Section 206C of the Income Tax Act provides for the collection of tax at source (TCS) on the business of trading in alcohol, liquor, forest produce, scrap, etc. In order to widen and deepen the tax net, two new sub-sections (1G) and (1H) to section 206C has been inserted by the Finance Act 2020 with effect from 1st October 2020.
1. Bare Provisions – In this backdrop, let us check bare provisions of newly introduced sub-section (1H), (1-I) and (1-J) to section 206C made applicable from 1st October, 2020. Bare provisions are reproduced below-
(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.’;
(1-I) If any difficulty arises in giving effect to the provisions of subsection (1G) or sub-section (1H), the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(1J) Every guideline issued by the Board under sub-section (1-I) shall be laid before each House of Parliament, and shall be binding on the Income-tax authorities and on the person liable to collect the sum.
2. Provision in Brief: Provisions of section 206C(1H) can be summed up as under:
|Who to Collect TCS||Whom to Collect TCS from||Time of collection of TCS||Rate of TCS|
||TCS to be collected from such buyers to whom value or aggregate value of goods sold exceeds fifty lakh rupees in a previous year.||TCS is to be collected at the time of actual receipt of consideration by the seller.||
|Exempted Transactions: TCS u/s. 206C(1H) is not to be collected on following transactions:
– Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
– a local authority as defined in the Explanation to clause (20) of section 10; 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.
|Tips and Traps:
3. Illustrations: For better understanding let us take a look on the following illustrative transactions assuming no sale is made on credit:
|Sl. No.||Seller||Buyer||Total Turnover of Seller||Aggregate value of Sales||TCS u/s. 206C (1H)||Remarks|
|FY 19-20||FY 20-21||Upto 30.9.20||After 30.9.20|
|1.||A||B||13 crores||8 crores||25 lakh||65 lakh||4,000||0.1% on 40 lakh (being excess of Rs. 50 lakhs)|
|2.||A||B||10 crores||13 crores||25 lakh||65 lakh||NA||Since turnover in FY 19-20 does not exceed Rs. 10 crores|
|3.||A||B||13 crores||15 crores||60 lakh||55 lakh||5,500||On Rs.55 lakh being turnover and receipt after 30.9.20|
|4.||A||State Govt.||13 crores||15 crores||60 lakh||55 lakh||NA||Since section 206C (1H) is not applicable if buyer is State Govt.|
(deducts TDS u/s. 194C)
|13 crores||15 crores||60 lakh||55 lakh||NA||Since TDS is already deducted on this transaction|
|B||13 crores||15 crores||Nil||70 lakh||NA||Since on this transaction TCS shall be collected u/s. 206C(1F)|
4. Practical Aspects
4.1 Meaning of term ‘Goods’ used in section 206C(1H)
4.2 How and when to collect TCS from the buyer?
|Total Turnover of Seller||Aggregate value of Sales to B||TCS charged in Invoice|
|FY 19-20||FY 20-21||FY 21-22||Upto 30.9.20||After 30.9.20|
|13 crores||8 crores||9 crores||25 lakh||65 lakh||4,000|
|Case -1 : If all the sales consideration is received in Dec.20 i.e. FY 2020-21||Remarks: Mr. S will collect TCS of Rs.4,000.
Due date to deposit TCS: 07/01/2021
|Case -2 : If all the sales consideration is received in Nov.21 i.e. FY 2021-22||Remarks: Mr. S will collect TCS of Rs.4,000.
For the meaning of term ‘seller’ threshold of Rs.10 crores is to be checked for the previous year immediately preceding the previous year in which sales is carried out irrespective of the previous year in which consideration for sale of goods is received. Since in this case, sales were carried out in the financial year 2020-21, hence sales/gross receipts/turnover of the previous year 2019-20 is to be checked for the threshold of Rs.10 crores.
Due date to deposit TCS: 07/12/2021
|Case -3 : If buyer ‘B’ becomes insolvent and seller ‘S’ treats the amount irrecoverable.||Remarks: No TCS shall be collected by S
Liability to collect TCS arises only on receipt of sales consideration.
|Case -4 : If after treating the amount as bad debts, seller recovers bad debts partially in Feb.23 i.e. FY 2022-23.||Remarks: Mr. S will discharge TCS liability on such recovery of bad debts by grossing it up.
Due date to deposit TCS: 07/03/2023
4.3 GST component while calculating ‘total sales, gross receipts or turnover’
“The term ‘turnover’ for the purposes of this clause may be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprise. If sales tax and excise duty are included in the sale price, no adjustment in respect thereof should be made for considering the quantum of turnover. Trade discounts can be deducted from sales but not the commission allowed to third parties. If, however, the Excise duty and / or sales tax recovered are credited separately to Excise duty or Sales tax Account (being separate accounts) and payments to the authority are debited in the same account, they would not be included in the turnover. However, sales of scrap shown separately under the heading ‘miscellaneous income’ will have to be included in turnover.’’
4.4 Value on which TCS to be levied
4.5 Applicability of TCS on Advance receipt and cancellation of Agreement to sell after advance receipt
|Sl. No.||Amount of Refund to Buyer||Consequences|
|1.||Entire amount including TCS||Seller has to revise his TCS return and amount already paid vide that challan has to be adjusted with any other TCS liability. Problem will be there when seller will not be having any other TCS liability to adjust the challan amount.|
|2.||Primary sale consideration excluding TCS||No revision in TCS return shall be required. However, form 26AS of the buyer will reflect TCS on such transaction which was never turned into purchases.|
4.6 Applicability of TCS on receipt in kind or book adjustment
4.7 Applicability of Provisions in Transitional period
|Sl. No.||Date of completion of sale||Date of receipt of sale consideration||Remarks|
|1.||Before 1.10.2020||Before 1.10.2020||No TCS is to be collected since section 206C(1H) is made applicable from 1st October, 2020|
|2.||On or after 1.10.2020||On or after 1.10.2020||TCS to be collected at prescribed rate subject to threshold limit|
|3.||Before 1.10.2020||On or after 1.10.2020||In my opinion, since sales were carried out in the period when provisions of section 206C(1H) were not applicable, therefore, this sub-section shall not get triggered on receipt of amount from debtors standing in books as on 30.9.2020.|
|4.||On or after 1.10.2020||Before 1.10.2020||As also explained in para 4.5 supra, in my opinion advance payments cannot be considered as ‘consideration for sale of any goods’. Advance payments are payments received against ‘agreement to sell’ only. Section 206C(1H) will get triggered when such advance shall be appropriated against sale after completion of sale. Therefore, in this case TCS will be collected by the seller.|
i) When both sale of goods and receipt of consideration are made on or after 1st October, 2020; or
ii) When consideration is received on or after 1st October, 2020 despite sale was carried out before 1st October, 2020; or
iii) When sale is carried out on or after 1st October, 2020 despite consideration received before 1st October, 2020.
4.8 Mis-Match of 26AS and Books of Buyer:
4.9 Applicability of TCS provisions on Adhoc Sale Consideration
Wherever the amount collected from the buyers is an ad hoc amount, the seller needs to gross it up and remit the TCS accordingly.
4.10 Applicability of TCS provisions to Newly incorporated Sellers
Provisions of section 206C(1H) shall not be applicable to newly incorporated sellers as they do not fulfil the criteria of sales, gross receipts or turnover exceeding Rs. 10 crores during the financial year immediately preceding the financial year in which the sale of goods is carried out.
Above issues are illustrative only and other issues may also arise after implementation of this provision. For removal of difficulty on implementation of this sub-section, CBDT has been empowered by section 206C(1-I) to issue guidelines with the approval of Central Government. Therefore, CBDT should issue guidelines for smooth implementation of sub-section (1H) to section 206C.
Although casting TCS obligation at the time of receipt of sales consideration is beneficial to the seller from cash flow perspective, practically it may lead to litigation and disputes. If point of taxation had been shifted from receipt basis to mercantile basis, it would have been easier to both, buyer and seller.