TDS and TCS have been a reliable weapon for the Government over the years serving the varied objectives of preventing tax evasion, widening the tax base and ensuring steady revenue collection for the Government. Thus, over the years, the Government’s clear intention has been to bring as many transactions under the ambit of TDS/TCS as possible. With the same intention of widening and deepening the tax base the Finance Act 2020 has introduced Sec 206C (1H) which reads as follows:
“(1H) 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 lakh rupees as income-tax:
Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent”, the words “one per cent” had been substituted:
Provided further that the provisions of this sub-section shall not apply, 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.
Explanation. —For the purposes of this sub-section, —
(a) “buyer” means a person who purchases any goods, but does not include, —
(A) the 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) a person importing goods into India or 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;
(b) “seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a 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.”
Now let us try and understand this in detail.
The Finance Bill 2020 had intended to make this section effective from 1st April 2020 but the Finance Act 2020 has delayed the applicability to 1st October 2020. Hence, receipts up to 30th Sep 2020 are out of the purview of this section.
As is the case with all TCS transactions, the seller of goods has been entrusted with the responsibility to collect TCS. However, only those sellers, whose gross turnover or receipts from the business for the immediately preceding Financial Year exceeds Rs. 10 Crores shall be liable for the collection of TCS. Such limit shall have to be checked every year.
For Eg. An assessee had a turnover of Rs. 15 Cr during FY 2019-20. Thus, for FY 2020-21 he is liable for the collection of TCS as per the above provisions. Now let us suppose that due to the impact of COVID, his sales drop down to Rs. 9.9 Cr during FY 2020-21. In such a scenario he shall not be liable to collect TCS as per the provisions of this section during FY 2021-22. It is also important to note that the section talks about Sales, Turnover or Receipts from Business. Hence, if the same assessee had also received advances amounting Rs. 20 lakhs during the year, then (assuming no amount was due from Debtors), his total receipts would amount to Rs. 10.1 Cr during FY 2020-21 and thus he would be liable for the collection of TCS at appropriate rates for FY 2021-22.
The Central Government may exempt certain entities from application of this section subject to conditions as may be specified.
TCS is to be collected only from those buyers from whom, sale consideration received during the FY exceeds Rs. 50 lakhs. This condition needs to be evaluated separately for each buyer and the amount needs to be evaluated separately every year. It is important to note here that the trigger point for collection of TCS is receipts and not sales. Hence, in case consideration is received for sales, made over a number of years, TCS shall still be applicable even if the annual sale does not exceed Rs.50 lakhs. Also, CBDT needs to clarify whether receipts against sales made prior to 1st Oct 2020, shall also be subject to TCS. As a prudent measure, the same shall be subjected to TCS, unless a contrary clarification is received. Another thing to note is that this section is applicable on sale of goods only and services have presently been kept out of the ambit of the section.
The Section shall not be applicable in the following cases:
One of the most important distinctions of this section from other TDS/TCS provisions is its applicability solely based on a receipt and not sales. Hence, the amount of receipt post 30th Sep 2020 shall determine the applicability of this section. Only if the seller has received an amount above Rs. 50 lakhs from a buyer on or after 1st Oct 2020, during the same Financial Year, then these provisions shall be attracted. Let us try to understand the same with a few examples.
|Sales before 1st Oct 2020||Sales After 1st Oct 2020||Receipts before 1st Oct 2020||Receipts after 1st Oct 2020||Amount for which TCS applicable for FY 20-21||Reason|
|60,00,000||20,00,000||50,00,000||30,00,000||–||Threshold not crossed post the date of applicability|
|20,00,000||40,00,000||6,00,000||54,00,000||4,00,000||TCS applicable on amount exceeding 50 lakhs|
|70,00,000||–||5,00,000||65,00,000||15,00,000||Trigger is Receipt and not sales.|
|30,00,000||1,00,00,000||1,30,00,000||–||80,00,000||Trigger is Receipt and not sales. (Refer CBDT Circular 17 of 2020)|
|25,00,000||35,00,000||–||30,00,000||–||Threshold not crossed post the date of applicability|
|–||60,00,000||60,00,000||–||10,00,000||Trigger is Receipt and not sales. (Refer CBDT Circular 17 of 2020)|
|60,00,000||–||–||60,00,000||10,00,000||Trigger is Receipt and not sales.|
|PAN / AADHAAR furnished||Up to 31st March 2021||From 1st April 2021|
The general compliances to be undertaken for all TDS/TCS like payment of tax by 7th of every month, filing of quarterly return within 15 days of the end of the quarter and subsequent issue of TCS Form shall apply to these transactions as well.
Inconsistency of 26AS – Due to TCS being deducted on receipt and not sale, there may be a possibility that TCS is collected in a year in which there is no sale-purchase transaction between the parties and hence assessing officers may make enquiries as to why such transaction is not reflected in books. Examples for the above may be where advance is paid in one year and sale is made in subsequent years or payments are made for the sales in a year subsequent to the sale being made.
Segregation of Indirect Taxes – The trigger point for such tax is receipts, hence, businesses need to segregate the indirect taxes to determine the amount on which TCS is to be paid. For Eg. In case a sale of Rs. 60 lakhs (including GST of 9.5 lakhs) is made to a party and Rs. 52 lakhs is received, whether GST of Rs.9.5 lakhs would be reduced from the same or not, also needs to be clarified by the CBDT.
Low Thresholds – The threshold of Rs. 10 Cr for sellers and Rs.50 lakhs for buyers is likely to bring a major number of transactions into the ambit of this section. Considering the current state of the economy, the threshold does not seem adequate.
Working Capital Blockage – There are many businesses which operate on a wafer-thin margin and rely purely on a heavy turnover for profits. E Comm operators, Bullion Traders, etc would fall under the category of buyers who sometimes operate on a net margin of 0.1% or even lower. In such a scenario, TCS may lead to blocking of Working Capital for such dealers.
Cancellation of Sale Agreement – In case advance is paid in anticipation of purchase, TCS would be collected and paid to the Govt on the same, however, subsequently in case such transaction is cancelled owing to commercial or other reasons, whether such TCS may also be reversed or not needs to be clarified by the CBDT.
The utility of such tax – The intent for this tax seems to be deepening and widening of tax base but any trader above Rs.20 lakhs of turnover (above Rs. 40 lakhs in many states) is liable for GST registration and thus such information could have been easily availed from GSTN and a TCS provision for the same is completely unwarranted and would lead to unnecessary compliance burden.
It can be inferred from the above that a major compliance burden awaits the taxpayers and the professionals are going to have an equally hard time coping up with all the due dates and reporting the same transactions, multiple times to different authorities.
(Author can be reached at email@example.com)
What if sales made are under works contract to buyer situated out side India and has no pan in india.
I HAVE ONE PARTY TO WHOM TCS NOT APPLICABLE. BUT IN SALES INVOIVE I HAVE APPLIED TCS BY MISTAKE. WHAT TO TO FOR THAT?
OUR LAST YEAR SALE IS 9,95,00,000/-
DO WE HAVE COLLECT TAX OR NOT
My company is having turnover of less than 10cr. in last financial year, however company has started levying TCS on sales invoice.
Now, what should we do, should we deposit and file TCS refund or should we refund the amount so collected.
I m petrol pump owner,is TCS tax applicable on diesel and petrol,our accountant asking to take the TCS Amount from customer and pay to government
same here, i think TCS is not applicable on petrol
pump & ( their customer’s) because petrol pump’s r retail outlets……
Is TCS applicable for diesel sale
Is it applicable in TCS category in salt tablets sales in our invoice, Please give me reply
We the State Government Department, plane to sell the old machineries through the MSTC,
shall we get exemption from collect 1% TCS from the buyer under 194 O.
Kindly give suggestion.
WHETHER TCS IS APPLICABLE ON SALE OF PHARMACEUTICAL PRODUCE
All wrong calculation of TCS applicable amount
Sales before 1st Oct 2020 Sales After 1st Oct 2020 Receipts before 1st Oct 2020 Receipts after 1st Oct 2020 Amount for which TCS applicable for FY 20-21 Reason
60,00,000 20,00,000 50,00,000 30,00,000 – Threshold not crossed post the date of applicability( Threshhold crossed up to the date of applcability )
20,00,000 40,00,000 6,00,000 54,00,000 4,00,000 TCS applicable on amount exceeding 50 lakhs
70,00,000 – 5,00,000 65,00,000 15,00,000 Trigger is Receipt and not sales.
30,00,000 1,00,00,000 1,30,00,000 – – Trigger is Receipt and not sales.
25,00,000 35,00,000 – 30,00,000 – Threshold not crossed post the date of applicability
– 60,00,000 60,00,000 – – Trigger is Receipt and not sales.
60,00,000 – – 60,00,000 10,00,000 Trigger is Receipt and not sales.
Please confirm pharmaceutical company is also applicable TCS and what % also which period from applicable
Export Sale is exempted. What about SEZ sales.
If it exceeds 50 lakhs whether to collect TCS or not
For the purpose of turnover of 10 crores in previous year only the domestic turnover is to be taken or export turnover will also be added?
Do TCS is applicable on advance amount paid by a buyer.
Sir, hope you and your family are safe and doing well,
I have read full article and got value added inputs and clarity
I am working in frozen foods company wherein based product is potato
Can you pls confirm whether TCS applicability is there for sale of Potato and potato seed to farmer/traders
TCS after deposited will be shown in Income Tax returns OR will be shown in GST return.
Hi Ravi, could you please clarify if this section applies to Contractors who supply materials and also do the installation for the same customer, but the customer will deduct TDS only on Install portion.
For Eg: Project value 1cr, 75lacs is towards Materials and billed in separate invoice and 25lac is towards Installation and billed in separate invoice, customer will deduct TDS to contractor @ 2% for the 25 lacs installation Invoice. should the contractor collect TCS on the Mateirals value @ 0.1% which will cross the threshold.
Am referring to one of the exemption available in this section for applicablity of TCS, where it says this section is not applicable if the customer is deducting TDS under any other section.
Is this applicable on Job Work Sale also?
Thanks for detailed explanation. I have one query – Whether amount received by Contractor towards construction of road as per Sub-contract agreement is subject to TCS more so TDS has been deducted by Deductor while making payment to Contractor in respect of work done…. Also whether construction of road is regarded as sale of goods or sale of services?
Hi Sir, nice explanation, Please confirm whether TCS would be applicable to overall amount or amount exceeding 50lac. Eg, if consideration is 75Lac , tcs on 75 lac or 25lac ?
fy 2020-21 sales to party 90 lakhs.. received rs 45 lakhs in 2020-21 and rs 35 lakhs in 21-22 whether tcs applicable on 30 lacs??
Good afternoon Sir,
i have a confusion that, if i sale goods in September month but amount received in October 2020.
is its cover under new rules….
Thank & regards
TCS on base amount or including GST?
I really appreciate the lucid explanations given by you. I have doubt about if Seller made sales to buyer amount Rs. 75,00,000 made on 10th October 2020 and part payment received on 20th November 2020 amount Rs. 25,00,000. Second Installment Rs. 24,00,000 on 20th December 2020 and third installment Rs. 26,00,000 on 10th January 2020. As per your explanation, trigger point will be receipts i.e. 20th November 2020, but amount does not exceed the threshold limit amount Rs.50 Lacs. How can we comply by TCS rules and recognized the accounting treatment in books of seller?
Whether the customer should consider remittance advise given by customer to confirm if customer has paid TCS or not?
or If a customer pays the amount, do the company need to assume the customer paid TCS 1st and accordingly pay taxes to government.
As TCS is on collection, seller has lot of dependence on buyer to understand the details of remittance.
Sir, if amount received before oct is rs. 50 Lakh and in oct received Rs. 10 Lakh than it would be applicable or not?
Detailed explanation provided in you above article thanks for the same. Need one clarification that Export sale is not covered under TCS provision can you share the any Income Tax Department Notification or Circular no for ready reference,
is there any official notification for applicability….??