TCS at the time of Invoicing : An option to explore


TCS at the time of Invoicing : An option to explore

  1. Tax Collection at Source (TCS) is a new provision introduced w.e.f 01/10/2020.
  2. 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.
  3. TCS is required only on amounts exceeding Rs. 50 Lakh. So if a person has received Rs. 60 Lakh from any customer, TCS will be required only on Rs. 10 Lakh and not entire Rs. 60 Lakh.
  4. The TCS rate will be 1% if the PAN or Aadhar of the buyer is not available with the seller.
  5. 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.
  6. TCS provision is applicable only on Seller of Goods if the Turnover of seller is more than Rs. 10 Cr in previous financial year.
  7. 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. TCS is applicable only on the sale of Goods. Sale of services is not liable for TCS.
  8. TCS has to be done on GST also. GST will be added to the goods value and then TCS will be required. There will not be any TCS on GST components.
  9. 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).
  10. 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). 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
  11. Section 206C (1H) requires TCS on all amounts received even if it is pertaining to the sale done prior to 01/10/2020. It means that if the sale is done before 01/10/2020 and the amount is received afterwards then the TCS will be applicable. 206C(1H) nowhere provides for bifurcation of amount pertaining to period (a) prior to introduction of section 206C(1H) & (b) after introduction of section 206C(1H).
  12. 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 which 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.
  13. 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.
  14. Sellers would be required to obtain a 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. 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. Sellers 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. Sellers will be required to issue the TCS certificate in Form no 27D to the buyers.


The most important question arises as to how to implement this system. How the business houses will be able to comply with these provisions.

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.

There could be the following way of implanting the TCS system now.

First Options:
At the time of each and every receipt, issue the debit notes to all the customers from whom receipt is exceeding Rs. 50 Lakh. This can be done by issuing the debit note wherein the party account will be debited and the TCS payable account will be credited.
However, this will be the cumbersome process as the party will be asked to make the payment of TCS by issuing the debit note. Each and every debit note is required to be communicated to the buyer as they may not be knowing that TCS is payable by them. Normally, buyers make the payment on the basis of invoice issued to them which may not be having the details of TCS in such cases.

Second Options:
An alternative option could be to include the amount of TCS in the bill itself. Since buyers make the payment on the basis of the invoice issued to them, these options look better & convenient. In the bill itself, a separate column may be added for TCS and as a result of which the party’s account will show the amount exactly payable by them.

This also would ease the burden of the seller as they will know exactly the amount receivable from the customer at one go only. This option would be better as it provides better reconciliation for the either side.

For buyers, TCS on receipt basis means that buyers have to face the music of the income tax department as purchase may be in different financial years and payment may be in different financial years. In such a case, 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.

However, the following are a few points which sellers must note while incorporating the system of TCS at the time of invoicing itself.

  1. Liquidity Blockages:
    The amount of TCS liability is shifted at the time of billing itself though the Act allows the same at the time of receipt of money.

But, the amount of TCS is such a meager figure that it would be easy to pay the amount considering the convenience involved. It may be noted that TCS amount is merely Rs. 1 Lakh only on sale of Rs. 100 Cr. Considering the ease it is offering in compliance, I would suggest the implementation of TCS on billing itself as against receipt basis.

  • Whether Permissible as per Law:
    The section 206C(1G) talks about the compliance with this TCS provision on receipt basis only and has not given the choice of implementing on invoicing basis. However, since it is in the interest of the Revenue, there will not be any objections by the revenue if the TCS provision is implemented at the time of invoicing.
  • What about Balance already outstanding as on 30/09/2020:
    Since, the amount will be receivable on or after 01/10/2020, it is advisable to pay the TCS on all the balance outstanding as on 30/09/2020 so as to avoid the non compliance at a subsequent date.

Question that arises, is whether all balances as on 30/09/2020 or only in those cases where outstanding balance is exceeding Rs. 50 Lakh?

It may be noted that the limit of Rs. 50 Lakh is on a per annum basis. So even if the balance outstanding as on 30/09/2020 is less than Rs. 50 Lakh, receipt may exceed Rs. 50 Lakh on subsequent dates in the same financial year. So, as a precautionary measure, TCS should be paid on the entire amount outstanding as on 30/09/2020 without distinguishing  between below and above Rs. 50 Lakh.

  • Sales Return:
    If TCS is done on receipt basis, sales return would not have affected either side. However, if the TCS is done at the time of invoicing, sales return may pose some trouble if it is not done in the same month or quarter.
  • Whether CBDT Clarification needed on this?:
    It was expected that the CBDT would clarify and allow the implementation at the time of billing but this is yet not done so far. The CBDT and law maker have altogether ignored the cost, inconvenience of this new provision and the mode of its implementation by the seller. The CBDT should come out with a clear cut FAQ allowing its implementation at the time of invoicing. It may be noted that already other TDS/TCS provisions are there in the Act which operates at the time of Invoicing/debit/advance payment itself whereas the new provisions have been specifically restricted at the time of “receipt of money”.
  • Why CBDT need to urgently clarify this:
    Though implementing TCS at the time of invoicing is in the interest of the Revenue, still it would be better if CBDT confirms it.

The primary reason is that at present, the applicable TCS rate is 0.075% whereas it would be 0.10% from 01/04/2020. Technically, if the invoicing is done in FY 2020-21 & payment is received in the subsequent financial years, TCS would have been @ 0.10% as against 0.075% done at the time of invoicing. It would result in slight variation and wrong compliance.

The court normally in such cases held the view in favour of the taxpayers as the same is consistently followed. But it is always subject to certain levels of litigation and disputes. So, clarification from CBDT would certainly provide certain ease in its implementations.

I am of the strong view that any law should not be implemented without considering the administrative trouble it may pose.

Even if it is not done so far, it can be so done now at the earliest. It would be in the interest of the taxpayers if CBDT takes note of all such issues and issues FAQ at the earliest so as to remove all the possible areas of controversies and litigation. It’s time to get ready for New TCS  compliance.

No need to say, Business first & compliance later is what is going to make India an Economic super power for which we are working for.