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Vide Finance Act, 2020, a new TCS provision was introduced with the insertion of sub-section (1H) to section 206C of the Income Tax Act, 1961. The said provision deals with TCS collection on the sale of goods.

The present article briefly provides an analysis of the provisions of TCS on the Sale of Goods; understanding of important terms like ‘buyer’ and ‘seller’; applicability and non-applicability of provisions of TCS on the Sale of Goods; important relevant clarification issued by the board and Frequently Asked Questions (FAQs).

Analysis of provisions of TCS on Sale of Goods [Section 206C(1H)]

A simplified analysis of provisions of TCS applicable on the Sale of Goods covered under section 206C(1H) of the Income Tax Act is briefed hereunder –

  • Circumstances when the TCS on Sale of Goods is to be collected –
    • Seller of goods who receives any amount as consideration for the sale of any goods of the value/ aggregate value exceeding INR 50 Lakhs in any previous year;
    • Such sale of goods doesn’t include –
      • Goods being exported out of India;
      • Goods covered under section 206C(1) i.e. goods like alcoholic liquor for human consumption, tendu leaves, timber, any other forest produce, scrap, etc.
      • Goods covered under section 206C(1F) i.e. motor vehicles;
      • Goods covered under section 206C(1G) i.e. foreign remittance.
  • Rate of TCS on Sale of Goods –

Particulars

Rate of TCS on Sale of Goods
When the PAN/ Aadhaar number of the buyer is provided to the seller 0.1% of the sale consideration exceeding INR 50 Lakhs
When the PAN/ Aadhaar number of the buyer is not provided to the seller 1% of the sale consideration exceeding INR 50 Lakhs
  • Time of TCS collection –

TCS on the Sale of Goods is to be collected by the seller at the time of receipt of the amount from the buyer.

Notably, the provisions of section 206C(1H) of the Income Tax Act are made effective from 1st October 2020.

TCS on Sale of Goods

Understanding important terms related to TCS

From the above analysis, it is important to note that the terms ‘buyer’ and ‘seller’ shouldn’t be interpreted in the common parlance. The terms are specifically defined under Explanation (a) and Explanation (b) to section 206C(1H) of the Income Tax Act.

Accordingly, ‘buyer’ as defined under Explanation (a) to section 206C(1H) of the Income Tax Act means a person who purchases any goods. However, the term ‘buyer’ doesn’t include the following specified categories of person –

  • The Central Government;
  • A State Government;
  • An embassy, a High Commission, legation, consulate, commission, and the trade representation of a foreign State;
  • A local authority;
  • A person importing goods into India; or
  • Any other notified person.

Coming to the term ‘Seller’ as defined under Explanation (b) to section 206C(1H) of the Income Tax Act. ‘Seller’ means a person whose total sales/ gross receipts/ turnover from the business carried on by him exceeds INR 10 Crores during the immediately preceding Financial Year in which the sale is carried out.

Notably, the term ‘seller’ doesn’t include Central Government and any other notified person.

Applicability and non-applicability of provisions of TCS on the Sale of Goods

Applicability of provisions of TCS on Sale of Goods –

TCS on Sale of Goods provisions are applicable when the following conditions are satisfied –

Condition 1 – Seller is engaged in the sale of any goods other than export goods; alcoholic liquor; tendu leaves; timber; scrap; motor vehicles; foreign remittance; etc.

Condition 2 – Total sales/ gross receipts/ turnover from the business of the seller should exceed INR 10 Crores in the immediately preceding Financial Year;

Condition 3 – Value/ aggregate value of sale consideration for goods received from the buyer is more than INR 50 Lakhs.

Non-applicability of provisions of TCS on the Sale of Goods –

TCS on Sale of Goods provisions covered under section 206C(1H) of the Income Tax Act are not applicable under the following circumstances –

1. Total sales/ gross receipts/ turnover from the business of the seller is less than INR 10 Crores in the immediately preceding Financial Year;

2. Value/ aggregate value of sale consideration received from the buyer is less than INR 50 Lakhs;

3. Export of goods out of India;

4. Sale/ supply of services;

5. Sale of goods to Government and local authority; etc.

Important clarification relating to TCS on the Sale of Goods

Post implementation of TCS on the Sale of Goods effective from 1st October 2020, various representations were done before the Central Board of Direct Taxes for the removal of certain difficulties. Accordingly, circular no. 17 of 2020 dated 29th September 2020 was issued clarifying various positions. Important clarifications thereof are highlighted hereunder –

1. Applicability of provisions of section 206C(1H) on a transaction carried out via various Exchanges –

It is clarified that provisions of section 206C(1H) shall not apply to –

    • Transactions in securities/ commodities which are traded via recognized stock exchanges; or
    • Transactions in securities/ commodities which are cleared/ settled by recognized clearing operation; or
    • Transactions in electricity, renewable energy saving certificates and energy certificates traded via power exchange.

2. Applicability of provisions of section 206C(1H) on sale of motor vehicle –

    • Receipt of sale consideration from the dealer will be subjected to TCS under section 206C(1H) of the Income Tax Act provided TCS is not collected under section 206C(1F) of the Income Tax Act.
    • Receipt of sale consideration in case of sale to customer –

Particulars

Applicability
Sale of motor vehicles of the value of INR 10 Lakhs or less to buyer TCS provisions under section 206C(1H) will be applicable if the receipt of the sale consideration for such vehicles exceeds INR 50 Lakhs during the previous year.
Sale of motor vehicles of the value exceeding INR 10 Lakhs TCS provisions under section 206C(1H) will not be applicable if the sales are subjected to TCS under provisions of section 206C(1F).

3. Adjustment towards discount, sales return or indirect taxes –

It is clarified that as TCS on Sales of goods is collected on the receipt of the amount of sale consideration, no adjustment with regard to any discount, sales return or indirect taxes (including GST) is to be made.

4. Applicability of provisions of section 206C(1H) in case of fuel supplied to non-resident airlines –

It is clarified that TCS provisions of section 206C(1H) of the Income Tax Act will not be applicable in case of sale consideration received for fuel supplied to non-resident airlines at the airport in India.

Frequently Asked Questions (FAQs) relating to TCS on Sale of Goods

Some of the important FAQs relating to provisions covered under section 206C(1H) of the Income Tax Act are highlighted hereunder –

1. Who is required to collect TCS on sale of goods?

The seller of the goods who receives any amount as consideration for the sale of any goods of the value exceeding INR 50 Lakhs is required to collect TCS on the sale of goods under section 206C(1H) of the Income Tax Act from the buyer.

2. On which amount TCS is applicable?

TCS under section 206C(1H) is applicable on total sale consideration as reduced by the threshold limit of INR 50 Lakhs [i.e. Total Sale Consideration – INR 50 Lakhs].

3. What is the section of TCS on sale of goods?

The relevant section of TCS on the sale of goods is section 206C sub-section (1H) of the Income Tax Act.

4. Is TCS applicable on the sale of goods?

Yes, TCS is applicable on the sale of goods under provisions of section 206C(1H) with effect from 1st October 2020.

5. Who is eligible for TCS on sale of goods?

TCS on the sale of goods is eligible to every seller of the goods who receives any amount as consideration for the sale of any goods of the value exceeding INR 50 Lakhs.

6. What is the new TCS rule?

The new TCS rule is introduced vide the Finance Act 2020 with the insertion of sub-section (1H) to section 206C. Accordingly, the seller of the goods who receives any amount as consideration for the sale of any goods of the value exceeding INR 50 Lakhs is required to collect TCS @ 0.1%.

7. When should TCS be deducted?

TCS is to be collected by the seller of the goods at the time of receipt of the amount from the buyer.

8. How do you record TCS on sale of goods?

Recording of TCS on sale of goods can be done by various ways depending upon the transaction. However, one of the ways is highlighted hereunder –

Buyer’s A/c. Dr.

          To Sales A/c

          To IGST A/c

          To TCS on Sale of goods A/c

9. Is TCS collected on the GST amount?

Yes, TCS under section 206C(1H) on the sale of goods is also to be collected on the GST amount.

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11 Comments

  1. Gaurav Agarwal says:

    I have registered a new company in October 2023 and till now December 2023 i cross my turnover 4.5 Crore . Please clear is i am eligible for E invoice,TDS deductible on goods purchase and TCS on sale of goods.

  2. Sandeep soalnki says:

    turn over exceed 10 crore in f y 2022- 23 and party balance 1 crore credit now financial year 2023-24 in july that party sale bill cross 50 lakh than when should I deduct tds

  3. sanjay mangal says:

    sir if my turnover cy cross 50 lakhs in august month then next bill amt TCS deduction of current bill amount or including 50 lakhs + current bill amt.

  4. neeraj kumar says:

    hello sir,
    plzz suggest me
    kissi party se prev. FY(2022-23) m sale 50lakh se above tha. Mera TurnOver 10Cr se above hai
    kya hum iss FY (2023-24)m 1st bill per TCS Deduct kr le Yaa uske saath 50Lakh kaa limit aane ka wait kre
    Reply it Sir,

    1. babu lal nyati says:

      hello sir, plzz suggest me kissi party se prev. FY(2022-23) m sale 50lakh se above tha. Mera TurnOver 10Cr se above hai kya hum iss FY (2023-24)m 1st bill per TCS Deduct kare Yaa uske saath 50Lakh kaa limit aane ka wait kre Reply it Sir

  5. varun says:

    Hi, what if the seller is not grossed 10 cr, Turn over in last 3 yrs, and did business for 50 lakhs to 3.5 cr will he be eligible to collect TCS.,
    – what if the seller is not aware abt this TCS, and – — buyer can pay the TCS for exporting goods out of india. if so what is the limit. 50 lakh or more?

  6. Tahir says:

    Hi,

    Our turnover crossed INR 10 Cr In the current financial year (22-23). when we need to start collecting TCS from Apr-23 Onwards Or From Now ?

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