Tax Collected at Source (TCS) is the tax payable by a seller which he collects from the buyer at the time of sale. The rate of TCS is different for goods specified under different categories. Section 206C of the Income Tax Act specifies the categories of goods on which seller has to collect tax from the purchasers. TCS provisions under Income tax Act are akin to indirect taxes. Like indirect tax, TCS is mentioned on the invoice, collected from the buyer and is paid to Govt Account by the seller
Let us now discuss about the provisions of section 206C (1H).
Sub section 1H has been inserted in Section 206C by Finance Act, 2020 for collection of TCS by the seller on sale of ANY GOODS. Though collection of TCS on sale of certain goods is already covered under different sub sections of Section 206C, however all the remaining goods, which are not so covered under other provisions of section 206C, has now been brought under the ambit of TCS by inserting sub section 1H in Section 206C
Effective from 01.10.2020, sub section 1H imposes responsibility of collection of TCS on every person whose total sales, gross receipts or turnover during the preceding financial year is more than Rs.10Cr. Such person is liable to collect TCS @ 0.1% on the amount exceeding Rs.50L during the financial year in respect of sale of goods made to a buyer. However in Non-PAN/Aadhaar cases the TCS rate shall be 1% as against 0.1% mentioned above
Please note that TCS Rate is been reduced to 0.075% for the period from 01.10.2020 to 31.03.2021.
It is important to note that for calculating the threshold of Rs.10 Crore, the total turnover including gross receipts and sales is to be taken into consideration whereas for computing the threshold of Rs.50 Lakhs, only sale of goods is to be considered
Non Applicability of section 206C(1H) in the following cases:
1. If goods are exported from India to any country outside India.
2. If buyer is liable to deduct TDS under Income Tax Act.
3. If the goods sold are already covered under sub sections (1), (1C), (1F) and (1G)* of section 206C
*Inserted via Finance Act, 2020
Now we will discuss about the meaning of various terms used in this sub section:
a) Goods : This term has not been defined in the Income Tax Act and will lead to litigation as there will always be difference of opinion between the person collecting TCS and the tax Authorities.
As per Collins COBUILD – Lexicon dictionary “Goods” are things that are made to be sold
As per Constitution of India, Art. 366(12) “Goods” includes all materials, commodities and articles
As per CGST Act, section 2(52), “Goods” means every kind of movable property other than money & 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.
One will have to be extra cautious in deciding whether a particular item of sale will be considered Goods or not
b. Time of Collection Of TCS : The law envisages that the seller shall collect from the buyer a sum equals to 0.1% of the sales consideration at the time of receipt of such amount. That means the liability to collect TCS will arise even in case of advance payment received though the goods will be physically delivered at a later date
c. Buyer : means a person who purchases any goods but does not include:
♦ Central Government, State Government, an embassy, a High commission, legislation, commission, consulate and the trade representation of a foreign state; or
♦ A local authority as defined in the explanation to clause(20) of section 10; or
♦ Any other person as Central Government may, by notification in the official gazette, specify for this purpose, subject to such conditions as may be specified therein.