Recent Provisions on TCS :Tax Collected at source on Sale of Goods

Tax Collected at Source (TCS) is the tax payable by a seller which he collects from the buyer. The rate of TCS is different for goods specified under different categories. Section 206C of the Income Tax Act, 1961 specifies the categories of goods on which seller has to collect tax from the purchasers.

As you are already aware, sub-section (1H) has been inserted in Section 206C by Finance Act, 2020 for collection of TCS by the seller on sale of any goods. Though collection of TCS on sale of certain goods was already covered under different sub-sections of Section 206C, however all the remaining goods, which were not so covered under other provisions of section 206C, have now been brought under the ambit of TCS by inserting sub-section (1H) in Section 206C.

The provisions of sub-section (1H) of section 206C has been made effective from 1st October 2020 and state that:

A Seller of Goods is liable to collect TCS from Buyer on Sale of any goods;

1. Turnover of seller is more than ₹ 10 Crores in preceding financial year;

2. TCS to be collected if the Value/Aggregate Value received for Goods from a buyer is more than ₹ 50 Lakhs in a financial year;

3. TCS to be collected on [ Total Sale Value received – ₹ 50 Lakhs];

4. Rate of TCS is 0.1%, if PAN of buyer is available [1% if PAN not Available]. 

What is the meaning of Seller under the provisions of section 206C(1H)?

Answer: Seller means a person whose Total Sales, Turnover, Gross Receipts from the business being carried out by him in preceding Financial Year exceeds ₹ 10 Crores.

Whether sales consideration includes GST component

Answer: 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.”

How to calculate the amount of sales of Rs. 50 Lakhs, whether the sales before 01-10-2020 shall be considered

Answer: TCS shall be applicable only on the amount received on or after 01-10-2020. Section 206C(1H) envisages that TCS at the rate of 0.10% of the sale consideration received in excess of Rs. 50 Lakhs shall be collected by the seller. As such, TCS shall be collected on Total Sale Value received less Rs.50 lakh.

Whether TCS shall be collected on any kind of sales including sale of services?

Answer: TCS shall be collected on sale of goods only.

Whether TCS shall be collected on export of goods?

Answer: No, TCS shall not be collected on export sales being made outside India.

For calculating the limit of Rs.10 crore in the preceding financial year, whether sale of services to be included?

Answer: For calculating the threshold limit of Rs.10 crore 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.

In the case of non-availability of PAN or Aadhaar of the buyer, what shall be rate at which TCS to be collected?

Answer: Section 206C(1H) specifically provides that TCS shall be collected at the rate of 1% of sale consideration in case buyer of the goods fails to provide its PAN. Provisions of section 206CC have been specifically overruled by section 206C(1H).

Whether TCS shall be collected at the time of debiting the buyer with the sale value or at the time of collection?

Answer: Section 206C(1H) specifically provides that the seller shall collect from the buyer a sum equals to 0.1% of the sales consideration at the time of receipt of such amount. That means the liability to collect TCS will arise even in case of advance payment received though the goods will be physically delivered at a later date.

Since, TCS to be collected on advance payments, what shall be the course of action in case, the advance has to be refunded as the sale is not affected?

Answer: Where the seller receives an advance for selling the goods and he deposits the TCS thereon, however later on such deal stands cancelled, in such a case, post month-end, no refund of the TCS can be made to a buyer. Even if it is collected on higher amount, the same will be deposited with the government. The buyer can claim credit for the TCS amount while depositing Advance Tax and/or determining the final tax liability.

Whether the rate of TCS shall be reduced by 25% in line with the Covid-19 relief measures announced by the government?

Answer: yes, in line with the same, the rate of TCS u/s 206C(1H) shall also be reduced by 25% i.e. rate at which TCS to be collected shall be 0.075% up to 31-03-2021.

Whether TCS shall be collected by the seller where the buyer is also obliged to deduct TDS on payments being made?

Answer: Second proviso to section 206C(1H) specifically provides that this sub-section shall not apply where 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.

What are the steps to be taken by business entities to get prepared for implementation of sec 206C(1H):

Some of the general steps to be taken by business entities to get ready for new compliances are as follows:

• Firstly, the seller shall check whether the provisions are applicable on it. For this, key is the sales /gross receipts/turnover of immediately preceding financial year (i.e. sales of FY 2019-20 to be checked for applicability in FY 2020-21).
• 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.
• The entity may insert a specific line item in invoice to charge TCS or it may charge TCS through debit note. Further, it has to be made sure that invoice or debit note format remains GST compliant.
• The buyer shall be intimated in advance regarding levy of TCS provisions and obligation on him to pay for TCS.
• Open a separate ledger account in books of account, to account for the TCS receivable from customer and TCS payable to Govt. A separate ledger account will help in reporting and reconciliation.
• Setup the check list and procedure for compliance such as deposit of TCS, filing of statement and issuance of certificate to buyer.

What are the compliance obligations cast upon business entities due to sec 206C(1H):

Answer: Some of the basic compliances that a business entity has to perform are as follows:

• TAN number – Seller needs to have Tax Deduction and Collection Account Number (“TAN”). No need to obtain a new number if the seller entity has already obtained TAN for tax deduction at sources (TDS).
• Collecting the tax – Tax to be collected at the time of receipt of sale consideration.
• Deposit with Government- The tax collected during the month need to be deposited within seven days of next month. Please note that there is no exception or extended time for the deposit of tax collected in the month of March. (Challan no 281)
• Filing of statement (Form no. 27EQ)- A quarterly statement of all the tax collected at source during the quarter needs to be submitted within 15 days from the close of quarter as mentioned in Table-1.
• Issuance of certificate (Form no 27D)– Certificate for tax collection need to be issued to the buyer by seller. Due dates mentioned in Table -1.

Table -1