Section 206C(1H) of Income Tax Act, shall come into effect from 01.10.2020.
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:
* 0.075% for the F.Y. 2020-21
CBDT Circular No. 17 of 2020 Guidelines under section 194O(4) and section 206C(1-I) of the Income-tax Act, 1961 – reg.
1. Since sub-section (1H) of section 206C of the Act applies on receipt of sale consideration, the provision of this sub-section shall apply on all sale considerations (including advance received for sale) received on or after 1st October 2020 even if the sale was carried out before 1st October 2020 Consequently, it would not apply on any sale consideration received before 1st October 2020.
2. Since the threshold of Rs. 50 Lakh is with respect to the previous year, calculation of receipt of sale consideration for triggering TCS under section 206C(1H) shall be computed from 1st April, 2020.
Hence, if a person being seller has already received Rs. 50 Lakh or more up to 30th September 2020 from a buyer, the TCS under section 206C(1H) shall apply on all receipt of sale consideration during the previous year, on or after 1st October 2020, from such buyer.
The provisions of TCS have been in the statute for a long time. However, this time, these changes introduced by section 206C(1H) shall affect a wide range of businesses across various industries. Hitherto, TCS was applicable to a select few industry verticals, but the new changes are slated to affect a wide range of entities into the business of selling various kinds of goods. At the end one should keep in mind that TCS has to be collected in the following scenario w.e.f. 01.10.2020.
1. Section is applicable only in case of seller whose total sales, gross receipt or turnover from the business carried on by him exceeds Rs. 10 crores during the financial year immediately preceding financial year in which sale is carried out. In other words, to be liable to collect TCS in Current financial year (FY 2020-21) total turnover of the seller should be more than Rs.10 crores in F.Y.2019-20.
For calculating the threshold limit of ₹ 10 crores in the preceding financial year, section 206C(1H) provides that Total Sales, Turnover, Gross Receipts from the business shall be considered. As such, the receipts of sale of services shall also be considered.
2. TCS is required to be collected from the buyer whose aggregate purchases exceed Rs.50 lacs in any previous year.
This section was introduced by way of Finance Act 2020 and was initially to be made effective from 01-04-2020 i.e. from the beginning of the financial year 2020-21. Now, since, it is being made effective from 01-10-2020 i.e. middle of the FY 2020-21, the pertinent question that arises is whether the sales effected up to 30-09-2020 shall be considered while determining the threshold sale of ₹ 50 Lakh.
Refer to Circular No. 17 of 2020 Dt. 29-09-2020 issued by the CBDT in this respect clarified that the seller should consider the sale of goods made up to 30-09-2020 while calculating the threshold of ₹ 50 lakh for the Financial year 2020-21.
3. TCS is required to be collected only on sale consideration exceeding Rs. 50 lacs. In other words, TCS on first Rs.50 lacs is not required to be collected.
Section 206C(1H) envisages that TCS at the rate of 0.10% of the sale consideration in excess of ₹ 50 Lakhs shall be collected by the seller. As such, TCS shall be collected on Total Sale Value less ₹ 50 lakh.
4. Rate of TCS provided in the section is 0.1% of sale consideration. Vide Press Release dated 13.05.2020 rate of tax has been reduced for the current financial year to 0.075%
5. GST will also be part of sale consideration and therefore, TCS is to be collected on total amount of invoice including GST
Central Board of Direct Taxes (‘CBDT’) vide Circular No. 23/2017 dated July 19, 2017 has clarified that no tax shall be deducted under Chapter XVII-B, if the GST on services is indicated separately. The above clarification issued by the CBDT covers only tax deduction under chapter XVII-B, whereas section 206C of the Act is governed by Chapter XVII-BB.
Further, the FAQ issued by the Income Tax Department on TCS provides that the “amount debited to the account of buyer or payment shall be received by seller inclusive of VAT /Excise /GST. As such, TCS to be collected on inclusive of GST.”
The above view was also affirmed by Madhya Pradesh HC in case of Vinod Rathore (278 ITR 122).
Considering the above ruling, FAQs and no specific clarification in respect of section 206C(1H), TCS should be levied on the GST component as well to be on safer side.
6. Section is also not applicable in respect of goods being exported out of India
7. PAN based accumulation of transaction of multiple customers:
In case of TCS on “sale of goods” deduction of TCS will be made based on PAN number. If multiple customers have same PAN number than all transactions executed by different customers have same PAN will be accumulated and compared against threshold limit prescribed by the government.
Getting Ready for compliance:
1. Firstly, to identify the customers from whom receipts for consideration for sale of goods is more than ₹ 50 lacs during the year. For this, customers already breached the threshold or potential customer who may cross the threshold shall be identified.
2. The buyer shall be intimated in advance regarding levy of TCS provisions and obligation on him to pay for TCS.
3. Setup the check list and procedure for compliance such as deposit of TCS, filing of statement and issuance of certificate to buyer.
4. How and when to charge TCS from buyer?
The amount of turnover of Rs. 10 crores and the sale transaction with the buyer in excess of Rs. 50 Lakh gives the impression that the provisions of section 206C(1H) intends to cover B2B transactions.
The TCS can be collected by charging through invoice:
Insert a specific line item in invoice to charge TCS “Please pay / remit extra TCS amount @ 0.075% on Invoice Value (Cost+GST)”
In this case, both seller and buyer need to do accounting as receivable and payable for these amounts. It may be noted that if the payment is being made in next financial year, TCS obligation may not be applicable on seller (due to turnover threshold) or may not be applicable on buyer due to not making payments breaching ‘collection’ threshold in that financial year. In those case, one need to keep track and write off and reconcile it with the liability.
The TCS can be collected by charging through debit note:
The logic for issuance of debit note may be that debit note to be issued at the time of payment so that it can be charged only on the eligible cases and no hassles of write off etc. (as mentioned in above points). But in that case, a specific series of debit note number may need to be used to make sure that these debit notes do not create issues in GST compliance.
Let’s have an example to understand the above
Sale of goods to Customer for Base Amount Rs. 1,00,000/- GST (@18%) Rs. 18,000/
|At the time of Invoice||Debit||Credit||At receipt of the payment||Debit||Credit|
|Customer A/c||118,089||Bank A/c||118,089|
|Sales A/c||100,000||Customer A/c||118,089|
|GST Output A/c||18,000||TCS (Sale of Goods) A/c||89|
|TCS (Sale of Goods) A/c||89||TCS (Sale of Goods) Payable A/c||89|
Purchase of goods from Supplier for Base Amount Rs. 1,00,000/- GST (@18%) Rs. 18,000/
|At the time of Invoice Booking||Debit||Credit||On Releasing payment to Supplier||Debit||Credit|
|Purchase / Expenses/ Assets A/c||100000||Supplier A/c||118,089|
|GST Input A/c||18000||Bank A/c||118,089|
|TCS (Purchase of Goods) Receivable A/c||89||TCS (Purchase of Goods) A/c||89|
|Supplier A/c||118089||TCS (Purchase of Goods) Receivable A/c||89|
TCS on Advance receipt of payment:
Amount receives part of the sale consideration in advance is subject to TCS under Section 206C(1H).
Since sub-section (1H) of section 206C of the Act applies on receipt of sale consideration, the provision of this sub-section shall apply on all sale considerations (including advance received for sale) received on or after 1st October 2020 even if the sale was carried out before 1st October 2020
Consequently, it would not apply on any sale consideration received before 1st October 2020.
Let us try to understand the same with a few examples.
Amount in Rs. Lakhs
|Case||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|
|1||75||25||60||40||40||Sales crossed threshold post the date of applicability, therefore TCS on all receipt after 1st Oct 2020|
|2||25||60||15||70||35||TCS applicable on Sales Consideration amount exceeding 50 lakhs|
|3||75||–||10||65||25||Trigger is Receipt and not sales.|
|4||25||100||125||–||–||Trigger is Receipt and not sales as receipt prior to the date of applicability|
|5||25||45||–||45||20||TCS applicable on Total Sales amount exceeding 50 lakhs|
|6||–||75||75||–||Trigger is Receipt and not sales as receipt prior to the date of applicability|
|7||75||–||–||75||25||TCS applicable on Sales Consideration amount exceeding 50 lakhs|