Implementation of Tax Collected at Source (TCS) on Sales consideration of Goods & Accounting Entries to be passed in the books of collector

A new section 206(1H) has been introduced by government for collecting TCS on sale of goods with effect from 01 October 2020.  Since the provision is new, hence entities must make certain changes in their accounting system to implement the same.

In this article, I will share with you the preparation entities must undertake and what accounting entries they should make in their books in order to peacefully comply with the requirements of this section:

TCS on Sales of Goods

Implementation of TCS on sales consideration of Goods in accounting procedure by entity:

1. First entity should check the applicability of this section on the basis of their previous financial year’s turnover. If Turnover exceeded Rs. 10 Crores in previous Financial Year, then this section is applicable, otherwise not.

2. If this section is applicable, then take out the list of customers (Buyers) and identify the customers (Buyers) from whom “Sales Consideration for Goods including advances” received before 01 October 2020 already exceeded Rs. 50 Lakhs, TCS must be collected from them on any receipt of subsequent “Sales Consideration for Goods including advances” without fail.

3. For other customers (Buyers), check the limit of Rs. 50 Lakhs after every receipt of “Sales Consideration for Goods including advances”. In case limit of Rs. 50 Lakhs is crossed, TCS must be collected from them on any receipt of subsequent “Sales Consideration for Goods including advances” without fail.

4. Rate of collection of TCS:

From 01 October 2020 to 31 March 2021 : 0.075%
From 01 April 2021 onwards : 0.1%
In Case of No PAN/Aadhar of Buyer Available : 1%

5. Buyers from whom TCS will be collected should be informed in advance so that they can pay amount of TCS along with sales consideration.

6. Timely Debit note should be issued to Buyers for the TCS amount.

7. Open a Separate Ledger under the Group “Current Liabilities” named “TCS Payable on Sales of Goods” for reconciliation of TCS collected and to be paid to government.

8. Deposit TCS collected during the month to Government on or before 7th of the next month to avoid levying of interest.

9. File Quarterly TCS return on time & issue TCS certificate to Buyers as per the schedule given below:

Quarter Ending Due Date of Submission of return Form 27EQ Due date for issuance of TCS certificate
30th June 15th July 30th July
30th September 15th October 30th October
31st December 15th January 30th January
31st March 15th May 30th May

10. Late fees of Rs. 200 per day will be levied in case of delay in filing of returns. However total Late filing Fees cannot exceed total amount of TCS. 

Accounting Entries in the books of Seller (Collector)

Example:

  • Sales made by Mr. A to Mr. B of Rs. 52 Lakhs on 02 Oct 2020.
  • Sales Consideration received by Mr. A from Mr. B is 52 Lakhs on 10 Oct 2020.
  • Another Sales made by Mr. A of Rs. 5 Lakhs to Mr. B on 12 Oct 2020
  • Sales consideration received on 15 Oct 2020  

In the Books of Mr. A (Seller) 

  • Sales Entry
Date Particulars Debit Amount Credit Amount
02-10-2020 Mr. B A/c……………………….. Dr.

To Sales A/c

(Being Sales made to Mr. B)

52,00,000 52,00,000
  • On Receiving Sales consideration
Date Particulars Debit Amount Credit Amount
10-10-2020 Bank A/c…………………….. Dr.

To Mr. B A/c

(Being Sales Consideration Received)

52,00,000 52,00,000
  • Since the TCS liability accrues on receiving Sales consideration, now Mr. A will issue debit note and collect the TCS amount from Mr. B on same date or on a later date
Date Particulars Debit Amount Credit Amount
10-10-2020 Mr. B A/c…………………….……….. Dr.

To TCS Payable on Sales of Goods  A/c

(Being TCS debit note issued to Mr. B  for Receipt exceeding 50 Lakhs i.e 52 lakhs-50 lakhs = 2 Lakhs @0.075%)

150 150
  • On collecting TCS amount from Mr. B
Date Particulars Debit Amount Credit Amount
10-10-2020 Or some other later date Bank A/c…………………..….. Dr.

To Mr. B  A/c

(Being TCS amount collected from Mr. B)

150 150
  • Second Sales Entry
Date Particulars Debit Amount Credit Amount
12-10-2020 Mr. B A/c……………………….. Dr.

To Sales A/c

(Being Sales made to Mr. B)

5,00,000 5,00,000
  • On Receiving subsequent Sales consideration
Date Particulars Debit

Amount

Credit Amount
15-10-2020 Bank A/c…………………….. Dr.

To Mr. B A/c

(Being Sales Consideration Received)

5,00,000 5,00,000
  • Since the limit of Rs. 50 lakhs already crossed, now Mr. A will issue debit note and collect the TCS amount on Rs. 5 Lakhs from Mr. B on same date or on a later date
Date Particulars Debit

Amount

Credit Amount
10-10-2020 Mr. B A/c…………………….……….. Dr.

To TCS Payable on Sales of Goods

A/c

(Being TCS debit note issued to Mr. B for Receipt of 5 lakhs @0.075%)

375 375
  • On collecting TCS amount from Mr. B
Date Particulars Debit Amount Credit Amount
15-10-2020

Or some other later date

Bank A/c…………………..….. Dr.

 To Mr. B  A/c

(Being TCS amount collected from Mr. B)

375 375
  • On Depositing the TCS to Government on 7th of the Next Month
Date Particulars Debit Amount Credit Amount
07-11-2020 TCS Payable on Sales of Goods A/c ….. Dr.

To Bank  A/c

(Being TCS amount collected during the month of October 2020 paid to government )

525 525

(The Author of this article is practicing at Indore and can also be reached at rohitjain3663@gmail.com) 

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9 Comments

  1. S. Ayanar says:

    Sir
    We have purchased raw material from a supplier for Rs. 53,04,227.39 On 05.10.2020 details as given below.

    Taxable Value – Rs. 44,91,739.15
    IGST @ 18% Rs. 8,08,513.05
    TCS @ 0.075% Rs. 3,975.18
    ————————
    Invoice Value Rs. 53,04,227.39
    ————————-

    Please suggest how to Purchase TCS entry booked.

  2. S. AYANAR says:

    Sir,
    Please clarify we have received the purchase bill along with TCS 0.075% as per given below:
    Buyer Name is A
    Taxable Value is Rs.16,39,381.00
    IGST @ 18% – Rs. 2,95,088.80
    ——————–
    Rs.19,34,469.80
    TCS @0.075% Rs. 1,450.85
    ———————-
    Invoice Value is Rs.19,35,920.65
    ———————–
    How to TCS entry account ?

  3. Abbas ali says:

    Sir,
    Please clarify if Sales amount before 1st Oct. One customer is exceed Rs. 50 Lakh.and in the Oct month sales 5 Lakh. Then which amount we have collect the TCS

  4. tulsi japan bhatt says:

    Hi,

    can you please clarify weather limit of Rs. 50 lakhs is to be considered on contract basis or party wise.

    i.e. if I receive 60 lakhs but half pertains to one contact and other half pertains to different contract weather this section should be applied ???

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