TCS- New tool to curb and track usage of unaccounted money

The Government of India has introduced a new section 206C(1H) with regards to ‘Tax Collection at Source‘. Applicable to everyone having turnover of Rs. 10 crores in last financial year from 01.10.2020.

(A) EXTRACTS OF THE SUB-SECTION

New sub-section (1H) under Section 206C is duplicated below:

 Every person, being a seller,  

  • who receives any amount as consideration for the 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 Section 206C of 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. 

Provided that if the buyer does not furnish their PAN / AADHAR number to the seller, then Seller collect from the buyer, a sum equal to 1 % in place of 0.1% 

Provided 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 and has deducted such amount.

(B) IMPORTANT DEFINITIONS

  • GOODS

Goods has not been defined in the Income tax act and hence reference is made to Section 2(7) of the Sale of Goods Act, 1930 which defines goods to “mean every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale”.

Export of goods is not covered under TCS on sale of goods.

Levy shall be on “all” goods except those explicitly prescribed under sub section 1, 1F & 1G (on which separate rates have been prescribed) under Section 206C

Goods covered under relevant sections for tax collection at source are given below:

Section Items covered under TCS
206C (1) a. Alcoholic Liquor for human consumption

b. Tendu leaves

c. Timber obtained under a forest lease

d.Timber obtained by any mode other than under a forest lease

e. Any other forest produce not being timber or tendu leaves

f. Scrap

g. Minerals, being coal or lignite or iron ore

206C (1F) a. Motor vehicle (if value exceeds 10 Lakhs)
206C (1G) *

* Inserted vide Finance Bill 2020

a. Sum of money (above 7 Lakhs) for remittance out of India

b. Seller of an overseas tour program package

  • SELLER 

Seller means a person whose total sales, gross receipts or turnover from the business carried on by him exceeds 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.

  • BUYER 

Buyer means a person who purchases any goods, but does not include, ––

1. Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

2. A local authority as defined in the Explanation to clause (20) of section 10; or

3. 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.

(C) NON-APPLICABILITY OF SUB-SECTION

The provisions of this section shall not be applicable in the following circumstances: 

> This section is not applicable for export of goods & goods already been covered under the existing provisions governing TCS under chapter XVII-BB of the Income Tax Act, 1961.

> This section is not applicable in a case where value or aggregate value of sales consideration is below or equal to ₹ 50 lakhs during the year.

> This section is not applicable if the buyer is CG/ SG/Local Authority/ an Embassy / High Commission / Consulate & the representation of foreign states.

> This section is not applicable on a buyer which is importing goods.

>This section is not applicable on a person which is notified by Govt.

(D) PAYMENT AND RETURN

PAYMENT: The person responsible for collecting tax shall deposit the TCS amount within 7 days from the last day of the month in which the tax was collected.

RETURN: Every tax collector shall submit quarterly TCS return i.e., Form 27 EQ in respect of the tax collected by him in a particular quarter.

The Due date of furnishing the quarterly return for TCS under this section is as below:

Sr. No. Quarter Due-Date
1 Apr-Jun 15th of July
2 Jul-Sep 15th of Oct
3 Oct-Dec 15th of Jan
4 Jan-Mar 15th of May

(E) INVOICING AND POINT OF COLLECTION OF TAX

To collect TCS under Section 206C(1H), the seller needs to raise sale invoice including the amount of TCS, account in the books as a TCS liability even though not payable.

Even though the TCS amount is debited to the buyer, the liability under Section 206C (1H) does not arise until the time the amount is collected.

Point of Collection of Tax – The Sub Section provides a trigger point at the time of receiving any amounts as consideration for sale of any goods.

Situation 1: Sale order is before 1st October 2020 but the sale is not completed as up to 30.09.2020.  TCS would be applicable if any amount is received on or after 01.10.2020.

Situation 2: Sale is completed before 1st October 2020; Debtor is standing in books as on 30.09.2020 and amount received on or after 1st October 2020. TCS is not required to be collected on trade receivables of goods standing in books as on 30th September 2020.

The provisions are applicable from 01.10.2020, for the sales which were completed as up to 30.09.2020, provisions would not be applicable. Accordingly, TCS is not required to be collected on trade receivables of goods standing in books as on 30th September 2020.

(F) OTHER CLARIFICATIONS

1. In case the buyer does not furnish their PAN / AADHAR number to the seller, TCS shall be levied at 1% on the sale consideration.

2. Clarification w.r.t GST

Vide Corrigendum to Circular 76, CGST, dated 7th March’19, it was clarified that GST would not be required to be collected on the value of TCS.

3. The word ‘consideration’ is not defined. In terms of Section 145A irrespective of the treatment in books of accounts, the value of sales will include the amount of any tax recovered. Hence the consideration amount will be inclusive of GST for collection of TCS.

4. Ad-hoc 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.

5. Advance receipt – Every time the seller receives part of the sale consideration in advance, the seller is mandated to remit that portion of GST to the GST authorities. He is also required to remit TCS under Section 206C(1H). The difficulty arises in the calculation of the amount required to be remitted as the seller needs to calculate GST first and then calculate TCS later, both on grossing up basis requiring tedious calculations.

6. If sale is cancelled after advance receipt – Practical difficulties 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 is required to refund only the primary sale consideration received but not the TCS amount since such TCS amount is already credited as prepaid taxes and will appear in Form 26AS and the buyer cannot insist for refund of the TCS amount.

7. Security deposits: Where a buyer is required to keep earnest money deposit, security deposit, or performance guarantee, and if such amounts are later on adjusted towards sale consideration, the seller still will have to remit TCS.

Disclaimer: The above article has been compiled for educational purpose only. For any queries, suggestion and feedback, the author can be reached at camridulgupta0709@gmail.com.

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