Union Budget 2020: Ease of doing business vs. New TCS Compliance Burden

Every budget have some proposals either to widen the tax net or to deepen it further. One such measure in the recent Union Budget 2020 is with regard to Tax Collection at Source (TCS) which is embedded in section 206C of the Income Tax Act-1961. Presently, TCS is applicable on sale of Liquor, Timber wood, Tendu Leaves, Scrap, Minerals, Motor Vehicle exceeding Rs. 10 Lakh, Parking lot, Toll Plaza and Mining and Quarrying. Like Tax Deduction at Source (TDS) which is usually applicable on expenses of the payer, TCS is normally applicable on sale transactions. Main purpose is (a) to establish the trail of the transactions (b) to keep a track of the buyers (b) ensuring regular revenue flow to the Government Treasury.

Budget 2020 has proposed to drastically widen the TCS net with following 3 additional categories i.e.,

1. Foreign remittance through Liberalized Remittance Scheme (LRS) of RBI
2. Sale of overseas Tour Package
3. Sale of goods of any nature

Whereas first two categories will affect the general citizens, the third one would affect all the business houses. The possibility of tax base widening or deepening cannot be overruled in first two cases whereas it is very much doubtful in the third case. TCS on all goods in the third case has been proposed by introducing sub-section (1H) in section 206C in the Income Tax Act.

Sub-section (1H) in section 206C in the Income Tax Act-1961 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 Rs. 50 Lakh in any previous year, other than the 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 0.10% of the sale consideration exceeding Rs. 50 Lakh as income-tax:

Provided that if the buyer has not provided the PAN or 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 “0.10%”, the words “1%.” 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 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) 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.’;

Key feature of section 206C(1H) are as under:

1. Every seller having turnover exceeding Rs. 10 Crore in the preceding financial year to collect Tax at Source @ 0.10% 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 there is no PAN/Adhar of the buyer is available with the seller.
2. TCS liability is proposed at the time of receipt of money from the buyers at (and not necessarily at the time of billing). It will increase the burden for the businessmen as they would be required to ensure TCS not at billing but on receipt of money from the buyer. In short, every receipt of money would be required to be backed by TCS.
3. Of-course, TCS provision in such case would be applicable on sale effected after introduction of 206C(1H) only. Resultantly, taxpayer would be required to divide the receipt of money from its debtors as pertaining to period (a) prior to introduction of section 206C(1H) & (b) after introduction of section 206C(1H).
4. Buyers may face the music of income tax department as purchase may be in different financial year and payment may be in different financial year. 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 purchase itself.
5. Even exporters are not presently excluded from the provision of section 206C(1H) which may result in unintended burden on such persons. (Hopefully, the exporter may probably be excluded from the operation of section 206(1H) by issue suitable notification).
6. Sale up to Rs. 50 Lakh is not liable for TCS & will be applicable only on amount exceeding Rs. 50 Lakh.  In short, every seller would be required to keep a watch on the threshold limit of Rs. 50 Lakh for every buyer.

Consequences, Justifications & Alternative:

1. Compliance with the new TCS proposal would not only require collection and payment but also filing of quarterly TCS return, issue of TCS certificate, keeping a track of Rs. 50 Lakh threshold, etc. New compliance would seriously hamper ease in doing the business. Apart from blocking the liquidity of the business, it would results in additional compliance burden on the trade & industry.
2. Almost every business with turnover exceeding Rs. 10 Crore is in the GST net whereby they are required to file the GST returns on monthly basis. In the GST returns, bill-wise, date-wise, person-wise data is already available with the GST department. Needless to say, the buyer purchasing goods with aggregate value exceeding Rs. 50 Lakh will also be GST registered entity thereby ensuring the trail of the transactions. The same data can be synchronized with the income tax department.
3. If they purpose of section 206(1H) is to ensure the regular monthly flow in the Government Treasury then it could be easily achieved by alternate route. Seller could be made liable for advance tax payment @ 0.10% of monthly sales as reported in their GST return. Such monthly advance tax payment can be subsequently considered by the seller while working out their quarterly advance tax liability. This alternative will not only result in enhanced monthly revenue for the Government but will also reduce the compliance burden of the taxpayer resulting in real “ease of business” in the country.
4. The present proposal to impose TCS will neither result in widening the tax base nor in deepening the revenue collection. I suggest that the proposal to impose TDS u/s 206(1H) must be scrapped.

For ease of Business, Government needs to create an environment wherein industry can focus on innovation & business, not on unnecessary compliances. Business houses must be encouraged to do constructive activities rather than clerical & non revenue generating activities. It will result in better revenue collections, employment & growth.

Hope someone in the North Block is reading.

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