As per Finance Act 2020, Section 206C(1H) will be applicable from 1st October 2020:
Inserted Provision of Section 206C:
(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.
Analysis of above provision:
1. To Whom Provisions of Section 206C(1H) Apply?
As per Section 206C(1H),such section applies to Seller of 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.However, CG may notify person to whom this section shall not be apply.
- If Turnover in FY 201920 is Rs. 12 Crore, then this section will apply for FY 2020-21 i.e. from 1st October 2020.
- In continuation of above If Turnover in FY 202021 is Rs. 8 Crore, then this section will not be applicable for FY 2021-22.
Thus Taxpayer needs to verify applicability of this section each year, unless taxpayer wants to opt it voluntarily.
2. What will be Value for collection of Tax?
As mentioned in above provisions, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax.
Thus, if amount received during the Financial Year exceeds Rs. 50 Lakhs then amount over and above 50 lakhs will be Value for collection of tax.
- Amount of Sales made during the year is 100 Lakhs but amount received against such sale during the year is only Rs. 90 Lakhs. In such case Amount of Rs. 40 Lakhs (90L-50L) will be Value for calculation of TCS.
- Amount of Sales made during the year is 100 Lakhs but amount received against such sale during the year is only Rs. 40 Lakhs. In such case Value for calculation of TCS will be Nil for that year. After that in next year remaining 60 Lakhs received against 100 Lakhs Sales, so in such year value for calculation of TCS will be 50 Lakhs (100L-50L).
3. Is Tax needs to be collected if Amount received pertains to Sales made before applicability of this provision?
As Section 206(1H) is Applicable from 1st of October 2020, only amount received for sales made after 1st October 2020 is liable for TCS. In short TCS will not be applicable on amount outstanding as on 30th September 2020.
4. Is GST needs to be included in amount while calculating value for TCS ? Like other transactions falls under provisions of TCS, amount of GST should be included in Value for calculation TCS amount. However Industry is expecting clarification from Government on this.
5. Is Amount of TCS should be included in Value of Transaction for calculation of GST? No, CBIC clarified through Corrigendum to Circular No. 76/50/2018-GST dated 7th March 2019 that Amount of TCS under Income Tax will not be part of Value under GST.
6. What are the Practical Complications and its possible solution for calculation of value for TCS?
- As said above TCS will be applicable if Sales exceeds Rs. 50 Lakhs, every seller needs to sort their Customer to whom TCS is applicable and to whom TCS is not applicable. Solution for this might be instead of sorting the parties you can apply provisions of TCS for all parties, as Credit of TCS will be ultimately available for Customer against its Income Tax Liability.
- As TCS needs to be deducted on amount received there will be yearend cases of sales for which amount not received. For such amount TCS will be apply in next year, so more reconciliation part of TCS liability with Turnover will arise. Solution for this might be charging TCS on Sales basis rather receipt basis. However by doing this blockage of Working Capital will be arise. So everyone needs to take call either to block working capital or incur cost for reconciliation.
- Every Seller needs to change Invoice format to include line item for TCS Amount.
Know about the practicality of TCS section 206C (1H) in detail. Read now!
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