Amidst various changes brought about in the Finance Bill, 2020, introduction of Section 206C(1H) is a welcome step to curb and track usage of unaccounted money. The Section requires the seller to collect tax at source on sale of certain goods, details of which shall act as data centres for the Government to track high value transactions and create audit trail of buyers procuring goods without disclosure in their books of accounts. Kindly note provision of Section Section 206C(1H) are applicable from 01.10.2020 as provided in Finance Act, 2020.
2. Provision of the Act:
New sub-section (1H) under Section 206C is duplicated below:
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, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F)or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent. of the sale consideration exceeding fifty lakhrupees as income-tax:
The sub-section prescribes that if a seller (being a person, whose turnover in the previous financial year exceeds 10 Crores) makes sale of “goods” whose value, either individually or in aggregate exceeds 50 Lakhs, the seller shall collect tax at source at 0.1% on the value of sale consideration exceeding 50 Lakhs from the buyer.
Levy shall be on “all” goods except those explicitly prescribed under sub section 1, 1F & 1G (on which separate rates have been prescribed) under Section 206C. In case the buyer does not furnish their PAN / AADHAR number to the seller, TCS shall be levied at 1% on the sale consideration.
Goods covered under relevant sections for tax collection at source are given below:
|Section||Items covered under TCS|
|206C (1)||a. Alcoholic Liquor for human consumption
c. Timber obtained under a forest lease
d.Timber obtained by any mode other than under a forest lease
e. Any other forest produce not being timber or tendu leaves
g. Minerals, being coal or lignite or iron ore
|206C (1F)||a. Motor vehicle (if value exceeds 10 Lakhs)|
|206C (1G) *||a. Sum of money (above 7 Lakhs) for remittance out of India
b. Seller of an overseas tour program package
* Inserted vide Finance Bill 2020
The person responsible for collecting tax shall deposit the TCS amount within 7 days from the last day of the month in which the tax was collected.
Every tax collector shall submit quarterly TCS return i.e., Form 27EQ in respect of the tax collected by him in a particular quarter.
3. Threshold limit for levy:
The section states that tax shall be collected on the consideration value exceeding 50 Lakhs only, which means that there is an exemption limit of up to 50 Lakhs (individually or in aggregate on sales during any financial year). Export of goods is not covered under TCS on sale of goods
4. Relevant definitions to the sub-section:
a. Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
b. A local authority as defined in the Explanation to clause (20) of section 10; or
c. Any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
5. Exception to the sub-section:
Proviso to the sub-section states that the provisions shall not be applicable “if the buyer is liable to deduct tax at source under any other provision of this Act and has deducted such amount”.
On plain reading of the proviso, it may be inferred that if the buyer is required to deduct tax source on any of his other transactions (e.g. 194C / 194H) as per business requirements, the seller need not collect tax at source on sales to those specified buyers. However, procedural aspects pertaining to the manner of intimation to the seller have not been provided in the sub-section. Hence, until further procedures are laid by the department, sellers may obtain a self-declaration from their buyers based on which tax need not be collected at the time of making sales.
However, a contrary view may be taken to suggest that the above interpretation may not be in the spirit of the law or the law-maker, since many transactions would be left uncovered given the turnover limit is only 1 Crore for applicability of TDS provisions.
6. On what value shall TCS be levied?
Section 206C (1) of Income Tax Act stated that tax shall be collected on the “value being debited as payable by the buyer to the seller.
Section 15(2)(a) of the CGST Act 2017 states that GST shall be levied on the value of supply including “any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier”.
On combined reading of the above two definitions, it can be interpreted that both the taxes required levy on the value of supply of goods / services along with the other levies.
Thus, until very long, there was confusion as to what would be the amount on which TCS or GST would be levied since both laws required collection on the sum of the value of supply of goods / services and all other levies against the supply.
This in turn led to divergent practices being adopted across the industry wherein either of the below methodologies were followed:
1. GST being collected on the sum of the value of supply and TCS;
2. TCS being collected on the sum of the value of supply and GST.
Subsequently, vide Corrigendum to Circular 76, CGST, dated 7th March’19 it was clarified that GST would not be required to be collected on the value of TCS.
The above provisions shall apply with effect from 01.10.2020. However, there may be divergent practices being adopted given the two views highlighted in the Para 5 – proviso to the sub-section.