Practical Ambiguity of Newly Proposed Provision of TCS On Sale of Goods Under Section 206 C (1H) of The Income-Tax Act, 1961, Introduced By The Finance Act, 2020 To Be Effective From 1st October 2020
To curb and track usage of unaccounted money, the Finance Bill, 2020 introduced Section 206C (1H) which is reproduced as under:
Every person, being a seller,
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.
the 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
the buyer means A person who purchases any goods but does not include,-
|Quarter ended||Due date of Payment||Due date for furnishing of returns under Form-27EQ||Due date for Issue of TCS certificate under Form-27D|
|30th June||7th July||15th July of the FY||30th July|
|30th September||7th October||15th October of the FY||30th October|
|31st December||7th January||15th Jan of the FY||30th January|
|31st March||7th April||15th May of the immediately following the FY||30th May|
Q 1. What is the meaning of Goods?
Ans: The word “Goods” is not defined in the Income Tax Act. The definition of Goods under the GST Act may be more relevant for this Section. As per Section 2(52) of the GST Act, “goods” means every kind of movable property other than money and securities but includes actionable claims, 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. This definition is also common for Sale of Goods Act 1930. Therefore, any person dealing in the above goods are expected to follow the TCS requirements.
Q 2. How to be collect TCS from the buyer?
Ans: 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.
Q 3. How to know the applicability of this Provision?
Ans: The turnover or gross receipts from the business shall exceed ₹ 10 Crores of the financial year immediately preceding the financial year.
The law does not make it mandatory to comply continuously once a seller is obliged to follow. This will lead to a situation where provisions are applicable and not applicable for different years depending on the quantum of turnover, less than or more than ₹ 10 Crore.
The applicability of this section will fluctuate with the fluctuations in the turnover of the assessee.
Q 4. What would be the point of collection of tax?
Ans: 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.
Because the trigger point for collection of the TCS is the financial year in which the sale of goods is carried out and provisions are operative effective 01.10.2020. The dictionary meaning of the term “carried out” means
a) to bring to a successful issue: complete, accomplish, carry out the assignment;
b) to put into execution / carry out a plan; and
c) to continue to an end or stopping point.
Since, 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.
Situation 3 Sales order executed on or after 01.10.2020 in this situation as and when the amount is received, TCS shall be collected.
Q 5. Whether TCS will be applicable to Export Sales?
Ans: TCS would not be applicable in respect of Export Sales as the consideration for sale of goods excludes consideration towards goods exported out of India and accordingly, the buyer excludes a person importing goods from India.
Q 6. Whether TCS will be applicable on sale of properties?
Ans: The question for consideration is whether a receipt for sale of immovable properties is covered for TCS or not. The sale of properties distinctly covered under Section 194IA for value exceeding ₹ 50 lakhs.
The receipts for sales made by builders to customers are not covered under Section 206C (1H) since the subject matter of sale does not fall under the definition of “Goods”.
Q 7. Whether TCS will be applicable on sale of software?
Ans: These provisions 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
NOTIFICATION NO. 21/2012 [F.No.142/10/2012-SO (TPL)] S.O. 1323(E), DATED 13-6-2012
In exercise of the powers conferred by sub-section (1F) of section 197A of the Income-tax Act, 1961,
The Central Government hereby notifies that no deduction of tax shall be made on the following
Specified payment under section 194J of the Act, namely:-
Payment by a person (hereafter referred to as the transferee) for the acquisition of software from another person, being a resident, (hereafter referred to as the transferor), where-
(i) The software is acquired in a subsequent transfer and the transferor has transferred the software without any modification;
(ii) Tax has been deducted –
(iii) the transferee obtains a declaration from the transferor that the tax has been deducted either under sub-clause (a) or (b) of clause (ii) along with the Permanent Account Number of the transferor.
So in case of software buyer is liable to deduct tax at source so TCS provision will not apply
Q 8. Whether TCS will be applicable on Adhoc sale consideration
Ans: Wherever the amount collected from the buyers is an ad hoc amount, the seller needs to gross it up and remit the TCS accordingly.
Q 9. Whether TCS would be applicable on Advance receipt how it will calculate?
Ans: 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.
Q 10. Whether TCS will refund if sale is canceled after advance receipt?
Ans: Practical difficulties arise where advance is collected for sale of goods and TCS is remitted and subsequently, the contract is canceled 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
Q 11. Whether the consideration will include the amount collected towards GST?
Ans: 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.
Q 12. How the impact of sales return, credit note, and debit note would be considered in collecting TCS?
Ans: If sales return/credit note/debit note is before receipt of any consideration, then the impact thereof will be included in the amount of consideration, and accordingly, on receipt of the revised consideration, the provisions of TCS would be applicable.
If the amount of consideration is already received and TCS is collected and paid, no impact thereof will be required to be made at the time of passing entry for sales return/credit note/debit note.
However, against the subsequent realization, if the same gets adjusted and net consideration is paid then on such net consideration TCS should be collected.
Q 13. Whether TCS will be applicable on Security deposits?
Ans: 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.
Q 14. Whether provisions of TCS would be applicable? If Trade receivables adjusted against the amounts payables from the said party.
Ans: TCS is to be collected at the time of receipt of an amount of consideration. As in the instant case, though the amount is not received in cash/cheque / electronic mode a genuine debt (receivable and payable is adjusted) is received by any other mode and hence, the provisions for TCS will be applicable.
Q 15. Whether TCS would be applicable if bad debts recovered?
Ans: Bad debts recovered is an amount received from a buyer belatedly and the only nexus between the seller and the buyer is on account of sale of goods and the amount received is only for the sale consideration with timing differences and cannot become anything else in the hands of the seller. The treatment in the books of seller as bad debts recovered, cannot take away his liability under Section 206C(1H).
Q 16. Whether TCS will be on the settlement of debts like barter transaction?
Ans: Many times, it is a business practice to sell and buy in settlement of debts. Such settlement of debts, may not be a receipt, but a deemed receipt of sale consideration, and in our considered opinion, TCS is applicable.
Q 17. Whether TCS will be applicable if partly payment received as a subsidy amount by Central or State Government?
Ans: In quite a few cases, the sale proceeds are partly paid by the Government as a release of subsidy, or the costs are funded by third-party payments. All such transactions also amount to receipts on behalf of a buyer and hence the seller will be under obligation to remit TCS.
Q 18. Whether TCS will be applicable if TDS is applicable on that transaction? Like; composite contract and turnkey Projects?
Ans: The provisions of Section 206C (1H) is not applicable if the buyer is liable to deduct tax at source under any other provision of the Act on the goods purchased by him from the seller under the said contract.
The views expressed in this article are the personal views of the author. Neither the views nor the analysis constitute a legal opinion and are not intended to be advice.