Seller’s/Business Challenges/Action points in New TCS Compliance in line with GST Provisions

Budget 2020 has proposed to widen the scope of TCS net with following 3 additional categories i.e.,

1. Foreign remittance through Liberalized Remittance Scheme (LRS) of RBI

2. Sale of overseas Tour Package

3. Sale of goods of any nature

Whereas first two categories will affect the general citizens, the third one would affect all the business entities. TCS on all goods in the third case has been proposed by introducing sub-section (1H) in section 206C in the Income Tax Act.

Transaction Person responsible to deduct TCS Rate
Purchase of goods exceeding INR 50 Lakh in a financial year by a Buyer Seller of goods (whose gross receipt/ turnover exceeds INR 10 Crore in a financial year) 0.1%
(1% for non-PAN or AADHAR case)

 Non applicability of this provision to below Customers/ Buyers :-

  • If the buyer is liable to deduct TDS or collect TCS under any other provision of the Act and has deducted/collected such amount.
  • If the buyer is the CG, SG, an embassy, a High Commission, legation, consulate, the trade representation of foreign state, local authority.
  • Or any class of person notified by the central government in the official gazette for the purpose subject to such condition as specified in that notification.

Key feature of section 206C(1H) are as under:

1. Every seller, having turnover exceeding Rs. 10 Crore in the preceding financial year, needs to collect Tax at Source @ 0.10% if the value or aggregate value of sale (even export sales) to any buyer ( even buyer outside India) during the year exceeds Rs. 50 Lakh. The TCS rate will be 1% if there is no PAN or ADHAR of the buyer is available with the seller.

2. TCS liability is proposed at the time of receipt of money from the buyers at (and not necessarily at the time of billing).

Immediate Challenges/ Action Pointers to the Buyers and Sellers :

  • A declaration needs to be taken from the Customers to identify and update Customer Master about whether he is liable to deduct TDS or collect TCS.

Since the liability to deduct TDS under Various section is delinked with Tax Audit applicability, Now the limit for TDS deduction limit is applicable whether aggregate Turnover exceeds INR 50 Lakhs for Professionals and INR 1 Crore for the Businessman. A declaration should consider below pointers

    • Whether aggregate Turnover exceeds INR 50 Lakhs for Professionals and INR 1 Crore in the year?
    • Whether Buyers/ Customers are liable to comply with TDS deduction or TCS deduction in their books in a year?
    • Whether Buyers/ Customers have deducted TDS or collected TCS in their books in a year?
  • TCS provision would be applicable on sale effected after introduction of 206C(1H) only. Hence Sellers would be required to divide the receipt of money from its debtors as pertaining to period (a) prior to introduction of section 206C(1H) & (b) after introduction of section 206C(1H).
  • Buyers needs to track on the purchases and payments separately. As Payment may fall in different Financial Year than year of Purchase. TCS would be reflected in 26AS in year of payment rather than year of purchase.
  • Even exporters are not presently excluded from the provision of section 206C(1H) which may result in unintended burden on such persons. (Hopefully, the exporter may probably be excluded from the operation of section 206(1H) by issue suitable notification by Center in coming period).
  • Sale up to Rs. 50 Lakh is not liable for TCS & will be applicable only on amount exceeding Rs. 50 Lakh.  In short, every seller would be required to keep a watch on the threshold limit of Rs. 50 Lakh for every buyer.
  • It suggested to build a provision for TCS calculation in the accounting software at the time of billing along with the integration of e-invoicing model.
  • Invoice wise sales reporting and  e-invoicing wef. 01st April, 2020 in GST Law, IT Department may arriving at the TCS liability on real time for the sellers with the help of synchronizing of Sales date from GST Department.

Author Bio

Qualification: CA in Job / Business
Company: Schueco
Location: Maharashtra, IN
Member Since: 13 Feb 2020 | Total Posts: 1

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    1. CA Harshawardhan Nigade says:

      In case of seller is an exporter, the buyer then mostly he will be a non- resident. they usually not subject to tax unless and until it falls under IT Act for being taxed in India. thus makes Indian exports at least 1 per cent more expensive. Or the exporter would have to bear this cost, reducing their profit margin since no buyer who is not taxable in India would like to bear this cost. Again it required more clarification from govt side that Such TCS should be on Inclusive GST Value or Exclusive. As like TCS on Scrap now businesses are required to calculate on Inclusive of GST Amount.

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January 2021