Union Budget 2020: New TCS Provisions & Practical Issues related to Section 206C(1H) of the Income tax Act, 1961

The recent Union Budget 2020 is with regard to Tax Collection at Source (TCS) which is embedded in section 206C of the Income Tax Act-1961, has proposed to widen the 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

Provisions related to TCS (Source tax guru)

Nature of Transac-tion Who will collect When TCS will be collected Prescribed Limit Non – Applicability TCS Rate Remarks
Sub-section (1G) a) remittance out of India under the LRS of RBI An Authorised Dealer At the time of receipt of the amount, or At the time of debiting the amount payable Whichever is earlier Seven lakh or more in a FY 1. If the buyer is liable to deduct TDS under any other provisions and has deducted

2. If a buyer is CG, SG, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, a local authority or any other person as notified by CG

5% The benefit of sub-section 6A is not available
Sub-section (1G) b) Overseas tour program package Seller of the package NA 5% The benefit of sub-section 6A is not available
Sub-section (1H) Sale of any goods (except goods on which TCS applicable specifically) Seller of any goods whose turnover in the previous year exceed ten crore rupees At the time of receipt of any amount as considera-tion for the sale of such goods Exceeding 50 Lakh in a FY 1. If the buyer is liable to deduct TDS under any other provisions and has deducted

2. If buyer is CG, SG, an embassy, a high commission, a legation, a commission, a consulate, the trade representa-tion of a foreign state, a local authority or any other person as notified by CG

0.1 % 1. The benefit of subsection 6A is not available

2. In the case of nonavailabil-ity of PAN or Aadhar of the buyer, TCS rate will be 1%

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

1. Every seller having turnover exceeding Rs. 10 Crore in the preceding financial year to collect Tax at Source @ 0.10% if the value or aggregate value of sale to any buyer during the year exceeds Rs. 50 Lakh. The TCS rate will be 1% if there is no PAN/Adhar of the buyer is available with the seller. TCS liability is proposed at the time of receipt of consideration from the buyers.

Practical Issues for Interstate branch transfer: –

A) GST Law & TCS Provision:-

  • Due to cumbersome provision and TCS needed to be deducted on consideration received by the “Collectee”. There are organizations which are planning to collect TCS at the time on “Billing of Invoices”. To avoid unnecessary burden of keeping record of every Sales consideration form every recipient.
  • Now under the GST law, in case of interstate transfer of goods between the branches, it is to be treated as “Sales” and duly “Sale Invoice” is generated by the issuing branch to Recipient branch as both the branches have separate GST registration.
  • Going by the first logic, there would be a particle scenario creating issues like:-
    • TCS needed to be collected on theses INTERSTATE BRANCH
    • As per normal parlance, adjustments done through book adjustment will also qualify for “Consideration” which will be a matter of concern for “Inter branch transfer” of different
    • Further, Income tax authorities seeking reconciliation of the Sales data with GST return and stressing for “TCS collection” on short fall of “Turnover” on the basis of collection done vide above methodology, even though both branches have same PAN.
    • Debit Note & Credit Note treatment.

B) TCS collection on Consideration

Sale up to Rs. 50 Lakh is not liable for TCS & will be applicable only on amount exceeding Rs. 50 Lakh of consideration received.

Under the Provision, stress is made on “Consideration received above Rs 50 Lakh.

  • But in case of preceding years balances, the liability to collect will become automatically binding upon the “Collectee” unless there is any clarification from the Income tax Authorities.

Ex- If Opening Debtor balance is Rs 10 Crore during the FY 2020-21.Hence, the payment received during the FY 2020-21 on opening balance will have significant impact upon both parties. If “Collectee” wishes to be on safer side and has decided to discharge TCS on “Consideration/receipt basis” in order to avoid any future litigation.

  • If “Collectee” wishes not to collect TCS on Opening balance related to preceding FY 2019-20. Then “Collectee” would be required to divide the receipt of money from its debtors as pertaining to period (a) per to introduction of section 206C(1H) & (b) post introduction of section 206C(1H), which may be a cumbersome process to be adopted with fear of future litigation.

C) Reconciliation of 26AS of Buyer:

In case of assessment proceeding authorities usually seek the Reconciliation of 26AS with audited accounts.

TCS would be reflected in the PAN of the buyer at the time of its payment to the seller whereas purchases would be forming the part of its financial statements at the time of purchase itself. There is high possibility that, both of this may relate to different Financial Years. Hence, a reconciliation process needed to be adopted the buyer before commencement of TCS provision.

A clarification by the appropriate authorities may resolve unnecessary disputes in future.

Disclaimer: The views and opinions expressed in this article are those of the authors. Examples of analysis performed within this article are only examples.

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3 Comments

  1. Col Ashok Bangia says:

    Hello Ankush:
    Re Foreign remittances (upto $ 250,000) under LRS by Resident Indians-
    My Query:
    1The TCS was effective 01 April 2020.
    2 Has this effective date of TCS been extended beyond 01 April 2020.?
    Thanks
    Col Ashok Bangia

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