In order to widen and deepen the tax net, the Finance Bill 2020 proposed to insert in section 206 of the Income Tax Act, sub-section (1H) to levy TCS on sale of goods. Section 206(1H) will be effective from 01st April 2020.

Section 206(1H) reads as under:

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 Rs. 50 Lakh in any previous year, other than the 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% of the sale consideration exceeding Rs. 50 Lakh 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 “5%”, the words “1%” 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 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 section 10(20); or

C. 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 `10 crore 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.

ANALYSIS OF SECTION 206C(1H) WITH PRACTICAL ISSUES

1. Applicability of TCS on Sale of Goods under Section 206C(1H)

  • Every person being a seller, whose total sales / gross receipts / turnover exceed `10 crore during the immediately preceding financial year (FY), AND
  • who receives any amount as consideration for sale of any goods of the value or aggregate of exceeding `50 Lakh in any previous year.

2. Collectability of TCS on Sale of Goods under Section 206C(1H)

Unlike other provisions of TCS, the collectability of TCS on Sale of Goods arise at the time of RECEIPT of consideration from the buyer of Goods. The collectability of TCS at the time of receipt of consideration from the buyer raises some questions which are discussed below-

(a) Weather TCS is required to be collected on trade receivable of goods standing in books as on 31st March, 2020?

=> As discussed above, TCS is applicable on event of collection against the sale made. Considering this, TCS is required to be collected on Trade Receivables stranding in books as on 31st March 2020 if the receipts from a trade receivables, considering other receipts as well, exceeds Rs. 50 Lakh during the FY 2020-21.

(b) Weather TCS shall be collected at the time of billing in case of Advance from Customer standing in books as on 31st March, 2020?

=> In this case, considering the collectability of TCS, TCS is not required to be collected as the amount is received to the person on or before 31st March 2020 and the TCS on Sales of Goods is applicable from 01st April 2020.

3. Rate of TCS on Sale of Goods

Rate of TCS
(a) PAN or Aadhaar number available of Buyer 0.1%
(b) PAN or Aadhaar number NOT available of Buyer 1%

4. TCS on Receipt of Consideration in Excess of Rs. 50 Lakh

Every person who is required to collect TCS on Sale of Goods shall, at the time of receipt of sale consideration, collect from the buyer TCS at 0.1% / 1% of the sale consideration exceeding Rs. 50 Lakh. For instance, XYZ Ltd. received Rs. 75 Lakh from Mr. A as a sale consideration during the FY 2020-21 and turnover of XYZ Ltd is `12.5 crore during the FY 2019-20. In this case, TCS collection shall be Rs. 2500 (25 Lakh × 0.1%).

5. TCS on Sale of Goods covered under Section 206(1)/(1F)/(1G)

Section 206(1H) amply clears that TCS on sale of goods covered under section 206(1) / (1F) / (1G) shall be collected as per the provision of respective sub-sections. In other words, TCS on sale of Alcoholic Liquor for human consumption, Tendu leaves, Timber, Scrap, Minerals (Coal or lignite or iron ore), foreign remittance through LRS, overseas tour package shall be collected according to the applicable rates and provisions as mentioned under section 206(1)/(1F) /(1G).

6. Weather TCS on sales value including GST or excluding GST?

CBIC through a circular clarified that for the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.

However, in absence of any specific provision or circular or clarification by CBDT, it is unclear as to whether TCS will be levied on GST charged in invoice or not.

There are two views whether TCS on Sales value including GST or excluding GST. Both views are supported by different analysis. However, till the clarification by CBDT, it will be more appropriate that TCS should be collected on Sales Value including GST.

Example:

View I:

TCS on Sales Value excluding GST

 

View II:

TCS on Sales Value including GST

Particulars

Rs.

  Particulars

Rs.

Basic Value 90,00,000 Basic Value 90,00,000
GST @ 18% 1620000 GST @ 18% 1620000
Total Amount 1,06,20,000 Total Amount 1,06,20,000
TCS @0.1% 4,000   TCS @0.1% 5,620
Grand Total 1,06,24,000 Grand Total 1,06,25,620

7. Definition of “Goods”

TCS is required to be collected in respect of consideration received for sale of goods. Now the question arise that what will be considered as goods as the definition is not provided in section 206(1H). Further any other section of the Income Tax Act also does not provide the definition of goods.

Sale of Goods Act 1930 and Goods & Service Tax Law 2017 provides the definition of goods. In absence of definition under the Income Tax Act, definitions under either of the act will be considered.

Explanation
Sale of Goods Act 1930
  • Goods means every kind of moveable 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.
Goods and Service Tax Act 2017
  • Goods means every kind of movable property
  • other than money and securities
  • but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;

A plain reading of both the definitions will demonstrate that definition of goods under both the acts is identical. It will be more appropriate if both the definitions are considered while concluding as to what constitutes goods as the definitions are identical and both the act largely deals with goods.

It’s pertinent to note that Sale of Land or Building will not attract the TCS provision as both are immovable properties. Hence Real Estate transactions is out of ambit of TCS.

8. Exemption from TCS Collection

There is no need to collect TCS under section 206(H) is both of the following conditions are satisfied-

  • Buyer is liable to deducted TDS under any other provisions, AND
  • Such amount has been deducted.

If either of the above conditions are not satisfied, TCS is required to be collected on under section 206(H).

Now a question arises weather requirement to collect TCS will be applicable in case Buyer has not deducted TDS on the basis of Nil / Lower TDS certificate of seller. In this case, buyer is not liable to deduct TDS under the TDS provisions. Hence 1st condition is not satisfied and, consequently, TCS is required to be collected in the instant case.

9. TCS on Export of Goods

The provision of TCS on sale of goods does not distinguish between domestic sales and export sales. This means that TCS is required to be collected when sale consideration received from export of goods. In case of export of goods-

  • PAN / Aadhaar number of the Buyer will not be available and, consequently, rate of TCS will be 1%.
  • Further Buyer of the goods cannot claim the TCS credit while discharging its Income Tax liability under his State’s direct tax law.
  • This means that collectability of TCS @ 1% will increase the cost of export of goods. It’s depends upon the commercial decision between buyer and seller of export of goods that who will bear this 1% extra cost.

 10. Exclusions from “Buyer”

Any sale of goods made by any person, being a seller, to following buyers shall not attract the applicability of TCS on sales of goods-

  • Central Government, a State Government
  • An embassy,
  • A High Commission, Legation, Commission, Consulate and
  • Trade representation of a foreign State
  • A local authority as defined in the Explanation to section 10(20)
  • Any other person notified by the Central Government.

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25 Comments

  1. MOHAN says:

    i have some questions as below
    1) 4. What would be the status of the TCS Collected if it turns out to be in excess of the amount that is paid to the Government. E.g. at the time of Invoice the TCS is shown are Rs. 1,000/- but the Payment received is actually less and TCS is paid based on Payment Received (Rs. 900/- is paid) then what would be the status for the balance Rs. 100/-
    2) Would be the case when Advance Payment is received. Invoice not as yet made.
    3) How would Credit / Debit Note, Turnover Discounts, etc. affect TCS
    4) How would TCS be collected on the Previous Year Outstanding Amt if the same exceeds Rs. 50 Lakh. Same case for Invoicing before September
    5) If TCS is collected at the time of Invoicing then what would be case for Partial Applicability. E.g. If Sales till now is Rs. 48 Lakh and Invoice is raised for 10 Lakh then will the TCS be on Rs. 8Lakh or Rs. 10 Lakh.
    6) What would be the status of TCS already paid if Sales Return comes into effect after the Payment was received.

  2. Shabnam Shaikh says:

    Hi, Under Sale of Goods Act, shares and securities are included in the definition of Goods. However, under GST laws, goods does not include shares and securities. Kindly clarify if TCS provisions will be applicable on sale of shares and securities??
    Thanks.

  3. SACHET VIVEK AGARWAL says:

    If there are trade receivables as on 31st March 2021 and the amount is received on 15th December 2021, then TCS will be deducted on 15th December 2021 on the date of receipt. Hence the buyer of goods will get the credit of TCS in the month of December which would be in next financial year. Hence how can the buyer take credit in the year 2021-22 for FY 2020-21 ?

  4. MITHUN says:

    SIR,
    IS IT APPLICABLE FOR ANY SALE TRANSACTION OF GOODS

    AND LIMIT OF RS.50 LAKH IS FOR SINGLE TRANSACTION OR AGGREGATE IN WHOLE YEAR

  5. KS says:

    Hello,
    We are dealing in Coal and we collect TCS @1% – on coal sold to Coal traders. However IT has specificaly exempted persons who are actual user of coal (in their factories)through form 27C.

    Does this section mean that actual user will also required to charge TCS @0.1%?

    Please guide

  6. Manisha says:

    How TCS provision for applied for sale effected in March20 even though payment received in April20. As the provisions are applicable wef 01.04.2020 hence sales effected on or after 01.04.2020 and payment received for that has to be covered.?

  7. Manisha says:

    Thank you for the good article, have below 2 queries
    1>is the clarification received for point 2a and 2b recd
    2>point 4 TCS on Receipt of Consideration in Excess of Rs. 50 Lakh – in the financial year 2020-2021 , in case a seller receives consideration excess of 50 lacs from a buyer , is that in one transaction, or will it be in aggregate of many transactions.
    also if this buyer has not bought in finacial year 2019-20 will tcs needs to be collected from such a buyer

    1. ashish.shavlesha says:

      (a) There is no clarification required for Point 2(a) and 2(b) as the provision is amply clear. The questions can be easily answered by interpreting the provision.
      (b) Rs. 50 lakh is in respect of aggregate of the transaction taken place during the year with one person.
      Kindly elaborate “also if this buyer has not bought in financial year 2019-20 will TCS needs to be collected from such a buyer”.

  8. parbhat says:

    Sir, Goods here will mean only business goods or all?? like we are in service sector but we often sales scrap or old business assets can they also classified as goods.

    1. ashish.shavlesha says:

      (a) Sale of Scrap: TCS will be collected u/s 206C(1).
      (b) Sale of Business Assets: If the business asset is movable like furniture, machinery etc., TCS is required to be collected from buyer.

  9. A SRINIVASAN says:

    wrt 206C, Wether TCS on sales value including GST or excluding GST? To me, it ought to be excluding GST, which is not part of sale consideration / proceeds reaching the seller. The seller is only a facilitator liable to remit to the Government, the TCS collected from buyer. Kindly clarify

    1. ashish.shavlesha says:

      As I mentioned in the article itself, in absence of clarification from CBDT, TCS can be calculated on amount including GST or excluding GST. Both views are supported by different analysis. TCS should not be collected on GST amount as GST is revenue of the govt. and not of the person. However there is no clarification by CBDT yet. To be on a safer side, collect TCS on GST amount also as the differential excess TCS will be less significant.

  10. Khushboo says:

    Why is it mentioned that the credit of TCS can not be availed by foreign parties. Any taxes paid in India will be available as credit otherwise it will be double taxation.

    1. ashish.shavlesha says:

      TCS paid under Income Tax act cannot be claimed as set off or otherwise by any non-resident under the direct tax act of his country. Due to this, there is double taxation. That’s why I’d mentioned that it will increase the cost of exports.

  11. RAMDAS NAGESH NAYAK says:

    A query . If i raise a sales Invoice on April 10th and receive Payment on June 10th , the triggering point of TCS is on April 10th or when buyes pays me on June 10th , is buyer suppose to deduct and Pay to GOI

    1. ashish.shavlesha says:

      The collectability of TCS arise at the time of receipt of payment i.e. June 10th. In such case you are required to deposit such TCS with govt. upto 7th July.

  12. S Nagesh Hegde says:

    Sir,
    Good article
    The TCS/TDS provisions are tax collection tools on taxable Incomes under IT Act. How come Export of Goods or a portion of it lead to taxable income in the hands of foreign buyer??
    Kindly share your views
    Is there any announcement by Fin Min of withdrawing TCS proposed on exports.

    1. ashish.shavlesha says:

      The provision is drafted in such a manner that it does not distinguish between domestic sales and export sales. Export Sales should not be covered under this provision as it will make the Exports costly. Finance Ministry may exclude Buyer of Export Goods from the definition of Buyer (3rd Bullet of 9th Point of the article). As of now, there is no announcement by the Finance Ministry.

      1. Apurva Maheswari says:

        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 ……….

        The section clearly states that the export of goods is excluded. The first two lines of the section are reproduced above.

        Kindly update if there has been any Circular or FAQ issued stating that the TCS against exports are to be collected.

    1. ashish.shavlesha says:

      In respect of Sale of Motor Vehicle, we collect TCS above 10 Lakh. TCS on Sale of motor vehicle is not covered under this provision (Point 5 of Article) hence TCS will be collected above 10 Lakh if we sale motor vehicle.

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