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TCS u/s 206C (1H) - FAQs answered!

CA Chandra Kishore Bajpai 
on 02 October 2020

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Tax collected at Source on sale of Goods effective from 01st October 2020

The due date for filing Annual return and audit report under GST has been extended, taxpayer got some relaxation however new compliance requirement has been introduced which is applicable from 01st October 2020 i.e. tax to be collected at source on sale of goods.

Vide Finance Bill, 2020 sub-section (1H) of section 206C of the Income Tax Act has been introduced which has proposed for tax collection at source (‘TCS’, will use it in the remaining part of the post), originally it was scheduled to be effective from 01.04.2020 but later has been provided that section will be effective from 01.10.2020.

TCS u/s 206C (1H) - FAQs answered

Extract of the provision is being given below for ready reference:-

(1H) Every person, being a seller, who receives any amount as consideration for the 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 percent. 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 percent.", the words "one percent." 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.’;

FAQs on TCS u/s 206C (1H)

Q- Who is liable to collect TCS?

A -Seller whose total sales, gross receipt, or turnover from the business carried on by him exceeds Rs.10 crores during the financial year immediately preceding the financial year in which the sale is carried out. It means the total turnover of FY 2019-20 of the seller should be more than Rs. 10 crores.

Q- From whom TCS is to be collected?

A- TCS is to be collected from the buyer whose aggregate purchases from the seller exceed Rs.50 lacs in the previous year.

Q- On which amount TCS has to be collected?

A- TCS is required to be collected only on sale consideration exceeding Rs. 50 lacs. In other words, TCS on the first Rs. 50 lacs is not required to be collected.

Q- What is the rate of tax for TCS?

A- Rate of TCS provided in the section is 0.1% of sale consideration but Vide Press Release dated 13.05.2020 rate of tax has been reduced for the current financial year to 0.075%.

Q- Is there a change in the rate of tax if the buyer does not have PAN?

A- In case, the buyer does not provide PAN or Aadhar number to the seller rate of TCS shall be 1%.

Q- Whom provision of TCS under this section is not applicable?

A- This section does not apply to:-

• If Seller is collecting TCS under any other provisions of section 206C.

• If Buyer is liable to deduct TDS (Tax deducted at Source) under any Provisions of the Income Tax Act and the buyer has deducted TDS.

• Where the buyer is Central government, State Government, Local Authority, Embassy, High Commission, legation, commission, consulate, and the trade representation of a foreign State. But keep in mind that in the case of Government companies like PSUs, TCS would be applicable as these are not Government, it means If the seller is making a sale exceeding Rs.50 lakhs to them, TCS needs to be collected.

• In case of export sale ‘directly or through merchant exporter’

• In case of import of goods into India and

• Any other person whom Government may specify.

• Based on the clarification given by CBDT vide Circular No. 17 of 2020 Dated: 29th September 2020

(i) transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre;

(ii) transactions in electricity, renewable energy certificates, and energy-saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC;

• For this purpose,-

(i) "recognized clearing corporation"shall have the meaning assigned to it in clause (i) of the Explanation to clause (23EE) of section 10 of the Act;

(ii) "recognized stock exchange"shall have the meaning assigned to it in clause (ii) of the Explanation 1to sub-section (5) of section 43 of the Act; and

(iii) "International Financial Services Centre" shall have the meaning assigned to it in clause (q) of section2 of the Special Economic Zones Act, 2005 

Q- When TCS is to collect at the time of the invoice raised or sale consideration received?

A- The collection is required to be made at the time of receipt of the amount of sales consideration. Based on the clarification given by CBDT vide Circular No. 17 of 2020 Dated: 29th September 2020

Q- How shall the threshold limit of Rs.50 lakhs be determined?

A- Since the threshold of fifty lakh rupees is with respect to the previous year, calculation of receipt of sale consideration for triggering TCS under sub-section (1 H) of section 206C shall be computed from 1st April 2020. Hence, if a person being seller has already received fifty lakh rupees or more up to 30th September 2020 from a buyer, the TCS under sub-section (1 H) of section 206C shall apply on all receipt of sale consideration during the previous year, on or after 1st October 2020, from such buyer  (Based on the clarification given by CBDT vide Circular No. 17 of 2020 Dated: 29th September 2020)

Q- Is TCS is applicable on advance receipt of sale consideration?

A- Yes, TCS shall be applicable for advance received on or after 01st October 2020

(Based on the clarification given by CBDT vide Circular No. 17 of 2020 Dated: 29th September 2020)

Q- Sale was made before 01st October 2020 but sale consideration has been received on or after 01st October 2020, Is TCS need to be collected on such consideration?

A- Yes, you need to collect TCS on receipt of such sale consideration even sale happened before 30th Sep 2020.

(Based on the clarification given by CBDT vide Circular No. 17 of 2020 Dated: 29th September 2020)

Q- Whether the adjustment is required to be made for sales return, discount, or indirect taxes including GST for the purpose of collection of tax under sub-section (1H) of the section?

A- No, adjustment on account of sale return or discount or indirect taxes including GST shall be made for the collection of since the collection is made with reference to receipt of the amount of sale consideration.

Q- Whether TCS under sub-section (1H) is to be collected and deposited in addition to TCS to be collected and deposited as per other provisions of section 206C of the Act.

A- No, in case TCS is to be collected and deposited under any other provision of section 206C, TCS is not to be collected and deposited under this sub-section.

Q- Whether TCS is to be collected on the GST amount also?

A- In my understanding, it is yes as sale consideration includes taxes.

Q- My company entered an AMC contract and my contractor is providing goods and services both, consideration of which is going to exceed Rs. 50 lakhs during the year. Does My company need to collect TCS?

A- No, as the company will deduct TDS under section 194C and this section says that TCS not needed to be collected where the buyer is liable to deduct TDS under any provision of the Act.

Q- My company entered into an AMC contract but in case of any repair or replacement of item my contractor charges separate consideration for the supply of such items, does my company need to collect TCS?

A- Yes, as there would be no TDS applicable to the supply of such goods and supply of such goods shall be treated a separate sale.

Hope that it will make it easy to understand the provisions and will make you able to comply with the law, in case any query please write or comment.

Understand more about the applicability, exemptions, and payment schedule of the section. Read now!


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