Explanation of TCS u/s 206C(1H) of Income Tax Act on sale of goods with effect from 01-10-2020
The Government of India in the Finance Bill, 2020 introduced a new sub section (1H) to section 206C of the Income Tax Act, 1961 (IT Act) widening the scope of tax collection at source.
Provision of the Income Tax Act “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.”
Seller means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs.10 Crores during the previous year ended on 31st March.
- Sale of goods of aggregate value > 50 lakhs in a year to a buyer
- Goods does not include exports and goods covered u/s 206C(1), 206C(1F) and 206C(1G) viz., alcoholic liquor for human consumption, tendu leaves, timber, scrap, coal, lignite, iron ore, sale of motor vehicle, foreign remittances and overseas tour program package etc.
- If buyer has not deducted TDS on purchase of goods then the Seller shall collect TCS @ 0.1%1 at the time of receipt of consideration in excess of Rs.50 lakhs.
- However, due to Covid-19, the rate of TCS has been reduced from 0.1% to 0.075% till 31/03/2021 as per GOI Press Release dated 13 May 2020.
- Applicable with effect from 01stOctober 2020
- If the buyer does not provide PAN/Aadhar number then the TCS shall be collected at 1%, instead of 0.1%. In such situation, Covid-19 related concession is also not available.
- Seller means a person having turnover/total sales from business exceeding Rs.10 Crores during the financial year (FY) preceding the FY in which goods are sold.
- No TCS is required when the buyer is from the following category:
- Central Government
- State Government
- Commission/High Commission
- Trade Representation of Foreign state
- Local Authority
- These provisions are applicable only in respect of transaction of sale of goods and do not apply to sale of services.
4. Exempted transactions:
- If the buyer is liable to deduct tax at source on goods purchased by him and the buyer has deducted the amount then the seller is not required to collect TCS on such transactions. Both the conditions need to be fulfilled i.e., the buyer should be liable for deduction of tax at source and has deducted such amount.
5. Exports and other provisions relating to TCS:
- TCS is not required to be collected in respect of Export sales as the consideration for sale of goods excludes consideration towards goods exported out of India and even the definition of buyer excludes a person importing goods from India. Further, this provision will also be not applicable if TCS is required to be collected by the seller under section 206(1) or 206C(1F) or 206C(1G) viz., for sale of alcoholic liquor for human consumption, tendu leaves, timber, scrap, coal, lignite, iron ore, sale of motor vehicle, foreign remittances and overseas tour program package etc. Thus, if a seller is receiving consideration of 1 Crores from a buyer for sale of scrap or sale of motor vehicle, then provision u/s 206C (1) and 206C (1F) would be applicable
6. Qualifying amount:
- The amount on which the tax needs to be collected shall be limited only to the consideration for sale of goods actually received. The liability is triggered at the point of receipt of amount once the threshold of Rs.50 Lakhs is crossed. In the absence of sale of goods and amount received, the liability does not exist. The sale consideration can be interpreted as amount received in advance or in arrears. In case, if there is some change in valuation say under GST law then too the requirement of TCS will be qua actual consideration and not qua valuation under the GST law.
7. TCS on trade receivables standing in books as on 30 September 2020:
- TCS is to be collected in respect of consideration received on or after October 01, 2020 in respect of sale of goods made during April-September 2020
8. Point of tax collection:
- Situation Remarks
- Sales Order executed on or after 01/10/2020 TCS shall be applicable on the amount received as consideration.
- Sale Order is executed before 01/10/2020 and the payment is received after 01/10/2020 TCS shall be applicable on the consideration amount as the sale has happened before 01/10/2020.
9. Cancellation of sale:
- Practical difficulties may arise where advance is collected for sale of goods and TCS is remitted and subsequently the contract is cancelled and the amount is refundable. In such cases, the seller may only refund the primary sale consideration received and not the TCS amount, since such TCS amount is already credited as prepaid taxes and will appear in Form 26AS and the buyer should not insist for refund of the TCS amount as the buyer would otherwise be entitled to credit of the TCS in the return of income.
10. Payments by third Party:
- In quite a few cases, the sale proceeds are partly paid by the Government as a release of subsidy, or the costs are funded by third-party payments. All such transactions also amount to receipt on behalf of the buyer and hence the seller will be under obligation to remit TCS.
11. Whether consideration will include the amount collected towards GST:
- CBDT Clarified that no adjustment on account of indirect taxes including GST is required to be made for collection of TCS on sale of good u/s 206C(1H) since the collection is made with reference to receipt. Hence, it is clarified that the GST portion included in sale value would attract TCS u/s 206C(1H) of the Act.
12. Should TCS amount be included in the invoice:
- As such, there is no provision which mandatorily requires the seller to include the amount of TCS in the tax invoice. However, if the amount of TCS is not included in the invoice, then the buyer would not be aware of the total amount of consideration payable to the seller and therefore it would be advisable for the seller to add the TCS figure in the invoice itself and also raise an accounting entry in the books of accounts as a TCS liability even though not payable until the receipt of consideration. It may be noted that even though if the TCS amount is debited to the buyer, the liability to deposit TCS u/s 206C (1H) does not arise till receipt of consideration
13. Impact of Credit notes and Debit notes:
- If sales return/credit note/debit note is before receipt of any consideration, then the impact thereof will be included in the amount of consideration, and accordingly, on receipt of the revised consideration, the provisions of TCS would be applicable. If the amount of consideration is already received and TCS is collected and paid, no impact thereof will be required to be made at the time of passing entry for sales return/credit note/debit note. However, against the subsequent realization, if the same gets adjusted and net consideration is paid then on such net consideration TCS should be collected.
14. Whether TCS Provisions would be applicable if the amount of sale consideration is adjusted against the amounts payable for purchases from said party:
- In such a situation, though the amount is not received in cash mode, however there is a deemed receipt of consideration through indirect means i.e., through an adjustment of receivable and payables account and hence TCS should be collected under such transactions. Even a past, present or future act is valid consideration under the Contract Act and therefore consideration would be deemed to have been received on an adjustment of mutual liabilities.
15. TCS applicable even on part receipt of consideration:
- M/s XYZ (Turnover for the FY 2019-20 was Rs.12 Crores) from the period 01 April 2020 to 30 October 2020 has sold goods worth Rs.50 Lakhs to Mr. A and the consideration has been received to M/s XYZ . Thereafter, M/s XYZ again sold goods worth Rs.60 Lakhs on 01/11/2020 and till 30/11/2020, M/s XYZ has received only Rs.50 lakhs from Mr. A. Here in this case, M/s XYZ will have to consider the receipt of amount of Rs.50 lakhs inclusive of TCS and accordingly compute the amount of TCS on gross up basis as under;
- Amount Received / (100 + Rate of TCS) * Rate of TCS = 50,00,000/100.075 * 0.075% = Rs.3, 747/-
16. When to pay TCS collected and disclosure in TCS return:
- The amount collected as TCS by the seller (other than an office of the Government) shall be paid to the credit of the Central Government within one week from the last day of the month in which the collection is made. These transactions are to be reported by the sellers in Form No. 27EQ. In the above example, M/s XYZ has to deposit the amount of Rs.3,747/- to the Government treasury by 07/12/2020 and such transaction will have to be reported by M/s XYZ in Form No. 27EQ for the quarter October – December 2020.