1. The Law
Every person, being a seller,
who receives any amount as consideration for the 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 Section 206C of 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.
Provided that if the buyer does not furnish their PAN / AADHAR number to the seller, then Seller collect from the buyer, a sum equal to 1 % in place of 0.1%
Provided 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 and has deducted such amount.”
the seller means: A person whose total sales, gross receipts or turnover from the business carried on by him exceed ₹10 Crore 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
the buyer means: A person who purchases any goods but does not include, –
2. Important Clarifications
(i) TCS Rate has been reduced to 0.075% for the period 1.10.2020 to 31.03.2021
(ii) Definition of Consideration – In terms of Section 145A irrespective of the treatment in books of accounts, the value of sales will include the amount of any tax recovered. Hence the consideration amount will be inclusive of GST for collection of TCS.
(iii) TCS is applicable only on sale / purchase of goods, not on services.
3. TCS on Invoice or Payment: The ongoing Debate
Now the ongoing debate in the industry is whether TCS should be implemented on invoicing or it should be implemented on receipt.
Through this article I shall let you through the various challenges of both the options. Industries may take their decision themselves considering the challenges described below in mind.
3.1 TCS on Invoicing
3.1.1 Sales Side – Where charging TCS on invoice seem to be the most obvious and easy option, this becomes an issue where advances are received from customers.
Since the liability of depositing TCS is on receipt of amount, TCS has to be paid on such advance.
Now at the time of invoicing, TCS is not to be charged on such amount, which is adjusted against the advance.
For e.g. X Ltd pays advance of Rs. 1,00,100 to Y Ltd in October 2020 for supply to be made in the month of December 2020. In December 2020, Y Ltd supplies material worth Rs. 1,50,000 to X Ltd.
At the time of receipt of advance, Y Ltd had to pay 0.1% TCS to the credit of government. Now the net advance standing in Y Ltd.’s books is Rs. 1,00,000 (Since Rs. 100 TCS is already paid to the government)
Also, at the time of invoicing in December 2020, Y Ltd has to collect TCS only on the balance Rs. 50,000 i.e. Rs. 50 on the total invoice value of Rs. 1,50,000.
Here industries shall encounter practical challenges to change the invoicing system based on outstanding advance. An automated system needs to be developed in accounting software, where TCS is charged only on the advance adjusted amount of invoice.
3.1.2 Purchases Side – Where TCS is being charged on invoice by the vendor accounting entry made by the purchaser shall change.
However, it is to be noted that TCS is applicable only on goods, not on services.
The accounting entry shall be as below:
Inventory / Purchases ……. Dr.- 1,00,000
GST recoverable A/c ……… Dr. – 18,000
TCS recoverable A/c ………. Dr. – 118
To Vendor – 1,18,118
One of the issues that shall arise at the end of each quarter is reconciliation. There would be some vendors who might not deposit TCS to the government and hence the purchasing entity might lose the credit of such TCS.
In case, an entity does not want to pay TCS amount to vendor unless it received Form 16A, it may go for option 2 – TCS on payments / receipts.
3.2 TCS on Payments / Receipts
3.2.1 Sales Side –
In case TCS is not mentioned on invoice, calculations have to be maintained in clearing accounts for amount receivable from the customers.
The accounting entry in such case shall be as below;
Customer……………………………………………..….. Dr. 1,18,000
TCS Receivable from Customer (Clearing account) Dr. – 118
To Sales ……………………………………………………… 1,00,000
To GST Payable …………………………………………… 18,000
To TCS Payable …………………………………………… 118
Here, receipt of full amount from vendor shall be a challenge. In case full amount not received from the vendor, proportionate TCS has to be paid to the government.
Hence, charging TCS on invoice is a practically viable solution.
3.2.2 Purchase Side –
Purchase side can be easily managed. Payment can be made to vendor only on submission of form 16A.
However, in industries which are involved in selling material to vendors, invoicing to vendor without TCS shall again be a challenge as mentioned in the para 2.1.
4. Transition Cases
Situation 1 – Sales completed before 30.09.2020 but amount received on or after 1.10.2020
View: Since TCS is applicable on receipt of sale of goods, TCS should be applicable in the above case.
Situation 2 – Advance Received before 30.09.2020 but sale is on or after 1.10.20
View: Receipt is before 1.10.20, but sale is taking place after 1.10.20, TCS should be applicable. (This is conservative view to avoid litigations)
5. Inter-branch Stock Transfers
TCS is not applicable on Inter-Branch Stock Transfers, as PAN of both the customer and supplier is same.