It’s been almost four months for the implementation of Section 206C (1H), but still, a lot of confusions are there in the mind of taxpayers. Here, an effort has been made to share my knowledge with all of you which could help to clear the mist of confusions.
Q.1 When the TCS should be collected from customer?
Ans. Regarding timing of TCS collection, normally two opinions are given by people. One opinion say that TCS should be charged at the time of creating sale invoice, second opinion advise for collecting it at the time of receipt of payment. Let us see what Section 206C (1H) says about it. The said section use the phrase ‘at the time of receipt of such amount’ for timing of TCS Collection. After reading this, it is clear that first option of collecting TCS at the time of sale invoicing is not acceptable in law. Now, we discuss about second option. It is in accordance with the law that TCS should be collected at the time of receipt of sale consideration. But the question arises – Is it practically possible? These days almost all payments are received through banking channel and at that time, TCS collection is not possible. So technically, TCS is possible to be collected after receiving sale consideration, not at the time of receipt of sale consideration.
Q.2 How the customer should be debited for TCS amount – by issuing debit note or by passing accounting entry in customer ledger?
Ans. It is advisable to issue a debit note for debiting customer for TCS amount. If it is not possible in any case, an accounting entry can also be passed for it and a stamped & signed copy of that accounting voucher can be provided to customer for accounting purpose.
Q.3 Whether TCS should be collected on amount received from customer as TCS of earlier payments?
Ans. Section 206C (1H) says for ‘0.1 per cent of the sale consideration exceeding fifty lakh rupees’ to be collected as TCS. It is clear that TCS is to be collected on sale consideration and not on receipt of earlier charged TCS.
Q.4 Is TCS required to be collected on receipt of GST element alongwith with value of goods?
Ans. As per clarification given in Para 4.6.1 of Circular No.17 of 2020 dated 29.09.2020, no adjustment is to be made on account of GST for collection of TCS. So, TCS is to be collected on receipt of GST element also alongwith value of goods.
Q.5 Whether Section 206C (1H) is applicable on sale of services?
Ans. The expression used in Section 206C (1H) is ‘any amount as consideration for sale of any goods’. The word ‘goods’ is mentioned clearly and nothing has been mentioned about services in it. So, it is not applicable on sale of services.
Q.6 What is the limit of turnover for checking applicability of TCS on sale of goods? If a taxpayer is involved in supply of both goods and services, whether turnover related to services is included for checking threshold limit?
Ans. The threshold limit of turnover mentioned in relevant section is ten crore rupees. Relevant section comprises of words ‘total sales, gross receipts or turnover from the business carried on by him’ which indicates the inclusion of all types of turnover, either from goods or from services, for checking threshold limit.
Q.7 Is TCS a financial burden for buyer?
Ans. TCS is not a financial burden for buyer in the long run as this is nothing but a type of advance tax which can be set-off against tax liability at the time of filing Income Tax Return. But for some time, it leads to blockage of funds which affects working capital in the business.
Q.8 Whether book adjustments are liable for TCS u/s 206C (1H)?
Ans. Book adjustments should also be considered as sale consideration for the purpose of said section.
Q.9 What if turnover is less than 10 crore in last financial year, but exceed 10 crore during current financial year?
Ans. As per Section 206C (1H), that person becomes liable for TCS collection 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 is carried out. This section talks about turnover of financial year immediately preceding the financial year in which the sale of goods is carried out. So, as per my opinion, if turnover of last financial year is less than 10 crores, TCS is not applicable. And if the current financial year turnover crosses the limit of 10 crore rupees, it will create the TCS liability for next financial year.
Q.10 TCS is applicable on sale consideration received from a single customer in excess of 50 lakh rupees in a financial year. If payment from a customer crosses 50 lacs and attracts TCS in any financial year, whether the very first payment of that customer in next financial year will attract TCS?
Ans. Section 206C (1H) 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…..”. The limit of 50 Lakh should be crossed in a financial year for attracting TCS liability. Last year payments cannot become the criteria for collecting TCS on current year payments.
Q.11 Whether TCS is applicable on advance received?
Ans. Relevant section is related to receiving of sale consideration, whether it is received before sale, at the time of sale or after sale. So, if any advance is received against a sale to be taken place in future, it will attract the provisions of Section 206C (1H) subject to fulfilment of other conditions.