04 November 2020
Tax Collection At Source (TCS) Under Newly Introduced Section 206C(1H) of The Income Tax Act, 1961 Wef 01/10/2020
1. BASIC FEATURES:
a) Section is applicable only in case of 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 financial year in which sale is carried out. In other words to be liable to collect TCS in Current financial year (FY 2020-21) total turnover of the seller should be more than Rs.10 crores in F.Y.2019-20.
b) TCS is required to be collected from the buyer whose aggregate purchases exceed Rs.50 lacs in any previous year.
c) TCS is required to be collected only on sale consideration exceeding Rs. 50 lacs. In other words, TCS on first Rs.50 lacs is not required to be collected.
d) Rate of TCS provided in the section is 0.1% of sale consideration. Vide Press Release dated 13.05.2020 rate of tax has been reduced for the current financial year to 0.075%
One of the my client is a public limited company. We are supplying Forklifts spares and service. Our company is Sole proprietor company not having permanent staff instead migrant. No once covered unders ESI & PF as we have less than 10 staff altogether including migrant mechanic.
The company deducted ESI ,PF and TDS without any notice.
TDS deducted including Spares supply portions.
Please advise legal validity points to have a discussion as well how to get refund. We took Star Health Medical policy for migrants and eligibility mechanics covering their Road Accident,industrail accidents.
26 July 2025
Got it — here’s a breakdown and points you can use to discuss and address your client’s situation about **ESI, PF, and TDS deductions** by the public limited company:
---
### 1. **ESI & PF Deductions**
* **Applicability of ESI:**
* ESI is applicable only if the establishment has **10 or more employees** (in most states; some states require 20). * Since your client has **less than 10 staff**, **ESI is not mandatory**. * Migrant or contractual workers are covered **only if the employer is covered under ESI** and employees’ wages fall under limits. * Employer can’t force deduction of ESI if not applicable by law.
* **Applicability of PF:**
* PF is mandatory if an establishment has **20 or more employees**. * Since your client has **less than 10 employees**, **PF contribution is not mandatory**. * Voluntary PF schemes are possible but require registration and compliance.
* **Medical Insurance Policy:**
* Providing **Star Health Medical policy** for migrants is a good welfare practice but **does not replace statutory ESI/PF liabilities**. * It helps cover accidents but is a separate arrangement and does not legally exempt employer from ESI/PF if they become applicable.
* **Action Point:**
* Since your client is below threshold, **advise company that ESI/PF deductions are not legally applicable**. * Provide proof of employee count and medical insurance policy as evidence of employee welfare. * Request cessation of illegal ESI/PF deductions and refund of any amounts deducted wrongly.
---
### 2. **TDS Deductions Including on Spares Supply**
* **TDS on Supply of Goods:**
* Under **Section 194Q**, buyer is required to deduct TDS on purchase of goods if turnover exceeds Rs. 10 crore (from FY 2021-22 onwards). * But earlier (before 2021-22), **no TDS was applicable on supply of goods**. * If your company is the supplier of **spares (goods)**, TDS should **not be deducted** on the supply portion before Section 194Q came into effect.
* **TDS on Services:**
* TDS under **Section 194C** or **194J** is applicable on payments for services (like forklift servicing). * TDS can be deducted on service portion only.
* **Action Point:**
* Check whether TDS deducted on **spares supply (goods) portion** is legal — generally **not applicable** before 194Q. * Prepare request letter for refund of TDS deducted wrongly on goods supply. * For TDS on service portion, verify correctness of deduction, get TDS certificates (Form 16A).
---
### 3. **Getting Refund**
* **Refund of ESI/PF wrongly deducted:**
* Request company to refund deductions. * If not refunded voluntarily, approach **ESI/PF authorities** for clarification. * You can also consider **filing complaint with Labour Commissioner** or appropriate authority. * **Refund of TDS:**
* If TDS deducted on goods supply is illegal, your client can:
* File income tax return showing full income. * Claim refund of excess TDS. * Attach explanation and documentary proof (invoices, contracts).
---
### 4. **Summary of Legal Validity Points for Discussion**
| Point | Explanation | | ---------------------- | -------------------------------------------------------------- | | ESI Applicability | Mandatory if ≥10 employees; client has <10 → Not applicable | | PF Applicability | Mandatory if ≥20 employees; client has <10 → Not applicable | | Medical Insurance | Voluntary, no statutory exemption for ESI/PF | | TDS on goods supply | Not deductible under old rules; Section 194Q applies post-2021 | | TDS on service portion | Deductible under Section 194C/194J as applicable | | Refund process | File IT return for TDS; request refund from company for ESI/PF |
---
If you want, I can help draft a **formal letter for refund and clarification** to the company or draft **ITR refund claim explanations** for TDS.