The Government of India has inserted a new sub-section (1H) in the section 206C of the Income Tax Act, 1961 on 29th of September, 2020 vide Circular No. 17/2020. Finance Act, 2020 mandates the said sub-section with effect from 1st day of October, 2020. Before we embark upon the discussion further, lets synopsize the section 206C of the Act.

Section 206C- Profit and Gains from business of trading in Alcoholic liquor, forest produce, Scrap etc.

Every person, being a seller shall, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax:

Sr.No. Nature of goods Percentage
1 Alcoholic Liquor for human consumption 1
2 Tendu leaves 5
3 Timber obtained under a forest lease 2.5
4 Timber obtained by any other mode 2.5
5 Any other forest produce not being 2.5
6 Scrap 1
7 Minerals being coal, lignite or iron ore 1
8 Parking lot, Toll Plaza, Mining & Quarrying 2
9 Sale of Motor Vehicle Value exceeding Rs. 10 Lacs 1

Explanation- For the purpose of this section,-

“buyer” means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table or the right to receive any such goods but does not include,—

(A) a public sector company, the Central Government, a State Government, and an embassy, a High Commission, legation, commission, consulate and the trade representation, of a foreign State and a club; or

(B) a buyer in the retail sale of such goods purchased by him for personal consumption;

(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;

“seller” means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table are sold;

“scrap” means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons;

Circular No. 17/2020  F. No.370133/22/2020-TPL

Sub-Section (1H) of Section 206C proclaims that a seller, who receives any amount  as consideration for 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 the above Table shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:

Explanation- 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; 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;

(b) “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, not being a 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.

Q & A on TCS under Section 206C(1H)

Q. Does this section apply on the Supply of Services?

Ans. No, the provision of the said sub-section is applicable only on the Sale of goods of the value exceeding fifty lakh rupees and Supply of Services has been kept out of the purview of this sub-section. Therefore, the provision is not applicable on the consideration received in relation to Supply of Services.

Q. Is there any grant of relaxation in the ambit of pandemic?

Ans. Yes, due to the outbreak of pandemic, Ministry of Finance has granted 25 per cent discount on the respective rate of tax collected at source till 31st March, 2021. The rate of tax under sub-section (1H) is 0.1 per cent, after the discount the effective rate of tax becomes 0.075 per cent. The TCS is to be deposited on the receipt of payment and the due date of deposit continues to be 7th of the following month. In case the buyer does not have Permanent Account Number or Aadhaar number, then the rate of tax amounts to 1 per cent without any relaxation.

Q. Does TCS should be charged in the invoice bill?

Ans. The law does not specifically mandates the charge of TCS in the invoice bill. It totally depends on the choice of the seller whether to charge or not.

Q. Whether adjustments regarding Sales return, discount is required to be made in bill issued in respect to TCS?

Ans. If the seller charges in the bill issued in respect to TCS then the amount is to be charged on the whole consideration received by the seller or the adjustment is required to be made for sales return, discount excluding GST for the purpose of collection of tax under sub-section (1H). It is further clarified in the circular that no adjustment is required to be made since the collection is with reference to the amount of sale consideration.

Q. Does the provision applicable on the advance received in respect of the goods?

Ans. Yes, Any amount received in advance on or after 1st October, 2020 in relation to the sale of goods then the said provisions will be applicable on such advances.

Provided that if the advance amount is received before 1st October, 2020 and the supply is made on or after the above mentioned date then the provisions of TCS is not applicable on the same.

Non Applicability of Sub-Section (1H) of Section 206C

If the amount has been received in connection with the following sale of goods then the provision shall not apply to-

1. Any goods being exported out of India;

2. Any goods imported into India;

3. All the goods covered under the Table above. These goods are already governed by the existing provisions of TCS.

4. Any person, which the government notifies as and when required, who is to be excluded from the definition of buyer for the purpose of this section.

Disclaimer-  The contents of this document are solely for informational purpose. It does not constitute professional advice or formal recommendation. While due care has been taken in preparing this document. The author does not accept any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information nor any other action taken in reliance thereon. 

References

  • https://www.incometaxindia.gov.in 
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I am Damini Agarwal a qualified Cost and Management Accountant from Kolkata. A motivator and content writer as well. For any queries you can reach out at daminiagarwal1234@gmail.com. View Full Profile

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