After the introduction of GST, number of cases were noticed that some suppliers do not file the returns even though they have not opted for composition scheme or below threshold limit. They do not upload their transactions in the form of GSTR-1 and do not pay the tax thereon, full or partly and there was a heavy mismatch, which has evidence of tax evasion not only for the GST but also may be for Income Tax. Therefore, the provision was inserted in the Finance Act 2020 to levy TCS and therefore, Section 206C was amended by inserting Clause (1H), which read 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.

The said section will come into the effect from 1st October 2020. Therefore, receipts upto 30th Sept 2020 are not covered under the TCS but any receipt more than Rs. 50 Lacs received after 1st October 2020 will attract TCS.

We will like to give below the “Frequently Asked Questions”, which will be very important to appreciate the concept of TCS on Sale of Goods as well as required to change the existing practice for complying the law.

Q. Whether TCS provisions were applicable earlier?

Ans. Yes. TCS provisions were well applicable earlier also for the followings:

Section 206c (1)

(i) Alcoholic Liquor for human consumption One per cent
(ii) Tendu leaves Five per cent
(iii) Timber obtained under a forest lease Two and one-half per cent
(iv) Timber obtained by any mode other Two and one-half per cent than under a forest lease
(v) Any other forest produce not being Two and one-half per cent timber or tendu leaves
(vi) Scrap One per cent
(vii) Minerals, being coal or lignite or iron ore One per cent:

Similarly, TCS is collected on sale of cars as well as immovable property.

Q. Whether TCS is applicable on Sale of goods?

Ans.  Yes. It is applicable w.e.f. 1st October 2020 on the receipt basis.

Q. Who is supposed to collect TCS under section 206C (1H)?

Ans.  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.

The Central Government may exempt certain entities from application of this section subject to conditions as may be specified.

Q. When is section 206C (1H) not applicable?

Ans.  The Section shall not be applicable in the following cases:

  • If Gross Turnover/Sales/Receipts of the assessee, during immediately preceding FY is less than Rs.10 Crores.
  • If the sale consideration received from the buyer is less than Rs. 50 lakhs.
  • In case of any Import into India or Export from India.
  • In case the sale is made to the Central Government, a State Government, an Embassy, a High Commission, legation, commission, consulate or any trade representation of a foreign State OR a local authority or such other person as may be specified.
  • In case the transaction is covered by TDS under any other section.
  • In case goods being sold are covered by
    • Sec 206C (1) which covers – alcoholic liquor, tendu leaves, timber, forest produce other than timber and tendu leaves, scrap, minerals like coal or iron ore OR
    • Sec 206C(1F) which covers – motor vehicles exceeding Rs. 10 lakhs in value OR
    • Sec 206(1G) wherein remittance is being made outside India and TCS is being collected by Authorised Dealer for the same
  • Transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by clearing corporations including recognized stock exchanges or recognized clearing corporations located in International Financial Service Centre.
  • Transaction in electricity, Renewal Energy Certificate and Energy Saving Certificate traded through power exchanges registered in accordance with Regulation 21 of the CERC.
  • Applicability on payment gateway and TDS is deducted by E-Commerce operator under Section 194(O). No TDS will be required under TCS on sale of goods.
  • Receipt by Insurance Agent on which TDS is deducted under Section 194(O).
  • Fuel supplied to non-resident air lines at Air Ports in India.

Q. From whom such TCS is to be collected?

Ans. 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.

Q. What is the rate at which TCS is to be collected?

Ans.

PAN / AADHAAR furnished Up to 31st March 2021 From 1st April 2021
YES 0.075% 0.1%
NO 0.75% 1%

Q. What is the meaning of Buyer and what is the meaning of Seller?

Ans.

A Buyer
Means any person who purchase 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
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
B Seller means
whose total sales, gross receipts or turnover exceeds 10 Crore during the financial year immediately preceding the financial year in which the sale of goods is carried out

Q. Whether GST can be charged on tax invoice issued under GST Act?

Ans.  Yes. Since, seller is responsible to collect the TCS on consideration received by him on receipt basis, Seller needs to be charged on the invoice then only it will be recovered. Alternatively, after payment of TCS on the due date, separate invoice / debit note for TCS also can be raised. However, on the receipt of TCS no further TCS is required to be paid.

Q. On which amount TCS to be collected, whether before GST or after GST?

Ans. It has been clarified by the CBDT Circular No. 17/2020 dtd. 29-09-2020 that, no adjustment on account of sales return, discount on indirect tax including GST is required to be made for collection of tax, since collection is made w.r.t. receipt of amount of sales consideration.

Q. What are the Compliances?

Ans. 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.

TCS Certificate:

When the tax collector files his quarterly TCS Returns in Form 27EQ, he has to provide a certificate of TCS to the buyer within 15 days of the date of filing.

Form 27D is the certificate issued for filing of TCS Returns. It comprises of the following details:

  • Name of the Seller and Buyer
  • TAN of the seller
  • PAN of both seller and buyer
  • Total tax collected by the seller
  • Date of collection
  • The rate of Tax applied
Quarter Ending The date for generating Form 27D
For the quarter ending on 30th June 30th July
For the quarter ending on 30th September 30th October
For the quarter ending on 31st December 30th January
For the quarter ending on 31st March 30th May

Q. Kindly provide illustrative examples.

Receipt Basis

Ans.

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 Issues to be addressed
 6000000  2000000  5000000  3000000  – Threshold not crossed post the date of applicability Invoice to be raised with TCS
TCS will also be applicable on amount that will be received after 01.10.20 pertaining to previous supplies but whose receipts crossed 50 Lacs and no TCS was charged on invoice
 2000000  4000000  600000  5400000  40,000 TCS applicable on amount exceeding 50 lakhs
 7000000  –  500000  6500000  1500000 Trigger is Receipt and not sales.
 3000000  10000,000  13000000  –  – Trigger is Receipt and not sales.
 2500000  3500000  –  3000000  – Threshold not crossed post the date of appl-icability
6000000 6000000 Trigger is Receipt and not sales.
6000000 6000000 1000000 Trigger is Receipt and not sales.

Q. Some other issues, which needs to clarification from CBDT.

Ans.  

Sr Issues Ans
1 Sale made prior to 01.10.20 and receipt after 01.10.20 having value exceeding 50 Lacs. Whether TCS will be applicable Yes
2 TCS to be charged on Invoice at the time of sale or to be collected on receipt of consideration To be levied on invoice and paid to revenue once it is received from customer
3 If TCS to be charged on invoice whether to be charged on Basic value only or Basic + GST On Basic + GST
4 If not charged on invoice and to be collected on receipt basis then in such case whether to issue separate invoice / Debit note for TCS only Individual Invoice or subsequent debit note after the month
5 Whether TCS is payable on advance received for supply of goods Yes
6 Treatment of advance received is to be returned on account of cancellation of contract Advance to be paid after adjustment of TCS paid to revenue
7 Supply of Software considering Supreme Court Decision – Whether to levy TCS on same or not Customized Software is Service and Packaged Software is goods
8 Cumulative ascertainment of Billing / receipts has to be made for charging TCS in Invoice since payment has to be made @ 0.075% on incremental value over 50 Lacs Tracking
9 Tracking of Billing and Receipts Tracking
10 Tracking of Customer turnover / receipts on PAN India basis and not on GSTN basis PAN India Basis
11 Supply to SEZ / FTWZ is not export as per Income Tax Act and whereas it is export for GST and SEZ under SEZ Act Yes
12 Sales exceeds Rs 50 lakhs in current year but turnover is less than Rs 10 crores in Previous Year No
13 Since records to be maintained at PAN India basis proper system needs to be designed since in GST records are maintained on GST registration basis Yes

Q. What should be the accounting entries?

Ans.

A TCS is charged on Invoice
1 Customer A/C            Dr
To Sale of Goods
To GST Payable
To TCS payable on receipt (Amount receivable form Customer)
(Being goods sold vide Invoice no ——–)
2 Bank A/C Dr
To Customer
(Being amount received from customer against supply of goods)
3 TCS Payable on receipt
To TCS to be paid
(Being amount of TCS payable transferred to TCS to be paid on the basis of amount of TCS received from Customer)
4 TCS to be paid
To Bank
(Being amount of TCS paid to Revenue)
B TCS is not charged on Invoice
1 Customer A/C            Dr
To Sale of Goods
To GST Payable
(Being goods sold vide Invoice no ——–)
2 Bank A/C Dr
To Customer
(Being amount received from customer against supply of goods)
3 Customer A/C Dr
To TCS payable (Amount receivable form Customer)
(Being invoice / DN for collection of TCS from Customer for the TCS already paid)
4 TCS Payable
To TCS to be paid
(Being amount of TCS payable transferred to TCS to be paid on the basis of amount received from Customer from sale of goods)
5 TCS to be paid
To Bank
(Being amount of TCS paid to Revenue – without waiting for receipt of TCS from Customer)

Q. Issues to be faced during assessment.

AnsInconsistency 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.

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.

TCS on sale of goods will be additional burden on the seller. Seller will have to borne the cost, if it is not charged on the invoice and it is paid after receipt from one time buyer. It is going to be absolutely complicated and therefore, really raised the question mark on the dream of Hon. Prime Minister w.r.t. “Ease of Doing Business in India”.

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33 Comments

  1. Dear Sir,

    I have one question in 08.10.2020 i have received an amount of Rs 3 cr fro customer and i have issued debit for TCS on Rs 2.5 Cr ( 3-0.50). and on 14.10.2020 again i have received an amount of Rs 1 cr so i have to issue debit note for TCS on Rs 1 cr or Rs 50 lakh (1-0.50) Please suggest

  2. AACHARYA says:

    Sir,
    I have 2 business on my PAN with 2 GST Numbers . one is providing transportation of service and another one is Supply of Raw Material .
    I have 2 Questions
    1. Do i need to Aggregate both Turnovers for 10 cr limit
    2. Do i need to Charge TCS on both invoices of Supply of Material and Supply of Service

    1. Ashok Nawal says:

      1) Yes. Turnover based on PAN number basis to be considered and not GSTN wise.

      2) You need to charge TCS only on invoices pertaining to sale of goods.

  3. Amit Gawde says:

    mera टर्नओवर 10 karor se kam hai aur ek registerd पार्टी को 50 लाख se jyada ka sale karta hoon uske upar tcs ki deyta banti hai ki nahi?

    1. Ashok Nawal says:

      It is recommended to charge on the invoice raised from 1st October 2020 to such buyers whose amount is more than Rs. 50 Lacs but TCS to be paid only after receipt of consideration.

  4. Shakeel ahmed says:

    Our sales are exceeding 10 cr.
    And mostly 30 % of the sales are in cash.
    The credit sales do not exceed 30 lacs to any debitor.
    Creditors are charging 0.075% on invoices since 1st October.
    Can we charge TCS on sales invoices to our debitors like our creditors do and how to charge on the cash sale invoices.

    1. Ashok Nawal says:

      As stated in my article, it is recommended to charge on the invoice. however TCS is payable only when consideration / amount is received after 1st Oct 2020 on incremental value over Rs. 50 Lacs of each buyer. However, as stated by you, none of your buyer pay more than Rs. 50 lacs then no TCS will be applicable.

  5. RAJESH TIWARI says:

    Dear sir
    Kya Government ko Goods supply karne per TCS charge karna hai ki nahi.Please provided the notification of Government.

    1. Ashok Nawal says:

      In my article, it has been very clearly mentioned that supply to the government, No TCS is applicable even though consideration is received more than Rs. 50 Lacs.

    1. Ashok Nawal says:

      Salt is not exempted in the list given above and therefore if consideration is received for more than Rs 50 Lacs from any buyer then TCS will have to be collected and paid.

  6. ashok kaushal says:

    jiska टर्नओवर 10 karor se kam hai aur ek registerd पार्टी को 50 लाख se jyada ka vyapar karta hai uske upar tcs ki deyta banti hai ki hai

    1. Ashok Nawal says:

      Since your turnover is less than Rs. 10 Cr and if you are paying consideration to any supplier of Rs. 50 lacs or more, NO TCS will be applicable. However, if you are selling the goods to any customer more than Rs. 50 lacs whose Turnover is more than Rs. 10 Cr, such customer will recover the TCS after receipt of payment made by you and thereafter issue you TCS Certificate.

  7. V SWAMINATH says:

    Dear Sir
    Is any receipt against outstanding amount relating to 17-18 is received after 30-09-20, will it attract TCS
    If so how to raise debit note. if customer is not paying tcs on old payments, are we liable to pay tcs

    1. Ashok Nawal says:

      Even though sales made before 30.09.2020 and amount is received more than Rs. 50 Lacs from your debtors after 01.10.2020, TCS will be applicable and you will have to take the TCS and recover from him by raising the debit note.

    1. Ashok Nawal says:

      You will have to show taxable amount & GST amount and if value of total invoice is required then TCS will also needs to be included.

  8. Santosh Jha says:

    Please suggest whether TCS is applicable on High Seas Sales?
    Also please see the the table above “Some other issues, which needs to clarification from CBDT.” in point no. 3 it is mentioned that TCS is applicable on Basic and not on GST while in the article it is clarified that TCS is applicable on GST also as per CBDT Circular No. 17/2020 dtd. 29-09-2020 that, no adjustment on account of sales return, discount on indirect tax including GST is required to be made for collection of tax, since collection is made w.r.t. receipt of amount of sales consideration. its is bit confusing to me. please guide.
    Thanks

    1. Ashok Nawal says:

      If high sea sale agreement is prior to filing of IGM then importer is the buyer and therefore even though payment is made to such seller no TCS is required to be deducted by such seller, since import and export transactions are out of the purview of TCS.

  9. susanta kumar mishra says:

    Dear sir,
    We are selling Iron ore to direct manufacture or through traders. Selling through trader we are deducting TCS @0.75%
    my doubt is where we will collected extra TCS from them. secondly manufacture are submitted declaration form 27C so that we are not collecting TCS .If we will collected TCS from them then they will issue the declaration from or not.

    1. Ashok Nawal says:

      Section 206(1)(H) excludes any TCS / TDS payment already collected under any other section and therefore on such transactions TCS under 206(1)(H) will not be required to be deducted.

  10. CA Nitin says:

    As per PRESS RELEASE of CBDT dated 13th
    May, 2020, there shall be no reduction in rates of TCS, where the tax is required to be collected at higher rate due to non-furnishing of PAN/Aadhaar.
    The Rate of TCS for non submission of PAN will be 0.1% instead of 0.075%. Please clarify.
    Further, as per section 206CC is not applicable to NRI, then what will be rate of TDS for them.

    1. Ashok Nawal says:

      As a matter of facts TCS rates will be different upto the period of 31st March 2021 and it will be additional TCS if consideration has been received from Non-PAN /No-Adhar Card Number . Further, consideration received from NRI may be for supply outside India which is exports and therefore No TCS will be applicable on export of goods.

    1. Ashok Nawal says:

      Since Supply to SEZ is not supplying outside India which is the definition under Income Tax Act 1961 and hence TCS will be applicable on consideration received against supply of SEZ in the same manner as applicable to TCS.

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