Section 206C(1H) which provides for TCS on every seller. TCS is applicable on 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.

The section 206C(1H) reads 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.

Question arises as to whether TCS has to be done on the GST components also or not?

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. 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. The above view was also affirmed by MP HC in case of Vinod Rathore (278) ITR (122).

Legally speaking, for collecting the GST, the seller is acting as an agent of the Government. From seller perspective, GST is not the “value” of the goods but the amount of tax collected for the Government. As such, no TCS is required on the amount of GST. Levying TCS on GST is levying tax on tax which is against the principle of natural justice. The view expressed by CBDT looks harsh.

It would be in the interest of all the taxpayers if CBDT reconsider the issue and issue suitable clarification at the earliest.