Tax Collected at Source (TCS) on sale of goods

The Finance Bill, 2020 has proposed a new sub-section (1H) under Section 206C requiring every seller whose total turnover in the business carried on exceed Rs.10 crore in the preceding financial year to collect tax at source at the rate of 0.1% of the sale consideration exceeding Rs.50 lakhs in respect of sale of any goods. Thus, under this provision, every seller whose turnover has been more than Rs.10 crore in the preceding year will be required to collect at source, from every buyer on purchase of goods by such buyer if the total purchases by such buyer exceeds Rs. 50 lakhs. It may be noted that the tax is required to be collected only in respect of the sale value exceeding Rs.50 lakhs during the year. In case such buyer does not have the PAN Number or Aadhar Number, then the rate of collection shall be 1% under Section 206CC of the Act. Further, the obligation to collect this TCS is on receipt of consideration for sale of any goods. Thus, the liability for depositing this TCS will be when the payment is received from the buyer. This provision thus it is different than the other provisions of TDS and TCS whereby obligation of the deductor or the collector arises at the time of credit or debit or payment or receipt whichever is earlier.

Please note Rate of TCS is reduced 0.075% for the period from 01.10.2020 to 31.03.2021.

This provision has far reaching implication as the scope is too wide and the magnitude of implication can be understood from the fact that business entities having turnover exceeding Rs.10 crore will be liable to collect tax at source from all the buyers whose purchases during the year is more than Rs.50 lakhs. This will mean that on each and every invoice, where the sale exceeds Rs.50 lakhs, there will be a separate charge of TCS from such buyer. The seller shall be required to maintain an account of the TCS collected, issue TCS certificate, file statement of such tax collected. The buyer on its own will be required to maintain the account of TCS paid by it, the credit of the same in the statement filed by the seller and claim of such TCS in the tax return. This procedure will be applicable for each and every invoice. It need to be emphasized that the volume of work compliance requirement will be more than the volume of work and compliance under GST which itself is finding difficult to cope with the volume of work. In the present case of TCS, the requirement will be on all goods whether the same are liable for GST or not. Take the case of a milk, vegetable, cereals traders/distributors. A local milk supplier will be buying its entire supply of milk from the vendor say Mother Diary. Its purchases in the year are bound to be more than Rs. 50 lakhs from Mother Diary and turnover of Mother Diary itself will be more than Rs. 10 crore. Now, under this proposed law, the Mother Diary on each invoice will be levying TCS at the rate of 0.1 %. Mother Diary will be required to issue TCS Certificate and such TCS credit will be reflected in 26AS. The number of entries for each person will run into hundreds and there will be requirement of reconciliation. Similar will be the case of other such products. Though in the proposed section, an enabling provision has been made to exempt certain categories but the fact remains that this will affect each and every person carrying on business. One need to consider that in many trades, there is only one supplier and the purchases from such supplier are far more than Rs. 50 lakhs.

The implication can be understood with another example of Oil Company like Indian Oil Corporation. With a turnover of about Rs.6 lakh crore, it will be collecting TCS from each of its distributor to whom it is supplying oil and the supply of the oil to each of its distributor will exceed Rs.50 lakhs. Then the distributor will further make the sale to the wholesaler. The distributor then will collect TCS from the whole seller and on each invoice, there will be a separate charge of TCS like GST. The wholesaler on its part will sell to the petrol pump dealer and in turn will levy TCS on each of the invoice raised on the petrol pump dealer. The purchase of each petrol dealer is more than Rs.50 lakhs. In this process, on each and every subject of the transaction, the TCS will get collected. This will have huge impact not only on the paper work compliance obligation but will also have serious impact on the working capital.

In many of the businesses, the margins are less than 0.1% and particularly in wholesale trading businesses, the margin is less than 0.1%. In these cases, the TCS collected may be more than the total income raising serious issue about the fund flow. The GST having been introduced and there being a complete trail available particularly in respect of the transaction which aggregates Rs.50 lakhs or more, there is no justification to introduce this provision so as to increase the compliance obligation on the trade which otherwise is finding difficult to cope with the compliance provisions under the GST Law. Contrary to introducing such obligation, there is a need to consolidate the compliance under the various statute. The information available under one statute should be used in the other statute rather than asking that information again in the other statute. It will be ideal that tax returns under the various laws are integrated and businessman is required to submit one consolidated return rather than filing so many returns. It appears that while drafting this provision, one has not considered the volume of work and the manpower required for compliance of goods of such provision.

This amendment shall be effective from 01.04.2020 and as such tax shall be required to be collected under this provision from 01.04.2020

Existing Provision:

TCS currently applicable on the following:

• Sale of certain goods: liquor, scrap, tendu leaves, luxury motor vehicles etc.
• Grant of lease or licence for parking lot, toll plaza or mine or quarry
• TCS so collected is allowed as credit to the buyer of goods or lessee or licensee
• TCS not to apply if goods are used for manufacture or production of other articles or generation of power

Proposed Amendment: 

• TCS is proposed to be extended to the following:
• Remittances made under Liberalized Remittance Scheme (LRS) of RBI
• Overseas Tour Program Packages
• Sale of goods (other than goods already subjected to TCS)

Sale of Goods

• Seller of all goods (other than those goods already covered under TCS)
• Gross receipts/ turnover of seller more than Rs. 10 Crores in previous financial year
• Liable to collect TCS @ 0.1% of sale consideration exceeding Rs. 50 Lakhs in a year from each buyer Rate of TCS will be 1% if buyer does not provide PAN or AADHAR. Please note Rate of TCS is reduced 0.075% for the period from 01.10.2020 to 31.03.2021.
• No exclusion provided for goods used by the buyer in manufacture or production of other articles or generation of power

Buyers/service recipients excluded from new TCS provisions

• TCS not to apply if buyer is liable to deduct TDS under any other provision and has deducted such amount
• Certain categories of buyers/service recipients excluded (Government empowered to notify more exclusions in due course)