Tax Collection at Source on sale of goods has been introduced by the Government of India in the Finance Act 2020 to widen the tax base vide Section 206C(1H) w.e.f. 1st October 2020.

Under this section, the seller of the goods has to collect the tax from the buyer on receipt of money from him and has to deposit this tax amount to the Government Treasury with the specified due date. The extract of Sub-section (1H ) of Section 206C is read as under:

Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or the aggregate of such value exceeding Rs. 50 lakh 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% of the sale consideration exceeding fifty lakh rupees as income-tax.

TCS under section 206C(1H)-A Detailed View

Provided that, if the buyer has not provided the PAN number or the Aadhaar number to the seller then the provisions of this clause (ii) of sub section (1) of section 206CC shall be read as if for the words “five percent”, the words “one percent” 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 provisions of this Act on the goods purchased by him from the seller and deducted such amount.

Salient features of  section 206C(1H) on TCS :

  • It is applicable on all supply of goods except the goods which are already covered under different sub-sections of this section such as Timber,Tendu Leaves, forest products, scrap, minerals i.e., iron ore etc.
  • Seller is responsible to make TCS under this section, if his Total turnover or gross receipts during the previous year exceeds Rs. 10 crores. Otherwise the seller is not liable to make TCS under this section. For the purpose of checking the eligibility, one has to check the turnover without GST.
  • Rate of TCS is 0.1% of the sale consideration exceeding fifty lakh rupees as income tax. For Example:  If sale of goods to any buyer during the previous year is of Rs. 52 Lakhs, then TCS would be collected on the sale value exceeding Rs. 50 lakhs i.e. Rs. 2 lakhs @0.1%. and not on the complete sale of Rs. 52 lakhs.
  • The TCS would be charged at higher rate of 1% if PAN and Aadhaar is not provided by the buyer as per section 206CC read with proviso to section 206C(1H). Also, such TCS shall not be reflected in Form 26AS of the buyer.
  • Due to Corona Pandemic 25% discount has been given in this tax rate till 31st March 2021 and thus the effective rate is 0.075%.
  • For the purpose of calculating sales threshold, turnover from 1st April 2020 onwards has to be considered.
  • Once it is covered under this provision, it would apply on all sale consideration (including advance received for sale) received on or after 1st October 2020 even if sales were carried out before 1st, October 2020. Meaning thereby even if invoice was issued to the buyer before 01.10.2020 but sale consideration for that invoice is received on or after 01.10.2020 then for such consideration Tax should be collected u/s 206C(1H).
  • It Implies that TCS should be made on sales done before April 1, 2020, if the collection for the same is received after September 30, 2020, since the triggering event of the above provision is the receipt of consideration. This is subject to the condition that aggregate value of sale consideration received from such buyer in the current financial year exceeds Rs. 50 Lakh.

Illustration:

Particulars Amount
Total Sales during 2019-20 12 Crs.
Sales to a buyer during 2020-21 55 lakhs
Consideration received in October 2020

(Out of above receipts, Rs. 2 lakhs is for the sales made in March, 2020)

 7 lakhs
TCS @ 0.075% on Rs. 7 Lakhs 525/-
  • No adjustment is required on sales on account of sales return, discounts or indirect taxes including GST for collection of TAX under this section since the collection is made with reference to receipt of amount of sale consideration as per the Guidelines issued by the CBDT vide circular No. 17/2020 dtd: 29.09.2020. Therefore, TCS shall be collected on the sales value including GST.

Illustration: As per the relevant part of the said Circular No. 17/2020 following format is to be followed in the Bill/Invoice as shown in the example:

Particulars Amount
Value of goods 60,00,000.00
Add: GST 18% 10,80,000.00
Total 70,80,000.00
TCS 0.075% 5,310.00
Total Invoice Value 70,85,310.00

 (Note: In case of Sales Return, it may take place before the receipt of consideration or after the receipt of consideration. If the sales return happens before the receipt of the consideration, then there is no receipt of consideration and hence there will not be any liability for TCS. There may be sales return of the full amount of sales or a partial amount of the sales. In both the cases, the TCS liability shall be linked to the receipt amount of sales consideration which shall obviously be after taking into account the amount of sales return. This is applicable in case of partial sales return. However, the clarification issued by CBDT does not clarify this issue elaborately.)

  • This is receipt based TCS and hence even if a seller receives payments in advance for supply of goods, the TCS provisions are applicable. But if the advance amount is received before 1st October, 2020 then TCS is not required to be collected as the amount is received before 1st October 2020 even if the supply is made on or after 1st October, 2020.

Procedural Compliance to be followed on collection of TCS:

Sl.No Particulars Remarks
i. Seller needs to have Tax Deduction and Collection Account Number (TAN)  
ii. Tax So collected shall be deposited in the account of Central Government by the 7th day of subsequent month.

For Example: Date of a sale Invoice is 1st November 2020, wherein TCS is charged (on the amount exceeding Rs. 50 lakhs & the on the actual receipt of consideration), but the buyer realizes the consideration on 1st January 2021, then the seller is liable to deposit TCS to Govt. on or before 7th February 2021.

Challan No. 281
iii. Quarterly statement is to be filed by 15th day of the month succeeding the quarter ending as at 30th June, 30th September, and 31st December.

Quarterly statement is to be filed by 15th day of May in subsequent financial year for querter ending as at 31st March.

Form 27EQ
iv. Seller shall issue a certificate to buyer within 15 days of filing of quarterly statement. Form 27D
v. If a seller fails to collect the whole or any part of the tax as required by the provisions of this section, he is liable to pay, by way penalty, a sum equal to the amount of tax which he failed to collect as aforesaid. Section 271CA

This section is not applicable in the following cases:

i. Goods sold as export: No TCS on exported Goods

ii. Central Government, State Government, an embassy, a High Commission, legation, commission, consulate, and the trade representation of a foreign State.

iii. A local authority as defined in Section 10(20) of the Act.

iv. Person importing goods into India.

v. Any person specified by the Central Government through a notification in the Official Gazette.

vi. A buyer who is liable to deduct tax at source (“TDS”) of the Seller under any other provision of the Act and has deducted the same.

(Note 1: All the purchases made by above mentioned persons are exempt from this TCS but on the sale made by them, if it applicable, they have to collect and deposit TCS from the buyers.

Note 2: Public sector undertakings, government companies are not excluded from the scope of this section. Provisions of this sub-section would be applicable on them.)

TCS applicability is some special cases:

a) On Sale of Shares and Securities: ‘Goods’ includes stocks and shares, but the provisions of this section are not applicable on transactions in shares and securities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation.

It doesn’t mean that provisions of this section shall not apply to listed shares or Demat shares in all the cases. If the listed and Demat shares are transferred through off-market transactions then the provisions of TCS under section 206C(1H) shall apply subject to the threshold limit.

Further, TCS shall be applicable in case of transfer of unlisted shares and securities including preference shares.

b) On sale of Electricity: Although ‘Electricity’ is held to be ‘goods’, it is clarified that provisions of section 206C(1H) shall not apply to electricity.

c) TCS provisions under Section 206C(1H) shall not be applicable on transactions in renewable energy certificates and energy saving certificates traded through registered power exchanges.

d) On sale of Motor Vehicle:

TCS on sale of motor vehicle is covered under the existing provision of Sec 206C(1F) where any sale of motor vehicle exceeding Rs. 10 Lakh is subject to TCS @1% as Income Tax and where TCS is already collected under any other provision, then it would not be covered under Section 206C(1H).

Now, in case purchase value of any motor vehicle is below Rs. 10 Lakh, then Sec 206C(IF) is not applicable. However, if the total purchase value of such buyer during the year exceeds Rs. 50 Lakh, then TCS would be collected under Section 206C(1H).

The above provision under different scenarios is explained below:

Sl. No Invoice Value Applicable Section Remarks
1. Single receipt of Rs. 12 Lakhs from a buyer w.r.t a motor vehicle Section 206C(1F) Specific section on sale of motor vehicle would be applicable
2. Single receipt of sale consideration of less than Rs. 10 Lakhs and cumulative receipt more than Rs. 50 lakhs during the previous year Section 206C(1H) Specified threshold of Section 206C(1F) is not met but the conditions of Sec. 206C(1H) is satisfied. Accordingly TCS will be collected as per Sec. 206C(1H)
3. Single receipt of sale consideration of Rs. 55 Lakhs from a buyer w.r.t. a motor vehicle Section 206C(1F) Eventhough requirements of both the sections are met, 206C(1F) is a specific section for motor vehicle and it would prevail. Hence TCS would be collected under this section.

e) Fuel Supplied to non-resident airlines: It is clarified that the provisions of this section shall not apply on the sale consideration received for fuel supplied to non-resident airlines at airport in India.

Disclaimer: This is the opinion of the author based on the analysis and understanding of the provisions of the said section.

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Qualification: CA in Practice
Company: Modi Dhavalagi & Co.
Location: Delhi, New Delhi, IN
Member Since: 01 Dec 2020 | Total Posts: 1

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5 Comments

  1. A Balasubramanian says:

    Dear Madam,
    We are the receiver of goods with TCS.
    Where can I claim that TCS?
    Kindly let us know.
    Thanking you.
    A Balasubramanian

  2. Uday kelkar says:

    If we collect TCS they sales invoice are we liable to pay before 7th of next month for TCS charged in previous month even if we do not receive from client against those invoices pl clarify

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