Tax Collection At Source (TCS) Under Newly Introduced Section 206C(1H) of The Income Tax Act, 1961 Wef 01/10/2020
1. BASIC FEATURES:
a) Section is applicable only in case of seller whose total sales, gross receipt or turnover from the business carried on by him exceeds Rs. 10 crores during the financial year immediately preceding financial year in which sale is carried out. In other words to be liable to collect TCS in Current financial year (FY 2020-21) total turnover of the seller should be more than Rs.10 crores in F.Y.2019-20.
b) TCS is required to be collected from the buyer whose aggregate purchases exceed Rs.50 lacs in any previous year.
c) TCS is required to be collected only on sale consideration exceeding Rs. 50 lacs. In other words, TCS on first Rs.50 lacs is not required to be collected.
d) Rate of TCS provided in the section is 0.1% of sale consideration. Vide Press Release dated 13.05.2020 rate of tax has been reduced for the current financial year to 0.075%
e) Section is also not applicable in respect of goods being exported out of India
2. FAQs arising out of the newly introduced provision:
a) Whether TCS is to be collected in the invoice to be raised or at the time of receipt of sale consideration ?
Though the section uses the wordings receipt of consideration for sale of any goods, it will be practically difficult to raise demand against the buyer subsequently, if not raised in the invoice and collect TCS from buyer and make payment to the government. Therefore, TCS should be charged in the invoice to be raised for sale of goods. However, it is expected that CBDT would come out with clarification on this issue.
b) Whether TCS is to be paid within the prescribed time with reference to invoice for sale or same is to be paid with reference to receipt of sale consideration against the invoice ?
In case, practice of making payment on the basis of receipt of sale consideration is adopted, it will be difficult to match amount of receipt and TCS with invoice value in the cases where part payments are received against the invoice or in the cases of running account where lump sum payments are received from time to time. Hence, payment of TCS should be made with reference to invoice for sale consideration.
c) Whether TCS is to be collected on total sale consideration or only on the amount in excess of Rs.50 lacs ?
As per the language of the section TCS is to be collected and deposited only on the amount of sale consideration exceeding Rs.50 lacs and TCS is not to be collected and deposited upto sale consideration of Rs.50 lacs.
d) Whether sale for the full current financial year (2020-21) is to be considered or only the sales made after 01.10.2020 are to be considered ?
Sale consideration for the full financial year is to be considered for deciding whether Buyer is covered for TCS or not. TCS, however, is to be collected and paid only on the sales made after 01.10.2020 to the extent same are in excess of Rs.50 lacs.
e) Whether TCS is to be collected on value of goods where the seller is using the goods in executing a contract and buyer / contractee is liable to deduct TDS on total contract value, including cost of material ?
Section provides that TCS is not to be collected where buyer is liable to deduct TDS and has deducted TDS on value of goods. Hence, in this case TCS is not to be collected.
f) Whether sales made to public sector companies which are substantially or wholly owned by the Central/State Government, are subject to TCS ?
As per the section exemption has been granted only in respect of sales made to central government or state government. Companies owned wholly or substantially by the government are not exempt. Therefore, TCS is to be collected in such cases.
g) Whether TCS is to be collected on advance ag. sale received from the buyer ?
Since, advance payment cannot be said to be consideration received against the sale, TCS need not be collected and deposited at the stage of receipt of advance payment. TCS will be charged in the invoice and is to deposited within the prescribed time with reference to date of invoice.
h) Whether TCS is also to be collected on the amount of GST included in the invoice ?
GST will also be part of sale consideration and therefore, TCS is to be collected on total amount of invoice including GST.