Tax collected at Source on sale of Goods effective from 01st October 2020

Due date for filing Annual return and audit report under GST has been extended, tax payer got some relaxation however new compliance requirement has been introduced which is applicable from 01st October 2020 i.e. tax to be collected at source on sale of goods.

Vide Finance Bill, 2020 sub-section (1H) of section 206C of the Income Tax Act has been introduced which has proposed for tax collection at source (‘TCS’ ,will use it in remaining part of post), originally it was scheduled to be effective from 01.04.2020 but later has been provided that section will be effective from 01.10.2020.

I am just trying it explain in frequently asked question format, hope that it will make easy to understand and comply with Law:- 

First go through the extract of the provision which is being given below for ready reference:-

(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.’;

Q1. who is liable to collect TCS?

Ans. Seller whose total sales, gross receipt or turnover from the business carried on by him exceeds Rs.10 crores during the financial year immediately preceding financial year in which sale is carried out. It means total turnover of FY 2019-20 of the seller should be more than Rs. 10 crores.

Q2. From whom TCS is to be collected ?

Ans. TCS is to be collected from the buyer whose aggregate purchases from the seller exceed Rs.50 lacs in the previous year.

Q3. On which amount TCS has to be collected ?

Ans. TCS is required to be collected only on sale consideration exceeding Rs.  50 lacs. In other words, TCS on first Rs.50 lacs is not required to be collected.

Q4. What is rate of tax for TCS?

Ans. Rate of TCS provided in the section is 0.1% of sale consideration but Vide Press Release dated 13.05.2020 rate of tax has been reduced for the current financial year to 0.075%.

Q5. Is there change in rate of Tax if buyer does not have PAN?

Ans. In case, buyer does not provide PAN or Aadhar number to the seller rate of TCS shall be 1%.

Q6. Whom provision of TCS under this section is not applicable ?

Ans. This section does not apply to :-

  • If Seller is collecting TCS under any other provisions of the section 206C.
  • If Buyer is liable to deduct TDS (Tax deducted at Source) under any Provisions of the Income Tax Act and  buyer has deducted TDS.
  • Where buyer is Central government, State Government, Local Authority, Embassy, High Commission, legation, commission, consulate and the trade representation of a foreign State. But keep in mind that in case of Government Company like PSUs ,TCS would be applicable as these are not Government, it means If seller is making a sale exceeding Rs.50 lakhs to them , TCS needs to be collected.
  • In case of export sale ‘directly or through merchant exporter’
  • In case of import of goods into India and
  • Any other person whom Government may specify.
  • Based on clarification given by CBDT vide Circular No. 17 of 2020 Dated: 29th September, 2020

(i) transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre;

(ii) transactions in electricity, renewable energy certificates and energy saving certificates traded through
power exchanges registered in accordance with Regulation 21 of the CERC;

  • For this purpose,-

(i) “recognized clearing corporation”shall have the meaning assigned to it in clause (i) of the Explanation to clause (23EE) of section 10 of the Act;

(ii) “recognized stock exchange”shall have the meaning assigned to it in clause (ii) of the Explanation 1 to sub-section (5) of section 43 of the Act;and

(iii) “International Financial Services Centre”shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 

Q7. When TCS is to collect at the time of invoice raised or sale consideration received?

Ans. The collection is required to be made at the time of receipt of amount of sales consideration. Based on clarification given by CBDT vide Circular No. 17 of 2020 Dated: 29th September, 2020

Q8. How shall threshold limit of Rs.50 lakhs be determined?

Ans. Since the threshold of fifty lakh rupees is with respect to the previous year, calculation of receipt of sale consideration for triggering TCS under sub-section (1 H) of section 206C shall be computed from 1st April, 2020. Hence, if a person being seller has already received fifty lakh rupees or more up to 30th September 2020 from a buyer, the TCS under sub-section (1 H) of section
206C shall apply on all receipt of sale consideration during the previous year, on or after 1st October 2020, from such buyer  (
Based on clarification given by CBDT vide Circular No. 17 of 2020 Dated: 29th September, 2020)

Q9. Is TCS is apllicable on advance receipt of sale consideration?

Ans. Yes , TCS shall be applicable for advance received on or after 01st October 2020

(Based on clarification given by CBDT vide Circular No. 17 of 2020 Dated: 29th September, 2020)

Q10. Sale was made before 01st October 2020 but sale consideration has been received on or after 01st October 2020, Is TCS need to be collected on such consideration?

Ans. Yes, you need to collect TCS on receipt of such sale consideration even sale happened before 30th Sep 2020.

(Based on clarification given by CBDT vide Circular No. 17 of 2020 Dated: 29th September, 2020)

Q11. whether adjustment is required to be made for sales return, discount or indirect taxes including GST for the purpose of collection of tax under sub-section (lH) of section ?

Ans. No, adjustment on account of sale return or discount or indirect taxes including GST shall be made for collection of since the collection is made with reference to receipt of amount of sale consideration.

Q12. Whether TCS under sub-section (1H) is to be collected and deposited in addition to TCS to be collected and deposited as per other provisions of section 206C of the Act.

Ans. No, in case TCS is to be collected and deposited under any other provision of section 206C, TCS is not to be collected and deposited under this sub-section.

Q13. Whether TCS is to be collected on GST amount also?

Ans. In my understanding ,it is yes as sale consideration includes taxes.

Q14. My company entered in AMC contract and my contractor is providing goods and services both , consideration of which is going to exceed Rs.50 lakhs during the year , Do My company needs to collect TCS?

Ans. No, As company will deduct TDS under section 194C and this section says that TCS not needed to be collected where buyer is liable to deduct TDS under any provision of the Act.

Q15. My company entered in to AMC contract but in case of any repair or replacement of item my contractor charge separate consideration for the supply of such items, does my company need to collect TCS?

Ans. Yes , as there would be no TDS applicable on supply of such goods and supply of such goods shall be treated a separate sale.

Hope that it will make easy to understand the provisions and will make you able to comply with law , in case any query please write or comment .

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9 Comments

    1. cackbajpai@gmail.com says:

      Once imported Goods cleared for home consumption, it becomes indigenous goods and TCS provisions would be applicable subject to other conditions fulfilled

  1. dinesh says:

    Pls refer to question no 11 (Q11. whether adjustment is required to be made for sales return, discount or indirect taxes including GST for the purpose of collection of tax under sub-section (lH) of section ?)

    if supplier has returned the goods then it (TCS) will also reversed..
    kindly confirm

    1. cackbajpai@gmail.com says:

      As TCS has to be paid on receipt of the sale consideration , if sale return happened it means there would be no receipt of consideration for such sale thus No TCS ,however if receipt has already been received then it is logical to adjust TCS. hope same will be taken care by the CBDT in TCS return as it is in TDS return

  2. Reynold Machado says:

    Is TCS liable to be collected for sale of goods if Seller Turnover is below 10 crores in FY 2019-20 but receives payment from sale of goods from a buyer >50 lacs? Also for determination of Taxable Turnover of 10 crores includes GST collected/ applied on such sale?

    1. cackbajpai@gmail.com says:

      I understand that Both conditions( turnover more than Rs.10 Crore and Receipt Rs 50 Lakhs) have to be fulfilled together then TCS would be apllicable

  3. Dinesh Nikam says:

    1.If buyer has provided Aadhar only & not provided PAN? What will be the TCS rate?
    2.If we collect TCS on the basis of Aadhar only then how to deposit this to govt. because there is no PAN?

    1. cackbajpai@gmail.com says:

      Just wait for TCS return Form which has to uploaded,Department will clarify in that only.
      So far rate is concerned it should be full rate if PAN is not provided

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