TCS on Sales of Goods under Income Tax w.e.f 1st Oct 2020!

Arjun (Fictional Character): Krishna, what is the amendment in applicability of TCS under section 206C of Income tax Act?

Krishna (Fictional Character): Arjuna, an amendment has been made in section 206C (1H) of Income Tax, that if any seller of goods whose turnover exceeds Rs. 10 Cr. in the preceding FY, then he is liable to collect TCS @ 0.1% (0.075% till 31.03.2021), on the sale value exceeding Rs. 50 lakh for each buyer. It is very important to note that TCS is to be paid by seller on receipt basis. Let’s see in detail.

Arjun (Fictional Character): Krishna, what are the peculiar points of TCS on sale of goods under the Income Tax Act?

Krishna (Fictional Character): Arjuna, the major points on which a seller needs to pay keen attention while collecting TCS under section 206 C (1H) are:

1. This section is applicable from 1^st October 2020 onwards. So, sales made on or after 1.10.2020 shall only be liable for TCS. However 50 lakhs threshold limit to be calculated from 1.4.2020. Please note that receipt of outstanding amount as on 30^th September shall not be considered for calculating receipts liable for TCS.

2. If amount received during the FY exceeds Rs. 50 Lakhs from single buyer then amount over and above 50 lakhs will be the value for collection of tax from such buyer. The threshold limit of Rs. 50 lakhs per buyer is to be calculated each year.

3. TCS under this section is to be shown in invoice and payment of TCS to the government is to be made on receipt from the buyer.

4. In case of increase in sale value due to rate difference, etc TCS will also be increased by the applicable rate and vice-versa in case of decrease in sale value due to rate difference, discount, etc TCS which has already been collected, may be reversed.

5. If the buyer does not quote his PAN/AADHAR number to the supplier, TCS will be collected @1%, instead of 0.1% applicable.

6. TCS collected by the seller must be deposited before 7^th of each month, for the preceding month and file quarterly return in Form 27EQ on or before 15^th of the next month after the end of the quarter.

For example, on 3.10.2020, Buyer A purchases goods amounting to Rs. 52,00,000 from Seller B, TCS will be collected of Rs.150 on Rs. 2,00,000 @  0.075% (Rs. 52,00,000 – Rs. 50,00,000). On 5.10.2020 if the same buyer purchases goods of Rs.300000, TCS will be collected Rs. 225 on Rs.300000. On 1.11.2020 the buyer pays Rs.5500375 inclusive of TCS of Rs.375.

Arjun (Fictional Character): Krishna, in which cases TCS shall not be collected?

Krishna (Fictional Character): Arjuna, TCS shall not be collected under section 206 C (1H), if

1. TCS is applicable under any other sub-section, or if TDS is already deductible on it

2. Goods are exported out of India

3. Sale to Central or State government, Local authority, etc

4. Sale to a person importing goods into India or any other person as the Central government may notify.

5. TCS is not applicable on GST amount levied in invoice.

6. TCS is not applicable on services.

Arjun (Fictional Character): Krishna, what are the key takeaways from above?

Krishna (Fictional Character): Arjuna,  now the liability to deposit TCS arises on receipt basis and it becomes a burdensome task, as now every time seller receives the payment from the buyer, he has to remit the TCS to the Government. It seems, the long term view of government may be to reconcile turnover as per GST & turnover as per Income tax on the basis of TCS but lots of hurdles and reconciliations burden will arise on the taxpayer. This is going to be cumbersome exercise for the taxpayers.