Sub section 1H to section 206C was inserted by Finance Act, 2020 into Income Tax Act which deals with tax collection of tax.
Now collection of tax is different from deduction of tax i.e. TDS and TCS are different.
In a single line TDS is deducted from payment made by buyer to seller and TCS is collected in payment received by seller from seller.
Now Finance minister added a new sub section (1H) to collection of tax applicable from 01.10.2020 which is as under:
“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.
“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;
“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.”
Thus, prima facie what we can understand is:
1. Tax needs to be collected by seller: According to the definition only those person are seller whose turnover exceeded Rs. 10 crore in the financial year preceding the financial year in which sale was made. For eg: If a sale is being made by a person in FY 2020-21 then he will be eligible to collect TCS on same if his turnover in FY 2019-20 was above Rs. 10 crore. Therefore a business which started in FY 2020-21 won’t be liable to collect such TCS.
2. TCS would be collected from buyer to whom sale exceeding Rs. 50 lakhs is made in a year and this won’t include sale of service or export sale. Thus, the above limit of Rs. 50 lakh is per buyer. However this, won’t include sale to Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State, local authority or any other person specified.
3. Liability of TCS and time of collection: In the above sub-section there are two aspects i.e. liability of TCS and collection of TCS and both are different. Liability of TCS shall arise when sale of goods is made above Rs. 50 lakh to one buyer and time of collection would be at the time of receipt of consideration.
4. Amount on which TCS applicable: TCS shall be applicable only on amount of sale exceeding Rs. 50 lakh in a year. For eg: If a person has sold goods of Rs. 60 lakh to one buyer hence TCS needs to be collected at 0.1% only on Rs. 10 lakh. However if will be collected on any consideration received. Thus, out of the above 60 lakh if one has received only Rs. 5 lakh till now then also one has to collect 0.1% of those 10 lakh with this amount.
5. Amount of TCS which needs to be collected if PAN or Aadhar card not available would be 1% instead of 0.1%. However, till 31.03.2021 this rate has been reduced to 0.075% by CBDT vide notification.
6. Will GST be included in the calculation of sale consideration: Yes, GST will be a part of sale consideration under TCS because notification 01/2014 issued by CBDT only covered TDS and not TCS wherein it was mentioned that for calculation of consideration for TDS component of indirect tax won’t be considered.
7. TCS under this section shall not be applicable where TDS is being deducted on same transaction or TCS is collected: For eg: If a person sells a car to another person of Rs. 60 lakh then TCS under this sub section won’t be applicable as it is already covered under 206C(1F).
8. The sales made before 01.10.2020 would only be used for calculation of turnover/ sales consideration and no TCS should be collected on same.
Some Practical difficulties:
1. Now more people would be covered under TCS after this rule who were just deducting TDS till now. Also one thing to note is that the TDS number would be enough to collect TCS.
2. Also it would be difficult to keep track of amount to be collected at the time of receipt of payment hence it can be advised to collect TCS at the time of sale.
3. Now, people will have to make separate invoice for sale of goods and services for one buyer, as this TCS is only applicable on sale of goods or find a way to differentiate between both sales. Further, at the time of receipt there needs to be a bifurcation for amount received against goods and services for proper collection of TCS.
4. In case of sale return there can be an issue where the amount of sales gets below the actual amount and return is received after the TCS return is filed and in that case the only option available with seller would be to revise return and claim refund.
1. This section is being made applicable from 01.10.2020 and tax collection should be prospective in nature and not retrospective. However since the collection of tax or point of tax collection is receipt of sale consideration. Hence, many people are considering that if a sale which was made before 01.10.2020 but for which consideration is received after 01.10.2020 TCS shall be applicable on same if all other conditions are met.
However, if the above approach is accepted it will become really difficult in a situation where a sales was made before 1 year or 2 year and amount is received now because all the other conditions needs to be checked in respect to that financial year when sale was made as seller definition and liability of TCS also needs to be checked when that particular sales is made.
For eg: If a person had sold goods to a person in FY 2019-20 of Rs. 70 lakh for which payment is received on 01.11.2020 then in that case one needs to first check whether the seller fulfills the definition of seller during that sales as the definition of seller says ““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,””. Hence it will be confusing and cumbersome if sale made before 01.10.2020 is brought under ambit of this TCS.
Many experts are also suggesting that one should collect TCS even on the receipt received after 01.10.2020 for sale made before 01.10.2020 as the amount won’t be much and so that there is no future penalty for non collection.
Due date of payment of TCS and filing of TCS return:
Payment will be made to the government within 7 days of the next month in which amount collected.
Return of the TCS would be filed on the 15th day of the month succeeding to the quarter except for quarter ending 31st March where it would be 15th May.
Form 27EQ needs to be filed for TCS return.
Penalty fro non collection of tax at source could be a sum equal to the amount of tax which such person failed to collect u/s 271CA.