​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.

As per NOTIFICATION NO. 21/2012 [F.No.142/10/2012-SO(TPL)] S.O. 1323(E), DATED 13-6-2012,

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.

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Company: PP JAYARAMAN & CO
Location: THANE, Maharashtra, IN
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The author, Aravind Jayaraman is a Chartered Accountant in Practice based in Thane, Maharashtra. View Full Profile

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24 Comments

  1. B SIVA SANKARA BABU says:

    Sir,
    We are running Whole sale and retail medicals. For bulk sale we can do TCS. But what about retail sales making at counter.

  2. GANESH KUPPAST says:

    Dear Sir/Madam,

    This query related to TCS on hospital bill, whether hospital can do TCS on patients bills, if its turnover is More than 10 crores for previous year ,

  3. GAJANAN PATIL says:

    query:- if we are sale to one party and this party has more that 3 units in same state. one unit cross 50lack and other are not cross 50 lack then we charge saperate unit TCS as per law or all unit sale turnevore together for TCS calulatoin

  4. PAVITHRA says:

    we purchase goods from firms and we will sold to other company. if they impose tcs to us,, and we will impose tcs from our buyer,, then should we pay tax to govt as tcs less tds?

    1. CA Aravind Jayaraman says:

      Query: we purchase goods from firms and we will sold to other company. if they impose tcs to us,, and we will impose tcs from our buyer,, then should we pay tax to govt as tcs less tds?

      Clarification: I think you mean to ask whether we can take set off of TCS like we do in GST and pay net tax to govt.
      But. under Incomr Tax Act, the process is not so. When someone charges TCS from you, you will get the credit of the same in Form 26AS which you can avail at the year end after filing the return.
      Whatever you charge from your buyers, you will need to charge TCS on it separately and pay to the government whatever u have charged from ur buyers.

    1. CA Aravind Jayaraman says:

      Query: Should TCS be taken as cost or will be get a set off of it ?

      Clarification: No. Set off of TCS against tax payable is always available to the purchaser. It will be reflected in Form 26AS of the purchaser. Since set off of TCS charged is available, there is no reason to charge it to cost.

    1. CA Aravind Jayaraman says:

      Query: We make chemical for paints coating…..are we liable to pay TCS…….

      Clarification: Yes, since you are not covered by any of the earlier TCS provisions, you are liable to TCS under the Novel Section 206C (1H) if you exceed the limits of turnover specified as above.

      Hope this clarifies

  5. RAJESH PRASAD says:

    Sir, on which value tcs is to be charged if sale value already crossed 50 lacs before 30th september. I means suppose i have sold goods worth rupees 100 lacs before 30 september and from 01/10/2020 on which should i charge tcs , either on sale values starting from 01.10.2020 or on all sale values exceeding rs. 50 lacs effected till 30/09/2020

    1. CA Aravind Jayaraman says:

      Query: Sir, on which value tcs is to be charged if sale value already crossed 50 lacs before 30th september. I means suppose i have sold goods worth rupees 100 lacs before 30 september and from 01/10/2020 on which should i charge tcs , either on sale values starting from 01.10.2020 or on all sale values exceeding rs. 50 lacs effected till 30/09/2020

      Clarification: TCS has to be charged on amount exceeding Rs. 50Lakhs after 1st oct. So before first Oct, if the value of goods sold has already exceeded Rs. 50 Lakhs, then in that case, TCS to be charged from Rs. 1 after 1st oct, but amount till 1st oct can be ignored.
      But if suppose Rs. 30 lakhs has been the sale value till 1st Oct, then in that case, u can ignore the first Rs. 20 Lkahs billing from 1st oct and over and above that (as soon as turnover exceeds Rs. 50 Lacs), u need to charge TCS
      Hope this clarifies

  6. Madhusudan Mishra says:

    is this provision applicable , If we sale Material to Manufacturer . Earlier TCS on Sale of Scrap & Mineral Product was not applicable to Manufacturer (Form27C issued as proof of manufacturing) . It is applicable only to sold for Trading Purpose. Please reply

    1. CA Aravind Jayaraman says:

      Query: is this provision applicable , If we sale Material to Manufacturer . Earlier TCS on Sale of Scrap & Mineral Product was not applicable to Manufacturer (Form27C issued as proof of manufacturing) . It is applicable only to sold for Trading Purpose. Please reply

      Clarification: There is no such exemption for a manufacturer specified anywhere in the section.

      As far as scrap is concerned, as specified above, it is already covered under Sec 206(C)(1) and hence it will not be covered by Sec 206 (C)(1H).

      For scrap, you need to refer Section 206C(1). But for any other goods not covered by other TCS sections, the novel Sec 206(C)(1H) will apply and there is no exemption for a manufacturer in that.

      Hope this clarifies

    1. CA Aravind Jayaraman says:

      Query: whether TCS will be deducted on basic amount recieved or the total aggregate amount recieved from buyer ?

      Clarification: I think what you are asking is whether TCS is to be charged on the amount excluding GST or including GST. In this matter, the government has not provided any clarification. So we can take two interpretations

      1. Going by pure logic, TCS should be charged on amount excluding GST as the case is with all tax deduction provisions. Practically, you can definitely take this view. It is however debatable and can result in litigations.

      2. Taking a conservative view, you can charge TCS on the total invoice value including GST also. By this, you can be safe and avoid any sort of litigation. As the rate of TCS is only 0.1% (0.075% during COVID-19 pandemic period upto March 2021), no buyer should have so much problem with their cashflows.

  7. caaravindj777 says:

    Query>>
    Will TCS provisions be applicable in case of
    1. Sale of immovable property held as stock in trade
    2. Sale of immovable property held as capital asset

    Clarification>> As per Second proviso to Sec 206(C)(1H), if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount, TCS under Sec 206(C)(1H) will not be applicable.

    In both the above mentioned cases, the buyer is liable to deduct TDS under Sec 194 IA and hence TCS will not be applicable.

  8. Inder Chand Jain says:

    Will TCS provisions be applicable in case of
    1. Sale of immovable property held as stock in trade
    2. Sale of immovable property held as capital asset

    1. caaravindj777 says:

      Clarification>> As per Second proviso to Sec 206(C)(1H), if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount, TCS under Sec 206(C)(1H) will not be applicable.

      In both the above mentioned cases, the buyer is liable to deduct TDS under Sec 194 IA and hence TCS will not be applicable.

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