As per finance Act 2020, section 206C (1H) is introduced by government. It states that every person whose turnover in preceding financial year is more than 10 crore and in previous year, consideration received from any customer of more than 50 Lakh, then seller is required to collect TCS at 0.1% from customer.

The Section States that:

Section 206C(1H): 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 being exported out of India or 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 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:

Provided that if the buyer has not provided the Permanent Account Number 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:

Provided further that the provisions of this sub-section 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.

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 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;

(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.

To comply the provision of this section, sellers are facing difficulty, how to keep records of consideration received from customers, so that proper compliances of sec 206C (1H) can be followed. To avoid this difficulty, many sellers have started to charge/collect TCS on invoices raised to eligible customer.

Further added that while charging TCS on invoice, seller is in doubt, whether it is correct to charge TCS on invoice or it is noncompliance of any statue?

In this context, department is concerned with only TCS collection on consideration received for sale of goods and deposit there off. If seller is collecting TCS on invoices and depositing the same with department, he is very well complying the provision of this section. However seller has to take care of collecting TCS on advance consideration received against sale of goods. The TCS collected on advance can be adjusted against TCS charged on invoice of sale of goods later.

Additionally, TCS shall be collected on consideration received on or after 1 October 2020 against sale of goods occurred before 1 October 2020.

This method of charging TCS on invoice is putting extra cost to seller. Cases are given below

1. Non realization of Trade Receivable and it is resulting of loss of TCS deposit out of own pocket.

2. Goods returns by customer due to any reason.

3. Customer issue debit note on account of quality issues.

In all above mentioned cases, consideration is not received by the seller but if he follows the concept of charging TCS on invoice then the same amount will lead to loss to seller.

4. Customer exchange the goods due to wrong goods deliver to him.

In above mentioned case, when seller deposited TCS on account of original invoice, after that customer exchange their goods then it will lead to loss to seller. on account of second invoice issued to customer for correct goods. TCS is again charged on those goods.

5. Customer delay in payment

In above point, if customer delays in paying consideration then as per procedure seller had to deposit TCS on sale invoice through on funds. If he follows consideration received policy then he had to deposit on account of actual consideration received. This will lead to seller of extra interest cost i.e. which seller borrowed fund or at the rate at which seller invested their funds.

6. Invoice is raised but risk and reward is not transferred to customer in previous year

In this point, TCS is charged on invoice is relatable to both vendor and customer. In relation to vendor if he charged on invoice then it will reflect in seller 26AS as purchase, however seller can’t claim it as his purchase because risk & reward is not transferred. So they had to made reconciliation for every vendor that these entries reflect in 26AS is not relatable to us for previous year. This will lead to increase their employee cost and procedural work.

In relation to customer, seller had to deposit TCS in previous year, however in that year; sale is also not accounted due to AS-9. Sale can be accounted in next year after that consideration can be received. So in this case seller had to make payment through its own funds and to bear with liquidity issues.

7. Third party settlement is done by seller liability of vendor is paid by creditor

In this point, liability for TCS on seller is arising on the day of book entry passed in accounts. However in invoice policy seller required to deposit as earliest at the time of issuing invoice, this will lead to liquidity issue in seller.

8. Goods are replaced under warranty scheme.

In this point seller required to account sales return when defective goods are received by them and issue another invoice for the fresh goods. Considering these transactions at unfavorable times then seller required to deposit TCS twice on invoice but consideration is received single time by seller. This will lead to loss to seller

On Analyzing all above points, we conclude that charging TCS on invoice will leads to loss to seller if any above situation arises in business, those are quite normal.

Therefore, it is advisable to collect TCS on collection instead on invoice basis. So that loss of TCS to seller may be avoided.

Further, it is advisable to seller to customize his accounting software (SAP, Tally, Busy Etc) for the report of TCS to be collected on consideration received.

Seller can customize their software as suggested to give report in below mention format

For a Particular Period
Debtors Consideration received till beginning of month TCS Collected till beginning of month Consideration received in particular period TCS Required to be collected

In this format seller can easily check out whose customer consideration received crosses 50 Lakh and amount required of TCS deposited on actual basis. Format can be customized for better reporting

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Qualification: CA in Practice
Company: Narbariya & Associates LLP
Location: Delhi, New Delhi, IN
Member Since: 03 Oct 2020 | Total Posts: 1

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21 Comments

  1. savita salvi says:

    We have charged Tcs on original invoice and if we want to raise debit note for price increase then is it applicable for Debit note ?

    1. Varun Narbariya says:

      Dear Savita

      For raising debit note you will increase receivable from party and TCS is required to be collected on consideration received
      So by raising debit note, consideration will receive therefore you required to charge TCS on debit note

    1. Varun Narbariya says:

      Dear Saurabh
      As provision of section clearly states that TCS is applicable on consideration received which interpret that TCS is collected on including GST, Because consideration includes the amount of GST.
      However charging TCS on invoice is not a better option and law was not made that way. therefore many practical problem will arise and for that not a concrete solution can be obtained.
      However if you wish to charge on invoice then you can inculde in tax amount in e way bill.

  2. Rajesh, Mumbai says:

    Dear Varun, I have few queries which I would appreciate if you reply.
    1) Which is better option a) To charge TCS in each and every Invoice or to issue monthly debit note of TCS on payment receipt. ?
    2) Which option of above two correctly complies the law as section 206C (1H) clearly states TCS to be collected on receipt of sales consideration.
    3) What will be procedure in following cases if I opt for charging TCS in Invoice as most of the people are talking of and goint to adopt?
    a) Our company already sold goods worth 2 crore ( to one of customers) before 30/09/2020 but payment received is 1.2 crores before 30/09/2020. Now from 01/10/2020 onwards, we are opting to charge TCS in Invoice. So in this case I understand, I will have to also issue debit note for payment of Rs. 80 Lacs which is to be received in next couple of months.
    In other case, if We opt to collect TCS on receipt, I understand that there is no requirement to charge the TCS in Invoice and we can issue monthly debit note on receipt of payment.
    Thanks in advance.

    1. Varun Narbariya says:

      Dear Rajesh ji,
      Your observations and understanding are highly appreciable, although your intention to get answer for your question is good and that will confirm your understanding is correct.
      1. Issue debit note against monthly consideration received from customer is better option.
      2. Issuing debit on sale consideration received is correctly compliance of sec 206C (1H).
      3. If company opts to charge TCS on invoice then it will be the last item to be added in invoice before Gross Total.
      But in this case if Advance is received by seller against sale of goods then liability to collect TCS should be far before issue of invoice this will lead to late collection of TCS.

      As explained in point a and thereafter is 100% correct.

  3. Jitendra kumar says:

    India seems to have most complicated taxation system. we have CGST, IGST, SGST, Cess and then additional Cess. On top of it now TCS. Govt have been burderning traders

    1. Varun Narbariya says:

      Yes,
      In rush to provide automated taxation structure having less leakage of Revenue. they are implementing things without complete study of planning, execution and its impact. Therefore various things required to be amended which create problem in economy.

  4. sasank says:

    whether tcs will collect on previous year bill collection i.e. bill raised on f.y. 2019-20 but payment received during the year 2020-21.

  5. AMIT S says:

    The best would had been to put TDS on Sale of Goods instead of TCS.
    So the liability would had been on buyer to deduct the TDS of 0.075% on purchase of goods and pay govt the TDS and give certificate to seller.

    1. Varun Narbariya says:

      Yes, of course
      But in my opinion government want to track business transaction on the sale side. becuase if they apply TDS on purchase of goods. this will affect the supplies of company and payout of Farmers, Scrap delaers etc.
      Which will affect more on both side.
      For this a complete new law would required to track these transactions.

  6. NIKHIL WAGH says:

    While buyer raised weight shortage or quality deduction debit note then he can give tcs effect or not if he paid invoice payment on which tcs charges by seller

    1. Varun Narbariya says:

      Yes, of course
      He can quantify the amount of TCS but it should be treated as debit note for TCS. TCS is not required to be shown on debit note, however amount shown in debit note is related to TCS affect
      This over all procedure will gets complicated in no. of transactions.

  7. Anil K Jain says:

    Your basic premise to deduct TCS on Invoice is not in line with tax provisions. Once you follow the laws and deduct TCS on receipt basis, the questions do not arise.

    1. Varun Narbariya says:

      Yes,
      But many seller is in confusion due to implementation of this provision.
      They thought charging TCS on invoice will better option for compliance of this provision.
      But in actual it will lead harm to seller in different scanerio.

  8. ATUL TULSIDAS SURAIYA says:

    we are looking at things only as a seller, but remember you are also a purchaser of goods sold by another seller, if your seller does not create a liability on you through an invoice, will you pay him? if invoice is not the correct place than debit notes for every receipt of payment, how much compliance , clerical work and documentation increases, without any Value Addition? Is this “ease of doing business?”

    1. Varun Narbariya says:

      Yes Atul ji, In current situation business is not an easy task.
      But if law is applicable on assessee then we had to think that in what possible ways law can be implement so that cost and work would be less to assessee.
      For doing any thing additionally we had to increase clerical work, whether it would be on invoice or not.

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