1. Introduction: The new section 206C(1H) of the Income Tax Act,1961 has been introduced by The Finance Act, 2020 for Tax Collected at Source (TCS) on sale of goods. The provisions of this section has been notified & applicable w.e.f. 01.10.2020.

 2. Meaning of TCS: TCS Means collecting tax at source for certain transactions which are governed by Chapter-XVII-BB under the Income Tax Act, 1961. Under the specified transactions under the said provisions, at the time of debiting the amountpayable to the counter party (Buyer) or at the time of receipt of specified amount from the counter party (Buyer);whichever is earlier, seller is required to collect the requisite percentage of the amount payable to buyer as income-tax.

Such amount of TCS is considered as payment of Income-tax & deductible from total income tax liability of purchaser at the time of filing of return of income. (similar as TDS.)

3. TDS V/s. TCS: It is a common perception that TDS & TCS are same in nature as both are deductible at the time of making payment to counter party, taking into consideration the nature of deduction, in common parlance these both are understood as same. But there is some difference between both of them. Let us try to understand what is exactly the difference B/w. TDS & TCS.

TDS: TDS is an acronym stands for Tax Deducted at Source which is required to be deducted from the amount payable to counter party. The provisions of TDS governed by Chapter-XVII-B under the Income Tax Act, 1961. Basically the Chapter XVII deals with clarification of payment of any sum which is liable for deduction or collection of tax(Refer Circular No. 720, dated- 30-8-1995)& Inserted by the Direct Tax Laws(Amendment) Act, 1989, w.r.e.f. 1-6-1988.

Now, we are trying to understand the TDS & TCS by help of a calculative illustration as below:

Illustration: 1. M/s. JBS Ltd. has entered into a contract with Twinkle Ltd. for providing their ancillary business operating & consulting services for smooth operation of its business activities. The rate of TDS is applicable on the aforementioned contract say, 2%. For which, JBS Ltd. has to pay ₹ 15,00,000/- in totality. Show the treatment of TDS:

Solution: In the given case, JBS ltd. is required to pay a sum of ₹15,00,000/- in exchange for services availed from Twinkle Ltd. at the time of making payment (in general sense) is required to deduct a sum equal to 2% of money payable i.e., ₹30,000/- and ₹14,70,000/- is to be paid to Twinkle Ltd. by JBS Ltd.

Illustration: 2. M/s. S Ltd. has made a scrap sale of ₹7,00,000/- The rate of TCS is applicable on the aforementioned transaction is say, 1%. Show the treatment of TCS.

Solution: In the given case, the counter party means buyer is required to pay a sum of ₹7,00,000/- to S Ltd. for Scrap purchased. Now, S Ltd. need to collect ₹7,00,000+2% i.e., ₹7,14,000/-

4. Applicability: This provision is applicable in following circumstances: 

  • It is applicable to all the sellers which are engaged in making sales. The term “seller” has been defined in the act.
  • The term “seller” means a person whose total sales, turnover or gross receipts from the business carried on by him exceeds ₹10 Crores during the financial year immediately preceding financial year.
  • All the sellers are covered under the ambit of this section which have a turnover/sales/gross receipts exceeding ₹10 Crores in year 2019-20 will be required to collect TCS in year 2020-21.
  • If any person has turnover/sales/gross receipts below the abovementioned limit then it is out of scope of the term ‘seller’ means the provision of this section shall not be applicable on that type of Assessee.
  • The applicability criterion for TCS has to be considered & checked for Every Year.

5. Non-Applicability: 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.

6. Payment & Return: The TCS which is collected shall be deposited to Govt. within 7 days of the next month which related to tax period. Every person who is collecting tax at source is required to submit a Quarterly TCS Return in FORM-27EQ. The TCS which is collected by seller is reflected in FORM-26AS of the respective Buyer.The Rate of TCS will be 0.1%* if the buyer furnishes the PAN/AADHAR and in other cases it shall be considered as 1%** of the value.

*This is reduced to 0.075% upto 31.03.2021.

** This is reduced to 0.75% upto 31.03.2021.

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

Author Bio

Qualification: Post Graduate
Company: Magnitude Consultancy Services
Location: Rajasthan, IN
Member Since: 24 Jul 2020 | Total Posts: 4
Author is currently working as partner in Magnitude consultancy Services in the field of Indirect Taxes.Author can be reached at [email protected] View Full Profile

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October 2021