Analysis of Section 206C (1H) of Income Tax Act, 1961

1. Finance Act 2020 has introduced sub-section (1H) in 206C of Income Tax Act, 1961.

2. Vide the above sub-section, TCS is required to be collected @0.1% (0.075% upto 31st March 2021) at the time of receipt of sale consideration (in relation to sale of goods) by the seller of Goods. Sale consideration includes indirect taxes such as GST, VAT, Excise, etc.  TCS is required to be collected by the seller @5% of the sale consideration if PAN is not furnished to seller.

3. Applicability of TCS on Sale of Goods:

i. It is applicable only to those sellers whose total sales, gross receipts or turnover exceeds 10 crores in the previous financial year. Example: It is applicable in FY 2020-21 if the turnover exceeds 10 crores rupees in FY 2019-20. AND 

ii. Seller has received consideration in relation to sale of goods from customer exceeding INR 50 Lakhs during the financial year. Such value of 50 lakhs includes indirect taxes such as GST, VAT, Excise, etc.

Total sales, gross receipts or turnover is not defined in Income Tax Act, however, indirect taxes should not be the part of turnover if it is not included in turnover at the time of accounting (exclusive method).

4. TCS is not required to be collected by seller if buyer is liable to deduct TDS under any other provision of this act on the goods purchased by him from the seller and has deducted such amount. TDS (Income tax act) is not applicable in case of goods.

5. Clarification on applicability of TCS in FY 2020-21 by quoting few examples:

Cases Previous Year Turnover Customer A Remarks

 

Sales made on or before 30th Sep. 2020 Consideration received on or before 30th Sep. 2020 Sales made on or after 1st October 2020 Consideration received on or after 1st October 2020
I More than 10 crores 60 lakhs 48 lakhs 12 lakhs TCS is required to be collected on 10 lakhs only
II More than 10 crores 60 lakhs 72 lakhs 12 lakhs TCS is not required to be collected
III More than 10 crores 40 lakhs 72 lakhs 32 lakhs TCS is not required to be collected
IV More than 10 crores 60 lakhs 55 lakhs 5 lakhs TCS is required to be collected on 5 lakhs only
V More than 10 crores 60 lakhs 48 lakhs 60 lakhs 72 lakhs TCS is required to be collected on 70 lakhs only
VI More than 10 crores 60 lakhs 72 lakhs 60 lakhs 48 lakhs TCS is required to be collected on 48 lakhs only
VII More than 10 crores 40 lakhs 72 lakhs 60 lakhs 28 lakhs TCS is required to be collected on 28 lakhs only
VIII More than 10 crores 60 lakhs 55 lakhs 60 lakhs 65 lakhs TCS is required to be collected on 65 lakhs only
IX Less than 10 Crores Any turnover Any receipts Any turnover Any receipts TCS not applicable
X 10 crores Any turnover Any receipts Any turnover Any receipts TCS not applicable

6. No adjustment is required to be made for sale return, discount or indirect taxes. It means taxpayer is not required to deduct value of sale return or discount at the time of collection of TCS.

7. Taxpayer can adjust such TCS against his income tax liability by filing return of income or claim refund in case there income tax liability is less than TCS.

8. Non Applicability:

a. Sellers whose turnover doesn’t exceed 10 crores in the previous financial year.

b. Goods exported out of India

c. Goods (alcoholic liquor for human consumption, tendu leaves, timber obtained under a forest lease, timber obtained by any mode other than under a forest lease, any other forest produce not being timber or tendu leaves, scrap from the manufacture or mechanical working of materials and minerals being coal or lignite or iron ore

d. Sale of Motor vehicle to consumers if sales consideration exceeds 10 lakhs. It means TCS provisions is applicable to dealers/other consumers (value less than 10 lakhs or equal to 10 lakhs) of motor vehicles subject to fulfilment of other conditions.

e. Seller of an overseas tour program package even if they charge any consideration for sale of goods exceeding 50 lakhs (generally, they don’t sell goods)

f. Buyer is Central/State Governments, an embassy, a High commission, legation, commission, consulate and the trade representative of a foreign state, a local authority

g. Imported Goods

h. Not applicable in case of securities/commodities traded through recognised stock exchange or cleared and settled by recognized clearing corporations

i. Transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchange registered in accordance with Regulation 21 of CERC.

j. Fuel supplied to non-resident airlines at airports in India

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