs on 25th December 2020

2. 15 lakhs on 10th January 2020

Since the turnover of M/s JPK ltd. In preceding financial year exceeds Rs. 10 crores hence, the provisions of section 206C(1H) shall be applicable and TCS to be collected as under

1. No TCS will be collected

2. JPK Ltd. Needs to collect TCS on Rs.5 lakhs i.e. Rs. (40+15-50) lakhs*0.1% i.e. Rs.500 needs to be collected as TCS.

Disclaimer:

The views expressed in this article are the personal views of the author. Neither the views nor the analysis constitutes a legal opinion and are not intended to be an advice. In case of any query please feel free to contact the author.

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5 Comments

  1. Rohit Kumar says:

    Thanks Jay Prakash for writing a nice article. But I would request to clarify me on the below:

    Provided that if the buyer has not provided the Permanent Account Number or the Aadhar 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 “5%”, the words “1%” had been substituted

    Many Thanks in Advance
    Regards
    Rohit

    1. kotharijp94 says:

      Dear Rohit,

      Please read the below section 206CC(1) of Income-tax Act, 1961:

      “Notwithstanding anything contained in any other provisions of this Act, any person paying any sum or amount, on which tax is collectible at source under Chapter XVII-BB (herein referred to as collectee) shall furnish his Permanent Account Number to the person responsible for collecting such tax (herein referred to as collector), failing which tax shall be collected at the higher of the following rates, namely:—
      (i) at twice the rate specified in the relevant provision of this Act; or
      (ii) at the rate of five per cent.”

      The first proviso to section 206C (1H) reads as under:

      Provided that if the buyer has not provided the Permanent Account Number or the Aadhar 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 “5%”, the words “1%” had been substituted.

      From the above analysis, we can conclude that in non-PAN/ Aadhaar cases the rate of TCS shall be 1%.

      Thanks.

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