Sale of Goods liable for TCS: An Overview of the New TCS Compliance
The scope of Tax Collection at Source (TCS) is set to increase enormously with effect from 01/10/2020. Now, every seller whose turnover in the FY 2019-20 is more than Rs. 10 Crore will be required to collect Tax at Source @ 0.075% if the value or aggregate value of sale to any buyer during the year exceeds Rs. 50 Lakh. The TCS rate will be 1% if the PAN or Aadhar of the buyer is not available with the seller. It may be noted that the actual rate of TCS as quoted above is 0.10% & 1% but due to Covid– 2019, the rate has been reduced till 31.03.2020 by 25% to 0.075% from 0.10%. There is no reduction in the TCS rate by 25% if the PAN / Aadhar of the buyers are not available. There are lot of issues & confusions as to its implementations. Let us know about it:
- Applicability:
a) TCS provision is applicable only on Seller of Goods if the Turnover of seller is more than Rs. 10 Cr in previous financial year.
b) In order to know the applicability, the sales /gross receipts/ turnover of immediately preceding financial year is required to be checked. Sales of FY 2019-20 would be relevant to determining its applicability in the FY 2020-21.
c) TCS is required to be done only from those buyers from whom the receipt is more than Rs. 50 Lakh during the year. Receipt up to Rs. 50 Lakh is not liable for TCS. Amount exceeding Rs. 50 Lakh only will be liable for GST. - d) TCS is applicable only on the sale of Goods. Sale of services is not liable for TCS.
- Mechanism to implement the new TCS system:
a) In normal course, TCS/TDS arises at the time of payment or billing whichever is earlier. However, TCS liability u/s 206C(1H) is arising at the time of “Receipt of Sale Consideration” and not at the time of billing. The seller will be required to set a system in place to ensure its proper compliance.
b) Since the liability is on “receipt of money”, TCS may be done by issuing the debit note. The buyer may be instructed to make the payment by adding the amount of TCS. However, it will increase tremendous compliance and reconciliation burden on both sides.
b) An alternative & simpler mechanism could be to do the TCS at the time of billing itself as against receipt of money. However, it would result in (a) liquidity blockage of the seller (b) Additional loss if the amount turns out to be bad debts. Further, its implications would also vary on case to case basis as in such case the limit of Rs. 50 Lakh would be reckoned on the basis of sale and not receipt. Since, this alternative would be generally in the interest of the revenue & consistently followed by the seller, the same cannot be objected by the department. - TCS to be done on GST?
a) An important issue is whether the TCS is to be done after adding GST or Excluding GST.
b) Central Board of Direct Taxes (CBDT) vide Circular No. 23/2017 dated July 19, 2017 in the context of TDS provision has clarified that no TDS shall be done under Chapter XVII-B, if the GST on services is indicated separately.
c) Above clarification was issued by the CBDT in the context of TDS provision as contained in chapter XVII-B & may not be relevant for section 206C which is contained in Chapter XVII-BB.
d) FAQ issued earlier in the context of TCS provides that the “TCS is required on the amount debited to the account of buyer or payment shall be received by seller inclusive of VAT /Excise /GST.
f) The above view was also affirmed by MP HC in case of Vinod Rathore (278) ITR (122).
In short, the totality of the background material suggests that TCS has to be one on the amount of GST as well. It will be in the interest of all if CBDT clarifies & excludes the applicability of TCS on the components of GST. - GST to be charged on TCS?
For the purpose of determination of value of supply under GST, TCS under the provisions of Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax. In short, no GST is applicable on the TCS components. [Corrigendum to CBEC Circular No. 76/50/2018-GST Dated 07-03- 2019] - It has been specifically provided that if the buyer is liable to do TDS /TCS under any other provision of this Act then the seller will not be required to do TCS u/s 260C(1H).
- TCS not applicable in respect of sales made to Central Government, State Government, local authority, Embassy, High Commission, Consulate or a trade representation of foreign state. Exporters are specifically excluded from the provision of section 206C(1H).
- Section 206C (1H) requires TCS on all amounts received. It nowhere provides for bifurcation of amount pertaining to period (a) prior to introduction of section 206C(1H) & (b) after introduction of section 206C(1H). It will be in the interest of all if the CBDT clarifies with regard to non applicability of TCS on receipt of money against sale done till 30/09/2020.
- In case of Sales return, the amount of TCS cannot be returned to the buyer. The buyer would be able to get the credit towards the amount of TCS while filing their income tax returns.
- Sales made to public sector companies which are substantially or wholly owned by the central government or state government:
An exclusion is provided from TCS only in respect of sales made to central government or state government. Companies which may be owned wholly or substantially by the Government are not given an exemption and so TCS is to be collected in such cases - Whether TCS is required on the amount of freight, loading/unloading, packing, etc charges on the invoice? It may be noted that TCS is leviable on “any amount as consideration for sale of any goods of the value”. In normal course, all the amount charged has become the part of consideration and so,in my considered opinion, TCS will be applicable on such amount also. Even following conservative approach or considering the quantum involved, it would be advisable to comply with the TCS provisions on this amount as well.
- Motor Vehicle Purchase:
If the buyer is purchasing the motor vehicle, even for a price exceeding Rs. 50 Lakh, TCS U/s 206C(1H) will not be applicable. It may be noted that TCS on the motor vehicle is levied u/s 206C (1F) if the value is more than 10 Lakhs. As per the provisions of Section 206C(1H), TCS is not applicable to goods that are covered under other provisions of TDS/ TCS. - TCS on receipt of money would mean that the liability will arise even in case of receipt of advance, though the goods may be delivered or billed at a later date. Further, if the deal gets cancelled in subsequent months then no refund of the TCS can be made to a buyer. The buyer would only be able to take the credit of such TCS in their income tax return.
- Compliances with the New TCS Provision:
a) Seller would be required to obtain Tax Deduction Account Number (TAN). If the persons already have obtained TAN for compliance of the tax deduction at sources(TDS) provision then another TAN is not needed for TCS purpose.
b) Tax collected during the month will be required to be deposited in Challan No 281 within a period of 7 days of next month. It may be noted that, even for the month of March also, the deposit has to be done by 7th April as there is no exception or extended time in such cases.
c) Seller will be required to file the quarterly TCS returns in Form no. 27EQ. This quarterly return has to be filed within 15 days from the end of the quarter.
d) Sellers will be required to issue the TCS certificate in Form no 27D to the buyers.
e) The summary of the return filing as well for issue of TCS certificate is as under:
| TCS Return for the Quarter Ending on | Due date for Quarterly Return Filing | Due date for Issue of TCS certificate to the buyer |
| 30th June | 15th July | 30th July |
| 30th September | 15th October | 30th Oct |
| 31st December | 15th January | 30th Jan |
| 31st March | 15th May | 30th May |
For ease of reference, section 206C(1H) is reproduced as under:
(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:
Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent”, the words “one per cent” 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 provision of this Act on the goods purchased by him from the seller and has deducted such amount.
Explanation.—For the purposes of this sub-section,—
(a) “buyer” means a person who purchases any goods, but does not include,—
(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
(B) a local authority as defined in the Explanation to clause (20) of section 10; or
(C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;
(b) “seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees 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 may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
Conclusions:
Section 206C(1H) is sure to add lots of complications in its implementation. There would be a lot of reconciliation issues that would arise as a result of this new section 206C(1H). Buyers may face the music of the income tax department as purchase may be in different financial years and payment may be in different financial years. TCS would be reflected in the PAN of the buyer at the time of its payment to the seller whereas purchases would be forming the part of its financial statements at the time of billing. It would be in the interest of the taxpayers if CBDT takes note of all such issues and issues FAQ so as to remove all the possible areas of controversies and litigation.
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