Last year TCS was collected @ 0.075%, Now, the rate is 0.10%. Whether Seller will be required to collect balance 0.025% in current year?

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Last year TCS was collected @ 0.075%, Now, the rate is 0.10%. Whether Seller will be required to collect balance 0.025% in current year?

Section 206C(1H) was added in the Income Tax Act- 1961 in the last year which requires every “Seller” with turnover exceeding Rs. 10 Cr to collect Tax at Source (TCS) @ 0.10% from the buyer on an amount exceeding Rs. 50 Lakh. TCS was required to be done at the time of “Receipt of Consideration”. Many taxpayers found it difficult to comply with it on “Receipt of Consideration” and so have implemented the system of collecting it at the “Time of Billing” by adding a suitable column in the bill itself rather than on “Receipt”. The software & computer programmer were modified so as to ensure the compliance with the new TCS provisions and are still trying to adjust with the new TCS system on sale of goods.

To complicate it further, new provision in the form of Section 194Q has been added in the Income Tax Act-1961 by the Finance Act – 2021 which now requires TDS on purchase of Goods. It provides that the “Buyer” of goods will be required to do TDS @ 0.10% if the turnover of such buyer is exceeding 10 Cr and the purchase from any “Seller” is exceeding Rs. 50 Lakh.

As far as section 206C (1H) is concerned, taxpayers are ensuring its compliance by any one of the following two mode:
I) In first mode adopted by few, Taxpayers are complying with the TCS provision by raising the debit note at the time of “Receipt”.
II) In the second mode adopted by majority, Taxpayers are complying by adding the amount of TCS in the invoice itself and ignoring the “Receipt” criteria altogether. This second mode is implemented by many taxpayers as it is easy & convenient to implement.

In short, lot many taxpayers have done TCS at the time of billing. Till 31/03/2021, the TCS rate was 0.75% due to reduction in TCS rate announced due to pandemics covid-19. The question arises, if the payment is received after 31/03/2021 then whether the seller will be required to do further TCS payment of 0.025% as the new rate of TCS for the FY 2021-22 is 1% and not 0.075% as was done earlier.

It may be noted that, as per legal provision of section 206C (1H), TCS is triggered at the time of “Receipt of consideration” and not at the time of billing. Approach to do TCS at the time of billing was followed by taxpayers due to administrative convenience and not due to its allowability in the Act.

Income Tax Department may take a plea that the TCS is done at a lower rate in such cases. Assessee may take a plea that it has ensured the compliance by adopting the conservative and better approach of compliance and has no intend to hide the transactions or evade / avoid the tax payment.

The issue is debatable from either side and it would be better if the CBDT clarifies it suitably considering the overall logic, intent & the convenience of the taxpayers.

Section 206C(1H) has already added an unnecessary compliance burden on the taxpayers. Section 194Q in the Income Tax Act  – 1961 is going to further complicate the process and will be against the concept of “Ease of business”.

 

 

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