Introduction

Finance Act 2020 introduced a new provision under Section 206C (1H) for the Tax Collected at Source (TCS) on Goods With effect from 1st of October 2020.

As per the new provision if any seller of any goods whose turnover in the preceding FY exceeds Rs. 10 Crore then, from 1st of October 2020, he shall be liable to collect TCS @ 0.1% (Rate will be 0.075% till 31.03.2021) of the sale value from the buyer if the buyer purchase goods for the value exceeding Rs. 50 Lacs (Limit of Rs. 50 Lac shall be seen for each buyer separately). In other words, till the limit of Rs. 50 Lac there is no requirement to Collect TCS by the Seller however the moment purchases of the buyer exceeds Rs. 50 Lac from the same seller then on such excess amount seller shall collect the TCS. However, in the First year of implementation of this new provision Sale made to buyers up to 30th September 2020 shall not be liable to collect the TCS.

Explanation of the Important Terms used in the Provision

Seller: 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 (Sale of Services is not covered) 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.

Buyer: 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;

Goods: However the Goods have not been defined in the Income Tax Act, hence we have to borrow the reference from other acts related to Goods like Sales of Goods Act, 1930 or Goods and Service Tax Act 2017. In the both Acts the Term “Goods” has been defined as “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 .

So if any person deals in the goods covered under the above definition then he shall be liable to Collect TCS under the newly inserted provisions.

However, Seller is not required to Collect TCS on all the Types of sales under Section 206C(1H), there are some exceptions give to this provision, these are listed below:

– If the Goods are Exported out of India

– If the goods are of such type on which TDS is liable to be deducted by the buyer (Like in case of Job Work, Composite Supply).

– If the Seller is liable to collect the TCS under any other clause of Section 206C. (Like in case of Motor Vehicle dealer he shall collect the TCS on the motor vehicles if the value of the vehicle exceeds Rs. 10 Lac)

It must be note that if the Buyer did not provide his PAN or Aadhar Number then the rate of TCS shall be 1% instead of 0.1% (Rate will be 0.075% till 31.03.2021).

For better understanding let us take a look at the various scenarios:

Sr. No. Seller Year 19-20 Year 20-21 Buyer Selling till 30th Sep  from 1st October  TCS u/s 206C(1H) Remarks
1 Arun 12 Cr 9 Cr Tarun 24,00,000   65,00,000  3,900  on 39 Lac (Being Excess of Rs. 50 Lac)
2 Arun 9 Cr 12 Cr Tarun   24,00,000   65,00,000  NA As Turnover in the FY 2019-20 not exceeding Rs. 10 Crore
3 Arun 12 Cr 18 Cr Tarun   85,00,000     6,00,000     600 on Rs. 6 Lac being Turnover after 30th September
4 Arun 12 Cr 18 Cr Local Authority (Municpal Corporatio of Delhi)   55,00,000   20,00,000 NA As this Clause not applicable if buyer is Local Authority
5 Arun (Job Worker) 15 Cr 12 Cr Tarun (Who is Liable to deduct TDS on the Value of Job Work   30,00,000   35,00,000 NA As this transaction is already covered by TDS
6 Arun (Auto Dealer) 20 Cr 15 Cr Tarun (Buy A Car) 0 15,00,000 NA As on this transaction TCS shall be Collect u/s 206C(1F)

Important Note:

– For the seller to collect the TCS on the selling of goods Rs. 10 Crore Limit shall be Consider each year. If in the preceding FY Turnover exceed Rs. 10 Cr only then this provision shall be applicable otherwise not.

– Same case with the buyer, the limit of Rs. 50 Lac shall be checked every year. Suppose in the year 2020-21 Seller Arun collects the TCS from the buyer Tarun but in the next year Tarun buys goods only for Rs. 25 Lacs from Arun, then it cannot be said that as in the last year i.e. in the year 2020-21 TCS was Collected from Traun hence it has to be collected in the succeeding years also irrespective of the amount of buying.

Some Practical Issues to be dealt with:

(A) Mis-Match of 26AS and Books:

Since under the section 206C(1H)  liability to deposit the TCS amount with the govt. will be arises on the receipt basis hence there may be instances where Buyer buys the goods in one financial year and made payment in the next financial year and seller will deposit the TCS on the receipt basis i.e. in the next financial year. This may lead to mismatch in the buying as showing in the books of accounts and buying reflecting in the Form 26AS.

(B) Cancellation of Sale Agreement:

In case where the seller received the advance for the selling the goods and he deposited the TCS thereon however later on such deal stands cancelled in that case what will be the consequences? Whether seller shall refund only amount pertaining to sale of goods or refund the whole amount and subsequently revise the TCS return and how the seller shall receive back such amount? These all the issues are to be looked after by the board and issued the detailed guidelines over it.

(C) Not Liable to Collect TCS if Transaction Liable to TDS:

It is provided that if the buyer liable to deducts and also deducts it then seller is not required to collect the TCS. In this regard it is to be note that in many cases the seller is not aware about the fact that whether the buyer shall deduct TDS or not. What will be the consequences then? Whether the seller firstly not charge the TCS in the invoice assuming that buyer will deduct the TDS and later on when the seller received the payment he comes to know that buyer has not deduct the TDS at that time whether the seller will raise a Debit Note for the TCS Amount?

The above mentioned issues are a few and there may be other issues also in the practical implementation of this provision. That’s why the Government has already inserted the clause 206C(1-I) provided that “If any difficulty arises in giving effect to the provisions of sub-section (1G) or sub-section (1H), the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty.”

Author’s View:

Though this provision will surely bring the buyer also under the Income Tax Net, but however it also has to be understand that practically this will lead to some disputes between the seller and the buyer as if the TDS has not been deducted by the Buyer (if the goods liable to deduct the TDS) then Seller will demand TCS and this will surely going to arise some clashes between the parties.

Another thing is that liability to deposit TCS with the govt. arises on the receipt basis and it is going to be a burdensome task, as every time seller received the payment from the buyer he has to remit the TCS to the Govt. This provision should also be drafted on the same footprints of other sections related to TDS/TCS deposit i.e.  Liability of TCS deposit u/s 206C(IH) should also be on the basis of Due or Receipt whichever is earlier. However, For the sake of Simplicity and compliance with the provision the seller can follow the practice of deposit of the TCS on the due basis i.e. on the invoice basis.

Further it is also worthwhile to mention here that we should also wait for the detailed FAQs and guidelines of the CBDT over this provision in the due course of time.

Author Bio

Qualification: CA in Practice
Company: N G R & Associates
Location: FARIDABAD, Haryana, IN
Member Since: 10 May 2020 | Total Posts: 7
Nishant Singla is Fellow Member of Institute of Chartered Accountants of India (ICAI) M. No. 536056 . He has completed his Chartered Accountant Course in the Year 2014; he has also completed Certificate Course of Valuation of Shares conducted by ICAI in the year 2015 View Full Profile

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39 Comments

  1. prem prakash vaishnav says:

    tcs .075 applicable on taxable value & taxable value + gst amount ,
    taxable value 100000
    tcs 75
    than gst applicable on 100075 & 100000
    plase suggest.

  2. SIVA says:

    Dear Sir,

    Is TCS will be calculated on Basic. Because, as per provision, TCS amount would be on receipt of payment from Customer which is inclusive of GST.

  3. Anil Kumar says:

    Hi Good Morning,

    I need to know about below points.

    1.) If Raw Material supplier doing Job work also for the same customer (who asking Job work and supply Raw Material) – In this case TCS Applicable.
    2.) If only Job work doing (Adding same other Child parts in this job work) – TCS Applicable. Or only TDS.

  4. Akash says:

    Is TCS applicable in following case?
    1. If we are bringing customers machine at our workshop and doing servicing and replacing some spare parts
    2. If we are providing onsite service and replacing some parts.

  5. Sandip More says:

    From the above information it is pointed out that the tax should be levied on the receipt without including it in the bill, so there is no question of levying GST on the tax, am i right? Because this is really a tough job, to see if the party’s receipts are crossed and then tax on the next bill.

    1. CA. SINGLA NISHANT says:

      If you are charging GST food and beverage then surely it come under purview of goods and tcs applies.. but limit of 50 lac must be considered..

    1. CA. SINGLA NISHANT says:

      No it is not after tcs.. section says we have to look the consideration for sale of goodsonly and tcs is not a consideration for sale of goods

    1. CA. SINGLA NISHANT says:

      Iability of Deposit of TCS raises only when seller receives payment.. and generally after payment there is very less chance of debit credit note.. however if there is such where payment receives and seller deposits tcs and filled tcs return and after that there is some sale return… then tcs return to be revised and amt of challan can be used for any others tcs liability

  6. ARVIND HANMANTRAO HARULAGE says:

    how to treatement of TCS applicable in GST Tax Invoice ? Whether is calcaluted on Basic amount of sales or Total Invoice amount i,.e. Basic +GST

  7. S K GUPTA says:

    The requirement is the Sale exceeding Rs.50.00 lacs in ‘any previous year’ not the current year. Thus, one need not deduct in case the sale was less than Rs. 50 lacs in all previous years, even if the sale in the current year exceeds Rs.50lacs.

  8. pradip says:

    turnover p y 11 crore on buyer op bal 1.4.19 70 lakhs case 1 sales up to sep 30lakhs oct to march20 30 lakhs. collection up to sep 40 lakhs of op bal oct to mar20 30 lakhs of op bal+10 lakhs oc current year
    case 2 same as 1 but ollection oct to mar20 30 lakhs only of op bal
    case 3 sales sept 30 lakh + oct to march 18 lakhs
    a – collection up to sep 20 lakhs, 50+20 lakhs from oct to march 20.
    kindly explain tcs requiement

  9. CA.P.GANESAVEL says:

    EXAMPLE: ARUN SOLD GOODS TO TARUN BEFORE 30th SEP 24 LAKHS FROM 1st OCT TO 31st MARCH 28 LAKHS WHETHER HE HAS TO PAY TCS FOR 2 LAKHS OR NOT..

    1. CA. SINGLA NISHANT says:

      YES, AFTER EXCEEDING THE LIMIT OF RS. 50 LAC,, SELLER IS REQUIRED TO COLLECT TCS… HENCE IN YOUR CASE TOTAL SALES IN RS. 52 LACS , SO ON RS. 2 LAC TCS WILL APPLIED

      1. Anand says:

        YES, AFTER EXCEEDING THE LIMIT OF RS. 50 LAC,, SELLER IS REQUIRED TO COLLECT TCS… HENCE IN YOUR CASE TOTAL SALES IN RS. 52 LACS , SO ON RS. 2 LAC TCS WILL APPLIED

        This is applicable only after the buyer crosses the threshold of Rs. 50LACS right. Also, how do we include in the Tax Invoice.??? Do we need to insert a line item as TCS @ 0.1% or 1% on tax invoice

      2. Varun says:

        In above scenario 1 and 3
        1.Purchases of Rs.24 lakhs was before 30-9-2020 and 65 lakhs after october and TCS collected on 39 lakhs
        2. Purchases before 30th september is 85 lakhs and from 1st october is 6 lakhs but TCS to be collected is on 41 lakhs or 6 lakhs
        Could you explain?

    1. CA. SINGLA NISHANT says:

      no .. car dealer are not required to collect TCS u/s 206C(1H) as they already statutorily required to collect TCS u/s 206(1F)..it is clearly mentioned in the section 206(1H)

      1. kaustubh says:

        Hi , So if I buy a car after Oct 1 2020, will I not have to pay TCS ? I am planning to buy a car for which Seller has levied ~10k TCS in the quotation. Should I wait till october 1 to get the benefit of this?

        1. CA. SINGLA NISHANT says:

          Car dealers are charging TCS under different section.. and they will continue to charge tcs.. this new prov are related to other than car dealers

  10. Amit says:

    As you mentioned in your above article that in the First year of implementation of this new provision Sale made to buyers up to 30th September 2020 shall not be liable to collect the TCS.
    However in your example no.1 you have considered the sale of 24 lacs and limit of 50 lacs whether has to be seen for full year or for sale made from 1.10.2020.
    In example no.3 also why only turnover of 6 lacs considered why not (85 lacs +6 lacs-50 lacs)=41 lacs.
    whether condition of 50 lacs and after 1.10.2020 sales has to be considered jointly or seperatly

    1. CA. SINGLA NISHANT says:

      limit of Rs. 50 Lac shall be checked from the starting of the FY..hence in the first example total sales is Rs. 89 Lacs, but for the purpose of Value of Rs, 50 Lac sales up to 30th Sep is also counted. It will be more clear to you when you study the 3rd case where sale up to 30th Sep is Rs. 85 Lac and after that it is only 6 Lac, since the limit already crossed Rs. 50 lac up to 30th Sep so on the sale made from 1st OCt seller is liable to collect TCS

  11. viji says:

    1. Sale of goods is already tracked through
    provisions under GST – Eway bill, invoice upload, ITC matching etc, even GST number is PAN linked. When Sufficient provisions already exist under GST A lot of tracking can be done by simply sharing the information from GST website. Adding further compliances for goods is not warranted
    2. Especially this is not the right time when most businesses are already grappling with pandemic, lockdowns, disruptions etc there is no urgency to introduce this provisions without resolving basic issues. The compliance burden is more cumbersome compared to the TCS collection amount
    3. As we increase multiple compliance provisions we are moving away from “ease of doing business” tag.
    4. And if all compliances are thus shifted to business, there is no requirement of such huge staff base in direct & indirect tax departments.

    1. Kumar says:

      Yes, this is a completely regressive and useless tax. Just like TDS. Everybody gets a LTDS certificate and nothing is as per specified rate and time is wasted on useless compliance instead of focusing on productivity.

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