All about TCS on sale of Goods [newly inserted Section 206C(1H)] effective from 01.10.2020
Introduction to TCS (Tax collection at source)
Tax Collected at Source (TCS) is the tax payable by a seller which he bills on to the from the buyer at the time of sale and is payable into the Government Treasury on receipt of money from the buyer.
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 similar to indirect taxes. Like an indirect tax, TCS is mentioned on the invoice, collected from the buyer and is payable to Government account by the seller only on collection of money due on the bill.
The concept of TCS is not new in the Income Tax Act. The same has already been levied till now on specified goods like Timber, Tendu leaves, forest produce, scrap, minerals like iron ore etc.
But for FY 2020-21, there have been some new inclusions in the applicability of TCS. Let us now discuss about the provisions of section 206C (1H) which is currently relevant and applies universally to all goods subject to specified conditions.
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. This means it is not applicable to any specified goods but to all 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 (i.e Fin Year 2019-20) is more than Rs.10 Cr. 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 due to the COVID-19 pandemic).
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. (so exports are not covered)
2. If buyer is liable to deduct TDS under Income Tax Act. This is applicable only in specified cases which will be covered separately.
3. If the goods sold are already covered under sub sections (1), (1C), (1F) and (1G)* of section 206C (already covered by existing TCS provisions)
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.
1. 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
2. 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.
In case of software
Software is always a bundled service which can either be considered goods or services depending on various situations. There have been numerous litigations in the past with respect to software. Here too with respect to TCS, there is a confusion because softwares can be either goods or services. Hence the government had clarified that If buyer is liable to deduct TDS under Income Tax Act, no Thus, wherever TDS is applicable, we need not bother to collect TCS. However in other cases Sec 206C(1H) will be applicable.
The central government has clarified that no deduction of tax shall be made on the following specified payment under section 194J of the Act, namely:-
Payment by a person (hereafter referred to as the transferee) for acquisition of software from another person, being a resident, (hereafter referred to as the transferor), where-
(i) the software is acquired in a subsequent transfer and the transferor has transferred the software without any modification,
(ii) tax has been deducted-
(a) under section 194J on payment for any previous transfer of such software; or
(b) under section 195 on payment for any previous transfer of such software from a non-resident, and
(iii) the transferee obtains a declaration from the transferor that the tax has been deducted either under sub-clause (a) or (b) of clause (ii) along with the Permanent Account Number of the transferor.
In the cases detailed above, TDS is not applicable.
In the above cases, second sale of the off the shelf software is deemed to be ‘Goods’ and hence no TDS is applicable. However as per the current Law, TCS shall be applicable.
Disclaimer: This write up is not intended to be a professional advice to anyone, therefore neither the Author nor the Organization he represents accepts any responsibility whatsoever and hence no liability can arise for any losses, claims or due to the contents of this write up. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. The opinion is the personal opinion of the author and the firm P P Jayaraman & Co will not in any way be responsible for any claim etc.