1. A sub-section (1H) to section 206C of the Income Tax Act, 1961 has been inserted vide Finance Act 2020 which is effective from 01.10.2020. Section 206C (1H) provides for the collection of Tax at Source (TCS).
2. This article covers the statutory provisions, the functionality of the TCS on goods and the salient features of the newly inserted sub-section (1H) of section 206C. The guidelines issued vide CBDT circular No.17/2020 dated 29 Sep 2020 and clarification vide Public Release dated 30.09.2020 have also been incorporated in the article.
3. Statutory Provisions:
|Every person, being a seller, who receives any amount as consideration for the 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 subsection (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. This section becomes operative from 1st October 2020.
|Explanation (b) to subsection (1H)
|“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.
4. Liability to collect tax at source (TCS): . A seller of goods is liable to collect TCS. The term ‘seller’ is defined in the provision as “every person”. Thus an individual, firm, HUF, company, trust, AOP, society, who sells goods to buyers are covered under sec 206C(1H).
4.1 The sellers whose total sales, gross receipts, or turnover from the business carried on by it exceed ten crore rupees during the financial year immediately preceding the financial year are liable to collect tax at source (TCS).
5. Threshold Limit for Computation of Total Sale: In computing, the threshold limit of Rs. 10 crores, the sale of goods, as well as the sale of services, will be counted and added. ( though, the tax is to be collected on consideration for the sale of goods only. )
5.1 The amount of GST shall be included in computing the total sales/turnover/gross receipts,
5.2 For the purpose of the threshold limit, the turnover for the immediately preceding financial year, is to be considered. For Example, the turnover for the financial year 2019-20 shall be considered for ascertaining the threshold limit for FY 2020-21.
5.3 Illustration: M/S Kundra Agency is a proprietorship and engaged in sells of computers. It also provides repair, maintenance services for the computers. During the FY 2019-20, its turnover from the sale of a computer is Rs. 7 crores, and income from repairing and maintenance services is Rs 3.5 crore. The rate of GST is 18% in both cases.
5.3.1 The total sales for the purpose of the threshold limit for 2020-21 under section 206C(IH) will be Rs 12.39 crores ( 7+3.5 + GST @ 18% on 10.5 Crores ) and the firm is responsible to collect tax at source under section 206(IH).
5.3.2 Since the turnover of M/s Kundra Agency. exceeds Rs. 10 crores including GST, it is liable for TCS u/s 206C(1H) from the sale of goods in the FY 2020-21.
6. For the purpose of TCS the consideration received from the Buyer shall be more than Rs 50 lakhs
6.1 Who is Buyer The term ‘buyer’ is defined as:-
|Explanation (a) to subsection (1H)
|For the purposes of this sub-section,–
(a) “Buyer” means a person who purchases any goods, but does not include,–
(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
(B) a local authority as defined in the Explanation to clause (20) of section 10; or
(C) 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;
6.2 Thus, a seller shall not collect TCS on sale of goods to the Central Government, State Government or other excluded persons as mentioned above even if the preceding year turnover exceeds Rs. 10 crores and sells goods for more than Rs. 50 Lakh.
6.3 Further, it may be noted that the Public Sector Undertakings, Government entities, or corporations are not exempt from the TCS provisions. They will be considered as buyers for the purpose of section 206C(1H).
6.4 A person importing goods into India is not a buyer for the purpose of this sub-section and the seller shall not collect tax from such person.
6.5 This provision shall not apply to the sale consideration received for fuel supplied to non-resident airlines at airports in India – clarified by CBDT circular no. 17/2020 dated 29.09.2020
6.6 The Central Government may, by notification in the Official Gazette, specify any person not to be considered as a buyer for the purpose, subject to such conditions as may be specified therein.
7. Threshold limit for the amount of consideration received: The seller shall collect the tax or TCS from the buyer, only if he receives consideration of more than Rs. 50 Lakh in a previous year in aggregate from the buyer towards the sale of any goods
7.1 The applicability of the provision shall apply per buyer basis. It does not apply when the per buyer receipt of sale consideration does not exceed Rs. 50 Lakh but exceeds Rs. 50 Lakh in aggregate from more than one buyer.
7.2 For example, M/S Kundra Agency receives total sale consideration of Rs 60 lakhs from two of its buyer i.e. Mr. Anuj & Mr. Anupam. In such a case, no TCS shall apply even if the seller is liable to collect TCS. This is because receipt of consideration from a single buyer does not exceed Rs. 50 Lakh, though in the aggregate receipt from all the buyers exceeds Rs. 50, 00,000.
7.3 Adjustment for Sale Return It is clarified vide CBDT circular no. 17/2020 dated 29 Sep 2020 that no adjustment on account of sale return/discount or indirect taxes including GST is required to be made for the collection of tax since the collection is made with reference to receipt of the amount of sale consideration
8. Rate of TCS on sale of goods u/s 206C(1H): The rate of TCS on Sale of Goods under section 206C(1H) is 0.1% of Sales Consideration if the buyer provides his PAN or Aadhaar Number to the seller.
8.1 If the buyer fails to provide his valid PAN or Aadhaar Number, then the rate of TCS on Sale of Goods under section 206C(1H) shall be 1% of the Sales Consideration, instead of 0.1%. –first provision to Sec 206C(IH)
8.2 CBDT vide Press Release dated 13.05.2020 has reduced the rate of TCS under section 206C(1H) from 0.1% to 0.075% which shall be applicable from 01-10-2020 to 31-03-2021. However, where the buyer does not provide his valid PAN/Aadhaar there is no reduction in the rate of TCS and the prescribed rate of 1% shall prevail. From 01-04-2021, the prescribed rate will prevail unless the benefit is extended.
9. Effective date of applicability: It is clarified vide CBDT circular No. 17/2020 dated 29.09.2020 followed by Press Release dated 30 Sep 2020 that TCS shall be applicable only on the amount received on or after 1st October 2020. The provision shall not apply on any sale consideration received before 1st Oct 2020 Consequently, it would apply on all the sale consideration ( including advance received for sale )received after 1st Oct 2020 even if the sale was carried out before 1st Oct 2020
9.1 It is also clarified that TCS applies only in cases where the receipt of sale consideration exceeds Rs. 50 lakh in a financial year. As the threshold is based on the yearly receipt, it may be noted that only for the purpose of calculation of this threshold of Rs. 50 lakh, the receipt from the beginning of the financial year i.e. from 1st April 2020 shall be taken into account.
9.2 Hence, if the seller has already received Rs 50 lakhs or more up to Sep 2020 from a buyer, the TCS shall apply on all receipt of sale consideration after 1st October from such buyer.
10. Applicability on Sale of Goods:- Section 206 C(!F) is applicable to the sale of goods. Services are not covered. If a person sells goods as well as render services, then tax shall be collected only on the sale of goods. No tax shall be collected on the sale of services.
10.1 Meaning of ‘goods’ for TCS applicability The term ‘goods’ is not defined under the Income Tax Act. The provision simply states the TCS is applicable to sale of any goods. In the absence of a clear definition in the said Act, the sale of Goods Act which is the main law shall be applicable.
10.2 As per section 2(7) of of the Sale of Goods Act, “goods” means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.
11. Non Applicability: CBIC vide Circular No 17/2020 TDS/TCS dated 29 Sep 2020 clarified that the provisions of subsection (I H) of section 206C, of the Act, shall not be applicable in relation to the following transactions :
(i) transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service.
(ii) transactions in electricity, renewable energy certificates, and energy-saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC; and
(iii) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005
11.1 TCS provisions is not applicable on goods covered under subsection (1) ,(1F) & (1G ) of section 206C
The sale of the following goods are excluded since on these goods TCS provisions are already covered :
|Goods covered in section 206C(1)
|This sub-section covers alcoholic liquor, forest produce, scrap, etc. as ‘goods’
|Goods covered in section 206C(1G)
|This includes a lease or a license or enters into a contract or otherwise transfers any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry
|Goods covered in section 206C(1F)
|This includes the motor vehicle. It is clarified vide CBDT circular dated 29.09.2020 subsection that Sub Sec (1F )is based on a single sale of the motor vehicle to consumers only and not to the dealers. The receipt of consideration from the dealer would be subjected to TCS under sub-section (1H) of the Act if receipt exceeds fifty lakhs during the previous year
11.2 Section 206C(1H) is not applicable to Goods Exported out of India. The sale of goods to SEZ deemed export is not covered under the exclusion as the provision is clearly stated as goods other than goods Exported Out of India.
11.3 Non-applicability of TCS when TDS is applicable: The second provision to section 206C(1H) provides that the provisions of this subsection 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.
The two noteworthy conditions are-
1. The buyer is liable to deduct TDS, and
2. The buyer has actually deducted the TDS.
Both conditions are required to be satisfied.
12 Due date of deposit of TCS collected under section 206C(1H): The TCS collected under this provision shall be required to be deposited within 7 days of the next month in which the TCS is collected. For example, if the goods are sold on 10th Oct. 2020 but the amount is received on 15th Nov. 2020, liability to collect tax arises on 15th Nov. 2020. The seller is required to deposit the TCS by 7th Dec. 2020. [Section 206(3) read with Rule 37CA]
13. Due date for filing of TCS statements After collecting the TCS and deposit of the same to the credit of the government account, the seller is required to furnish a quarterly statement of TCS to the income tax authority in electronic mode in Form 27EQ within the following due dates- [Section 206C(3) read with Rule 31AA). CBDT vide Notification No. 54/2020 dated 24.07.2020 has amended the Form 27EQ to incorporate the provision of section 206C(1H) in the TDS statement.
13.1 Due date to Issue the TCS Certificates to the buyers: After furnishing the TCS statements, the seller is required to issue a certificate of TCS to the buyer in Form no. 27D as per section 206C(5) read with Rule 37D within 15 days from the due date for furnishing the statement of tax collected at the source specified under Rule 31AA-as specified above.
14. Late Fees: In case of delay in furnishing the TCS statements beyond the due date specified above in the table, late fees of Rs. 200 per day shall be required to be filed by the seller before furnishing the belated statements. The number of late fees shall not exceed the amount of TCS. [Section 234E]
15. Mode of receipt of Consideration: Section 206C(1H) simply states that the fact of ‘receipt of consideration for the sale of any goods…”. It does not specify the mode of receipt whether in cash or cheque or in kind.
16. Refund:- It is clarified vide press release dated 30th Sep 2020 that TCS is not an additional tax but is in the nature of advance income-tax/TDS for which the buyer would get the credit against his actual income tax liability and if the amount of TCS is more than his tax liability, the buyer would be entitled to refund of the excess amount along with interest.
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