Section 206C(1H) of Income Tax Act, 1961– Tax Collected at Source (TCS) based on the Turnover
Relevant extract of the Provision
Every person, being 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 covered in sub-section (1) or sub-section (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:
Provided that if the buyer has not provided the PAN or the Aadhaar Number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent.”, the words “one per cent.” had been substituted:
1. Seller: Any person who whose sales, turnover, gross receipts exceeds Rs. 10 Cr in the immediately preceding financial year in which such sales of good took place.
2. Buyer: Any person who purchases goods but excludes Central Govt., State Govt., an Embassy, High Commission etc, a local authority or a person importing goods into India.
Who is liable to collect TCS?
Every seller needs to collect tax at source from the buyer from whom it has received consideration (including taxes) towards sale of goods in excess of Rs. 50Lac in any financial year.
Checking of Turnover Limits:
The turnover for the seller needs to be checked for the immediately preceding financial year but in case of the buyer, receipts in any financial year by the seller needs to be considered.
Rate of Collection of tax?
The seller is liable to collect tax at 0.1%. However, considering the hardships businesses are facing due to the pandemic, the GoI has reduced the rate of collection for the FY 2020-21 to 0.075%.
In case, the buyer does not provide, PAN & Aadhar No. rate of tax collection would be 1%.
Liability of TCS, Time of Collection & Payment?
The liability to comply with a provision is attracted as soon as the turnover of sales of goods excluding export sales, to a buyer exceeds Rs. 50Lac. However, the time of collection is based on the receipt of consideration, thus the liability to collect the TCS should coincide with it.
The tax so collected, shall be deposited with the government within 7th of the next month.
Return of TCS shall be filed by 15th day of the month succeeding to the quarter & in case of March, the due date would be 15th May
Is there any basic exemption limit?
Yes, the amount on which tax is to be collected should exclude the Rs. 50lac of the consideration including taxes so received towards the sale of goods. So, if a seller has sold goods of Rs. 60Lac to a buyer, tax is liable to be collected only on Rs. 10Lac at the time of receipts of payment.
Practical issues & their probable solution.
1. Track of Payments: Although some accounting package like Tally has the feature to show the receipts from a particular buyer, it will cause genuine hardship to those who are not that tech savvy. So, it is suggested to collect the tax at the time of sale of goods.
2. Tracking Turnover of Sale of Goods: Since the tax is to be collected only upon receipts of consideration towards the sale of goods only, it becomes imperative to identify the correct turnover of sale of goods. So, it is suggested to have separate invoice series for sale of goods & supply of service so that filtering out is possible when needed.
3. Bifurcation of Consideration: Since, the tax is to be collected only consideration received towards sale of goods, earmarking of receipts is required which will again cause hardship to the tax payers. So, it is suggested that to promote/push invoice wise payment to the buyers to enable tracking of receipt towards supply of services.
4. Sales Return: It may so happen that a buyer falls short of the specified limit to attract the provision of the law in case there is a sales return. So, it is suggested that to not consider Sales Return while calculation of the specified threshold in order to buy peace of mind.
5. Outstanding as on 30.09.2020: Since the provision is applicable w.e.f 01.10.2020 & the liability to collect tax is dependent on the receipts of consideration towards sale of goods, any receipts towards the outstanding as on 30.09.2020 from a buyer shall be subjected to the provision. This will lead to too much of a confusion in the mind of taxpayer but in order to avoid penal actions from the department, it is suggested to comply with the provision & collect tax at source ignoring other aspects of the provision.