Government of India’s Finance Act,2020 has amended the Income Tax Act,1962 by adding a subsection 1H under the section 206C of the latter. This pertains to the collection of TCS by the seller on the sale of any goods. This seems to take effect from 01.10.2020 pan India. This article briefs on the essence of the new law.

What is Tax Collected at Source (TCS)?

Tax Collected at Source is the tax payable by the seller to the government, which he collects from the buyer during the sale. TCS is then payable to the government on receipt of money from the buyer.

SECTION 206C(1H) OF THE INCOME-TAX ACT:

A few new litigations have been put in place on tax collected at source by budget 2020. The amendment in section 206c of the income tax act is as follows.

1. It is the responsibility of the seller to collect TCS on any goods sold, whose total sales/turnover exceeds Rs. 10 crore in the previous financial year (i.e FY 2019-20).

2. The seller is entitled to collect TCS on any sale exceeding Rs.50 lakhs as income tax at the rate of 0.10%. The applicable rate may change to 1% if the buyer does not possess a PAN/Aadhar Card. ( Government has announced a reduction in rate as 0.075% for the period 01.10.2020 to 31.03.2021 owing to the prevailing pandemic situation).

Calculation of Threshold:

To calculate the threshold of Rs. 10 crores all the turnover including gross receipts and sales( both goods and services) shall be considered, whereas for the threshold of Rs.50 lakhs only sale of goods is considered.

Goods that are not governed by section 206C(1H) of income tax act:

1. Goods that are exported out of India.

2. If the goods sold are already covered under subsections (1), (1C), (1F) and (1G) of section 206C.

Exemption as a buyer:

A buyer is a person who purchases the goods. However, some are not considered as a buyer according to the section 206C of income tax act 2020 and they are as follows:

  • Central Government, State Government, an embassy, a High Commission, legislation, commission, consulate and the trade representation of a foreign state
  • A local authority as defined in the Explanation to clause (20) of section 10
  • Any other person as Central Government may, by notification in the official gazette, specify for this purpose, subject to such conditions as may be specified therein.

Time of Collection of TCS on sale of goods:

The new law enacted the sellers to collect the tax  at the time of receipt of the amount. Therefore, the seller is responsible to collect TCS from the buyer even on the advance amount paid by the buyer.

How to collect TCS based on the new law:

If the seller’s turnover has crossed 10 crores in the previous financial year and the seller has made a sale of Rs 75 lakhs to the buyer in this financial year. Then TCS has to be charged from the buyer on Rs. 25 lakhs (i.e, amount that exceeds 50 lakhs).

(Note: If the goods are covered under subsections (1), (1C), (1F) and (1G) of section 206c of income tax act then TCS may not be applicable for such provisions.)

TCS Payments :

The TCS on sale of goods collected from the buyer has to be paid to the government within 7th of the next month.

1. The seller is responsible for payment of TCS to the government within 7 days from the month-end using Challan 281.

2. If the seller has not collected the TCS or has not paid to the government even after collecting it from the buyer, then he will be chargeable of interest @ 1% per month or part of the month.

3. Every tax collector has to file a tax return quarterly in form 27EQ concerning the tax collected in the particular quarter. He has to make sure that all the dues and interests are paid before filing the returns.

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

Tax collected at source under GST:

TCS has to be collected on the value inclusive of GST. The confirmation in this area is a little blunt. However, TCS has to be collected on the value inclusive of GST until further notification from CBDT(Central Board of Direct Taxation).

Goods that are not for trading:

Collection of TCS is not applicable in case if the goods purchased are going to be used for the purposes of manufacturing, processing or producing articles or things or for the generation of power and not for trading purposes

In such cases, the seller can produce a declaration from the buyer that the goods are intended for further processing/manufacturing and are not for trading to the Chief Commissioner of Income Tax within 7th of the next month to which the declaration is furnished to him.

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6 Comments

  1. neelam says:

    In point no. 1 you have mentioned threshold limit of Rs. 1 crore but I understand that the threshold limit for the seller for the previous year is Rs. 10 crore in the financial year 2019-20.

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