Understanding
Key Issues of TCS on Sale of Goods-Section 206C(1H)
In order to widen and deepen
the tax net the Finance Act, 2020 has amended the provisions of
section 206C to levy TCS on sale of goods by inserting a sub-section
(1H) to section 206C.
01. Introduction
The Finance Act, 2020 has made
an amendment by insertion of sub-section (1H) in section 206C of the Income Tax
Act, 1961 (hereinafter referred to as “the Act”) which is effective from
01.10.2020. As a result of the said amendment, a seller who receives any amount
as consideration for the sale of any goods of the value or aggregate of such
value exceeding Rs. 50 Lakh in any previous year shall at the time of receipt
of such amount collect from the buyer, a sum equal to 0.10% of the sale
consideration exceeding fifty lakhs as income tax.
Section 206C of the Act
provides for the collection of tax at source (TCS) on business of trading in
alcohol, liquor, forest produce, scrap etc. Sub-section (1) of the said
section, inter-alia, provides that every person, being a seller shall,
at the time of debiting of the amount payable by the buyer to the account of
the buyer or at the time of receipt of such amount from the said buyer in cash
or by the issue of a cheque or draft or by any other mode, whichever is
earlier, collect from the buyer of certain goods a sum equal to a specified
percentage, of such amount as income-tax.
02. Bare provision of Section 206C(1H) levying TCS on sale of goods
The bare provision of Section 206C(1H) levying TCS on sale of goods reads as
follows-
(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.
These amendments will take effect from 1st October, 2020.
03.
Salient features of section 206C(1H)
The salient features of
section 206C(1H) are outlined below-
1. A seller of goods is liable
to collect TCS at a rate of 0.1 per cent on consideration received from a buyer
in a previous year in excess of fifty lakh rupees. In non-PAN/ Aadhaar cases,
the rate shall be one per cent.
2. Only those sellers whose
total sales, gross receipts or turnover from the business carried on by it
exceed ten crore rupees during the financial year immediately preceding the
financial year, shall be liable to collect such TCS.
3. Central Government may
notify person, subject to conditions contained in such notification, who shall
not be liable to collect such TCS.
4. No TCS is to be collected from the Central Government, a State
Government and an embassy, a High Commission, legation, commission, consulate,
the trade representation of a foreign State, a local authority as defined in
Explanation to clause (20) of section 10 or any other person as the Central
Government may, by notification in the Official Gazette, specify for this
purpose, subject to conditions as prescribed in such notification.
5. No TCS is to be collected from the importer of any goods into India.
5. No such TCS is to be
collected, if the seller is liable to collect TCS under other provision of
section 206C or the buyer is liable to deduct TDS under any provision of the
Act and has deducted such amount.
04.
Amendments to Finance Bill, 2020 by the Finance Act, 2020
The provisions of section 206C(1H) to impose TCS on sale of goods were
introduced in the Finance Bill, 2020. However, when the Bill was passed by the
Loksabha various amendments in section 206C(1H) were made in the Bill through
government amendments.
In the Bill, the applicability date of TCS on sale of goods was 1st April, 2020
which was postponed and amended to 1st October, 2020 by the Finance Act. The
Finance Bill, 2020 proposed the amendments to the provisions relating to TCS to
be effective from 01-04-2020.
The Finance Act, 2020 has deferred the applicability of such
amendments to be made effective from 01-10-2020.
The Finance Bill, 2020 (as
passed by the LokSabha) has amended sub-section (1H) to provide that no tax
shall be collected in respect of export or import of goods.
Power to remove difficulty- Finance Act, 2020 has
empowered the CBDT to issue guidelines, with the approval of central
government, if any difficulty arises in giving effect to the provisions of
subsection (1G) or sub-section (1H). It is also provided that such guidelines
so issued shall be laid before the Parliament and shall be binding on the
Income-tax authorities and on the person liable to collect the sum. [Section
206C(1-I) and section 206C(1J)]
There were no such provisions
in the Finance Bill, 2020.
05.
Scheme of TCS provisions as contained in section 206C
Section 206C of the Act
provides for the collection of tax at source (TCS). It has 11
sub-sections.
Sub-sections (1) to (1H)
provides for the rate of TCS on various sale of goods as follows-
Section |
Nature of Transaction Goods and/or Services liable
to TCS |
Rate of TCS |
Status |
|
If PAN or Aadhaar is
furnished |
If PAN or Aadhaar is NOT
furnished |
|||
206C(1) |
Alcoholic Liquor for human
consumption |
1% |
5% |
Existing Provision |
Tendu leaves |
5% |
10% |
Existing Provision |
|
Timber obtained under a
forest lease |
2.5% |
5% |
Existing Provision |
|
Timber obtained by any mode
other than under a forest lease |
2.5% |
5% |
Existing Provision |
|
Any other forest produce not
being timber or tendu leaves |
2.5% |
5% |
Existing Provision |
|
Scrap "scrap" means waste
and scrap from the manufacture or mechanical working of materials which is
definitely not usable as such because of breakage, cutting up, wear and other
reasons |
1% |
5% |
Existing Provision |
|
Minerals, being coal or
lignite or iron ore |
1% |
5% |
Existing Provision |
|
206C(1C) |
Where the Nature of contract
or licence or lease, etc. |
|||
Parking lot |
2% |
5% |
Existing Provision |
|
Toll plaza |
2% |
5% |
Existing Provision |
|
Mining and quarrying shall not include mining and
quarrying of mineral oil and “mineral oil” includes petroleum and natural gas |
2% |
5% |
Existing Provision |
|
206C(1F) |
Sale of a motor vehicle of
the value exceeding Rs. 10 Lakh |
1% |
5% |
Existing Provision |
206C(1G) (w.e.f. 01-10-2020) |
Remittance under Liberalised
Remittance Scheme of Reserve Bank of India exceeding Rs. 7 Lakh |
|
|
New Provision |
(a) If the remittance is a
loan obtained from any financial institution as defined in section 80E, for
the purpose of pursuing any education |
0.5% |
5% |
New Provision (Amended by Finance Act,
2020) |
|
(b) Others |
5% |
10% |
New Provision |
|
Sale of the Overseas Tour
Package |
5% |
10% |
New Provision |
|
206C(1H) (w.e.f. 01-10-2020) |
Sale of goods in excess of
Rs. 50 Lakh in a year by a seller whose turnover is more than Rs. 10 Crore |
0.1% |
1% |
New Provision |
Sub-Section to Section 206C |
Provisions covered |
S.
206C(1-I) |
Power
to remove difficulties in giving effect to the provisions of sub-section (1G)
or sub-section (1H) by issuing guidelines. |
S.
206C(1J) |
Every
guideline issued by the Board under sub-section (1-I) shall be laid before
each House of Parliament. |
S.
206C(2) |
This
section is only a mode of recovery |
S.
206C(3) |
Deposit
of TCS by the collector to the government’s account and furnishing of TCS
statement |
S.
206C(3A) |
Furnishing
TCS statements by government collector |
S.
206C(3B) |
Correction
of furnished TCS statements by government collector |
S.
206C(4) |
TCS
is the tax paid by the buyer |
S.
206C(5) |
Issue
of TCS Certificate |
S.
206C(5A) |
Furnishing
of Annual TCS Return, applicable for TCS before 01.04.2005 |
S.
206C(5B) |
Furnishing
of Annual TCS Return in computer media |
S.
206C(5C) |
Annual
TCS Return furnished in computer media shall be the Annual Return for
sub-section (5A) |
S.
206C(5D) |
Defective
Annual TCS Return |
S.
206C(6) |
Deposit
of TCS in case of failure |
S.
206C(6A) |
Assessee-in-default
in certain circumstances |
S.
206C(7) |
Interest
payable in case of delay in deposit of TCS |
S.
206C(8) |
Charge
on assets for Arrear TCS and interest |
S.
206C(9) |
Lower
rate of TCS certificate |
S.
206C(10) |
Lower
rate of TCS certificate shall prevail |
S.
206C(11) |
Power
to make Rules for sub-section (9) |
Who
shall collect tax under section 206C(1H)
Every seller of goods
is liable to collect tax from the buyer under this provision in the
following circumstances-
1. The term ‘seller’ is
defined in the provision itself to mean any person. Thus an individual, firm,
HUF, company, trust, AoP, BoI, society, - all are covered, who sells goods to
buyers whether in wholesale or retail.
2. Only sellers of goods are
covered by this provision. Services are not covered. If a person sells goods as
well as render services, then tax shall be collected only on the sale of
goods. No tax shall be collected on the sale of services. If the
seller is a registered supplier under GST laws, GST will be charged on both the
invoices for sale and services.
3. The
seller must be a person whose total sales, gross receipts or turnover from the
business carried on by him exceedRs. 10 crore during the financial year
immediately preceding the financial year in which the sale of goods is carried
out.
All the sellers are not covered
under this provision. Only those sellers of goods whose turnover or gross
receipts in the preceding financial year exceeds Rs. 10 crore are only liable
to collect tax under this provision.
In computing the threshold
limit of Rs. 10 crore, the sale of goods, as well as sale of services, will be
counted and added.
Further, in computing the total
sales/turnover/gross receipts, the amount of GST shall be included. This is by
virtue of the specific provisions of section 145A.
Example 1:Rakesh Trading & Servicing
Co. is a partnership firm and sells refrigerators. It also provides repairing,
maintenance services of the refrigerators. During the FY 2019-20, its turnover
from sale of a refrigerator is Rs. 8 crore and income from repairing and
maintenance services is Rs 4 crore. The rate of GST is 18% in both cases.
Determine whether the firm is liable to collect TCS in the FY 2020-21.
For the applicability of a provision of section 206C(1H) for the FY 2020-21,
its turnover for the FY 2019-20, the immediately preceding financial year, is
to be considered.
Computation of turnover of M/s
Rakesh Trading & Servicing Co. for the FY 2019-20:
Particulars |
Amount (in Rs./Crore) |
Sale
of refrigerator |
5.00 |
Sale
of Services |
4.00 |
Add:
GST @ 18% |
1.62 |
Turnover
for the FY 2019-20 |
10.62 |
Since the turnover of M/s Rakesh Trading & Servicing Co.
exceeds Rs. 10 crore including GST, it is liable for TCS u/s 206C(1H) from the
sale of goods in the FY 2020-21.
4. The
Central Government may by a notification exclude any person, being a seller,
from the applicability of provisions of section 206C(1H).
5. The
seller must sell the goods to the buyer. Thus if the seller draws the goods for
personal consumption, it will not come under the purview of TCS since one
cannot sell to himself.
6. The
term ‘buyer’ is defined in the provision itself to mean any person who
purchases any goods. In other words, a buyer is a person who purchases the
goods from the seller. However, the term ‘buyer’ does not include the
followings-
(i) the Central Government, a State Government, an embassy, a High
Commission, legation, commission, consulate and the trade representation of a
foreign State; or
(ii) a local authority as defined in the Explanation to clause
(20) of section 10; or
(iii) 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;
Thus if a seller even if
preceding year turnover exceeds Rs. 10 crore and sells goods for more than Rs.
50 Lakh to the Central Government, State Government or other excluded persons
as mentioned above, he shall not collect TCS on such sale of goods.
Further, it may be noted that Government
entities or corporations are not exempt from the TCS provisions. They will
be considered as buyers for the purpose of section 206C(1H).
7. The seller shall collect the
tax or TCS from the buyer only if he receives consideration of more than Rs. 50
Lakh in a previous year in aggregate from the buyer towards the sale of any
goods. This shall apply per buyer basis. It does not apply when the per buyer
receipt of sale consideration does not exceed Rs. 50 Lakh but exceeds Rs. 50
Lakh in aggregate from more than one buyer.
Example 2: Continuing from Example-1,
Suppose M/s Rakesh Trading & Servicing Co. receives the following amount
from the buyers during FY 2020-21 as sales consideration for the sale of goods-
Buyers |
Amount Received during FY
2020-21 |
Remarks |
Buyer
A |
Rs. 25,00,000 |
No
TCS shall apply |
Buyer
B |
Rs. 35,00,000 |
No
TCS shall apply |
In the above case, no TCS shall
apply even if the seller is liable to collect TCS. This is because receipt of
consideration from a single buyer does not exceed Rs. 50 Lakh, though in
aggregate receipt from all the buyers exceeds Rs. 50,00,000. This fact is
irrelevant.
Suppose, the firm receives Rs.
51,00,000 from Buyer C then it shall collect TCS from Buyer C only.
Buyers |
Amount Received during FY
2020-21 |
Remarks |
Buyer
A |
Rs. 25,00,000 |
No
TCS shall apply |
Buyer
B |
Rs. 35,00,000 |
No
TCS shall apply |
Buyer
C |
Rs. 51,00,000 |
TCS
shall apply on in this case |
The TCS shall be collected when
the seller receives the amount of sale consideration from the buyer and not at
the time of issuing invoices.
Meaning
of ‘goods’ for section 206C(1H)
8. The term ‘goods’ is neither
defined in the provision nor the Income Tax Act has defined the term ‘goods’.
The provision simply states the sale of any goods. It means goods of all kinds
are covered. However, the sale of the following goods are excluded, since on
these goods TCS provisions are already covered, except for export of goods-
Goods covered in section
206C(1) |
This sub-section covers
alcoholic liquor, forest produce, scrap, etc. as ‘goods’ |
Goods covered in section
206C(1C) |
This includes lease or a
licence or enters into a contract or otherwise transfers any right or
interest either in whole or in part in any parking lot or toll plaza or mine
or quarry |
Goods covered in section
206C(1F) |
This includes motor vehicle |
Goods exported out of India |
The Sale of Goods Act, 1930 is
the law that governs the sale of goods in India. As per section 2(1) of the
Sale of Goods Act, 1930, a buyer is someone who buys or has agreed
to buy goods. Since a sale constitutes a contract between two parties, a buyer
is one of the parties to the contract.
The Sale of Goods Act, 1930
defines the term ‘seller’ in section 2(13). A seller is someone who sells or
has agreed to sell goods. For a sales contract to come into existence, both the
buyers and seller must be there. These two terms represent the two parties of a
sales contract. As per the Sale of Goods Act, 1930, even the person who agrees
to buy or sell is qualified as a buyer or a seller. The actual transfer of
goods doesn’t have to take place for the identification of the two parties of a
sales contract.
The Sale of Goods Act, 1930
defines the term “goods” in its section 2(7) in the following manner-
"goods" means every kind of movable property other than actionable
claims and money; and includes stock and shares, growing crops, grass, and
things attached to or forming part of the land which are agreed to be severed
before sale or under the contract of sale.
Under GST, ‘goods’ have been
defined as every kind of movable property other than money and securities
but includes actionable claim, growing crops, grass and things attached to or
forming part of the land which are agreed to be severed before supply or under
a contract of supply.
Though under both the laws, ‘goods’ means movable goods but there are
certain differences with certain items-
1. Under Sale of Goods Act, 1930 actionable claims are excluded
but GST law includes it within the definition of goods.
2. Under GST law, stocks and shares are excluded from the
definition of goods but are specifically included in the definition of ‘goods’
under the Sale of Goods Act, 1930.
However, there are similarities in case of money and immovable properties as
both are excluded from the definition of goods under both the laws.
Though GST laws also define the term goods, it is the definition of goods under
the Sale of Goods Act, 1930 shall prevail. This is because the Sale of Goods
Act, 1930 is the mother law in a contract of sale of goods and has universal
application. The GST definition of the goods under the GST laws is specific to
the GST area only. Section 206C(1H) has also used the term 'sale of any goods’
whereas GST applies to ‘supply of goods as well as services’, though the term
supply includes sale.
Hence, as per my view, stocks
and shares are also liable for TCS under this provision.
Goods are generally tangible.
They can be possessed, stored, delivered, transferred, bought and sold.
Services are generally intangible. However, some intangibles, like
electricity, trade-mark, copyright, technical know-how have also been
interpreted by Courts as ‘goods’ as they are capable of being possessed,
stored, delivered etc. On the other hand some services can also be tangible
e.g. a prepaid card with talk time.
Growing crops, timbers and Grass: As per Section 3 of the Transfer of
Property Act, 1882, ‘immovable property’ does not include standing
timber, growing crop and grass. The word standing timber includes Babool Tree,
Shisham, Nimb, Papal Banyan, Teak, Bamboo, etc. The fruit bearing trees like
Mango, Mahua, Jackfruit, Jamun, etc., are not standing timber, and they are
immovable properties [Fatimabibi v. Arrfana Begum, AIR 1980 All 394].
Whether trees can be regarded
as movable or immovable depends upon the circumstances of the case. If the
intention is that trees should continue to have the benefit of further
sustenance or nutriment by the soil (land), e.g., enjoining their fruits, then
such tree is immovable property. But if the intention is to cut them down
sooner or later for the purpose utilising the wood for building or other
industrial purpose, they would be timber and of accordingly be regarded as
movable property [Shantabai vs. State of Bombay, AIR 1958 SC 532]
Electricity: Electricity has been held to be “goods” by a Constitution
Bench of the Supreme Court in the case of State of Andhra Pradesh vs.
National Thermal Power Corporation Ltd. (2002) 5 SCC 203. It was
held that electricity though an intangible object is ‘goods’ covered by Entry
54 of List II of Schedule VII to the Constitution of India.
Lottery: Earlier, the Hon'ble Supreme
Court in the decision reported in 1986 61 STC 165 in H.Anraj vs.
Government of Tamil Nadu took a view that the sale of lottery tickets
involved the sale of goods.
However, a Constitutional Bench
of the Supreme Court in Sunrise Associates vs. Government of NCT of
Delhireported in 2000 (10) SCC 420 (decided on 28 April 2006)
overturned the decision in the H Anraj case, holding that the sale of lottery
tickets is not ‘goods’ and is, at best, only a transfer of an actionable
claim.
Note: It should be noted that Timber
is already subject to TCS u/s 206C(1) and hence shall not be liable to TCS u/s
206C(1H).
When to collect TCS on sale of goods u/s 206C(1H)
The trigger point to collect
the TCS on sale of goods u/s 206C(1H) is the ‘receipt of consideration’
from the buyer and not at the time of issuing invoices to the buyer. Therefore,
TCS under this section shall be required to be collected at the time of receipt
of sales consideration from the buyer. It should be noted that even if the
seller receives ‘advance money’ from the buyer for sale of goods, the
seller is liable to collect TCS on the advance amount.
Every time the seller receives part of the sale consideration in advance, the
seller is mandated to deduct TCS under Section 206C(1H). The difficulty arises
in the calculation of the amount when TCS is deducted on multiple advance
payment transactions and when payments transactions are adjusted against
Invoice amount.
If the seller sells the goods on a cash basis i.e. cash sale, the seller can
collect the TCS immediately. It would not create any compliance problem as the
seller can charge the TCS on the invoice itself.
However, the situation is not
the same in the case of credit sale where the seller issues invoices on sale of
goods and receives the consideration at a later date. Since at the time of
issue of invoices, he cannot charge TCS under this provision, how will he
comply with the provisions of section 206C(1H) when he receives the
consideration. It appears that he has to raise a separate ‘Debit note’ for TCS
as and when the seller receives the payment from the buyer. It is also possible
that the seller does not receive the payment of the whole invoice but on
installments. In such a situation, it would lead to great trouble to keep a
track on the threshold limit and issue of the debit note. Further, it would be
a matter of great concern for the seller if the transaction with the buyer is
not regular or if the buyer refuses to pay the TCS separately later on. This
may lead to high compliance cost to the seller.
Alternatively, in order to
remove complexities and to simplify the matter, the seller may charge the TCS amount
on the invoice and after receipt of consideration from the buyer shall deposit
the same to the credit of the central government within the prescribed time
limit to be computed from the month in which consideration is actually
received.
Since this requires
identification of buyers with turnover of more than Rs. 50 Lakh, in order to
simplify the identification procedure, the seller may start charging TCS to all
the buyers irrespective of the amount of turnover with the buyer. However,
please note this may be resisted by many buyers if their transactions with the
seller is less than the threshold limit.
This provision is different from the provisions as contained in sub-section(1)
where TCS needs to be collected at the time of issuing the invoices if it
happens before the collection of consideration.
The liability to deposit the
TCS shall arise only when the consideration is received from the buyer. This
will save the seller from blocking his own working capital. Seller can deposit
the TCS amount when the amount is actually realized. On the other hand, if the
buyer is not liable to pay tax this will block his working capital since there
is no provision to apply for a lower TCS rate of certificate under section
206C(9).
What
is the rate of TCS on sale of goods u/s 206C(1H)
The rate of TCS on Sale of Goods under section 206C(1H) is 0.1% of
Sales Consideration if the buyer provides his PAN or Aadhaar Number to the
seller.
If the buyer fails to provide his valid PAN or Aadhaar Number, then the rate
of TCS on Sale of Goods under section 206C(1H) shall be 1% of the Sales
Consideration, instead of 0.1%.
CBDT vide Press Release dated 13.05.2020 has reduced the rate of TCS
under section 206C(1H) from 0.1% to 0.075% which shall be applicable from
01-10-2020 to 31-03-2021. However, where the buyer does not provide his
valid PAN/Aadhaar there is no reduction in rate of TCS and the prescribed rate
of 1% shall prevail. From 01-04-2021, the prescribed rate will prevail unless
the benefit is extended.
Rate of TCS u/s 206C(1H) for sale of goods (other than Alcohol, Tendu
Leaves, Timber, Forest Produce, Scrap, Coal, Lignite, Iron or a Motor Vehicle)
Nature |
Rate of TCS from 1-10-20 to 31-3-21 |
Rate of TCS from 1-4-21 |
||
PAN/Aadhaar available |
No PAN/Aadhaar case |
PAN/Aadhaar available |
No PAN/Aadhaar case |
|
Sale
of Goods u/s 206C(1H) |
0.075% |
1% |
0.1% |
1% |
What
is the effective date of applicability of provisions for TCS on sale of goods
u/s 206C(1H)
When the Finance Bill, 2020 was
introduced it was originally proposed to be made effective from 01-04-2020. But
the Finance Act, 2020 has deferred the applicability of the provisions of
section 206C(1H) to 01-10-2020.
What
is the threshold limit for applicability of section 206C(1H) and how to compute
the threshold limit
The threshold limit
prescribed for the applicability of TCS on sale of goods u/s 206C(1H) is Rs.
50,00,000 in a financial yearin respect of each buyer.
The law provides that the threshold limit is required to be computed with
reference to the amount of sales consideration received during a previous year.
Thus the limit is not linked to the amount of sales made in a previous year but
it is linked with the amount of consideration received during a previous year.
The receipt thus may include receipt of consideration from the preceding year
sales also.
For example, if the seller (liable for TCS under this provision) sold
goods worth Rs. 40 Lakh the Sales to a buyer in the FY 2020-21 and collected
Rs. 10 Lakh in the FY 2020-21.
In the next FY 2021-22, he sold
goods worth Rs. 30 Lakh to the same buyer. In the FY 2021-22, the buyer paid
all the due amount of Rs. 60 Lakh. The liability to collect tax under section
206C(1H) shall arise in FY 2021-22 since the amount collected is more than Rs.
50 Lakh in the FY 2021-22.
Further, TCS shall be required to be collected on the amount received in excess
of Rs. 50 Lakh. Thus in the given example, tax shall be collected under section
206C(1H) on Rs. 10 Lakh and not on the entire amount of Rs. 60 Lakh.
Thus, TCS will be collected on Trade Receivables outstanding as on 30th
September 2020 and received on or after 1-10-2020.
It is really harsh to charge TCS on receipt of consideration against the sales
effected when the provisions were not in existence. Therefore, a contrary view
is also not ruled out.
CBDT should come out with a clarification on applicability of TCS on Trade
Receivables outstanding as on 30th September 2020 and received on or after
1-10-2020.
Computation of threshold limit for FY 2020-21
The provisions of section 206C(1H) shall come into effect from
01-10-2020. The limit of Rs. 50 Lakh is given for a financial year. Thus the
limit of Rs. 50 Lakh receipt of sales consideration shall be computed from
1-4-2020 itself but liability to collect TCS shall apply from 1-10-2020.
Thus, TCS shall be collected under various situations as given
below-
Amount Collected from
1-4-2020 to 30-9-2020 |
Amount collected from
1-10-2020 to 31-03-2021 |
Remarks |
Rs. 40 Lakh |
Rs. 20 Lakh |
TCS on Rs. 10 Lakh Rs. 60
Lakh - Rs. 50 Lakh shall be collected |
Rs. 55 Lakh |
Rs. 12 Lakh |
TCS shall be collected on Rs.
12 Lakh. sInce the threshold limit already crossed before 1st Oct., all the
subsequent collection shall attract TCS. |
Rs. 20 Lakh |
Rs. 25 Lakh |
No TCS shall be required
since the threshold limit of Rs. 50 Lakh not crossed. |
It is assumed that the seller
is liable to collect TCS u/s 206C(1H) since his turnover in the preceding FY
exceeds Rs. 10 crore.
Mode
of receipt of Consideration
Section 206C(1H) simply states
that the fact of ‘receipt of consideration for sale of any goods…”. It does not
specify the mode of receipt whether in cash or cheque or in kind.
The term ‘consideration’ is not
defined in the Income Tax Act. The term ‘consideration’ is defined in the
Indian Contract Act, 1972. Section 2(d) of the Contract Act defines the term
‘Consideration’ as: "When at the desire of the promisor, the promisee
or any other person has done or abstained from doing, or does or abstains from
doing, or promises to do or abstain from doing something, such act or
abstinence or promise is called consideration for the promise".
Thus it is not necessary that
the consideration must be in money. If the consideration is paid in kind, the
same shall also be liable to TCS. Further, if the consideration is adjusted
with some other amount through journal entry, the same also shall constitute
‘consideration’ liable to TCS. It is also irrelevant to decide the adequacy of
the consideration for the sale of goods.
What
is the meaning of Sales Consideration? Will it include GST?
Tax on sale of goods under
section 206C(1H) is collected on the receipt of any amount as consideration
for sale of any goods. If we look into other provisions of section 206C
which imposes TCS on various other goods and items we can see different
terminology is used.
Section 206C(1) for sale of
alcoholic liquor, forest produce, scrap,etc. |
Amount payable by the buyer |
Section 206C(1C) for lease or
a licence of parking lot or toll plaza or mine or quarry |
Amount payable by the
licensee or lessee |
Section 206C(1F) for sale of
motor car |
Receives any amount as
consideration for sale of a motor vehicle |
The provision of this section is somewhat similar to the provisions of section
206C(1F).
As stated above, the term consideration is defined in the Indian Contract Act,
1872. Further, section 2(10) of the Sale of Goods Act, 1930 defines the term
‘price’ as “price” means the money consideration for a sale of goods.
Though section 206C(1H) used the term ‘consideration’ and not ‘price’, the
former being more wider in coverage then latter, the definition of ‘price’ will
not be going to help much.
Section 145A of the Income Tax
Act, 1961 requires to include any amount of tax, by whatever name called, in
the amount of sales.
However, CBDT has issued a Circular No. 23/2017 on
19.07.2017
to provide for non-deduction of tax on the GST amount. The rationale of such
exclusion was that the amount of GST is collected on behalf of the government
and does not take the character of consideration for services rendered. Though
the clarification was issued in respect of TDS, similar clarification in the
case of TCS is not yet released.
Therefore, it is not clear whether TCS shall be collected on the amount of
consideration inclusive of GST or exclusive of GST. Collecting tax on GST
amount would amount to collection of tax on tax and not on the consideration
for sale of goods which is not the intention of the legislature.
Therefore, a clarification from the CBDT on the matter in the line of TDS is
highly desirable. However, till the clarification by CBDT, it will be more
appropriate that TCS should be collected on Sales Value including GST.
Freight, Insurance and other charges: However, freight, insurance and
other charges will be included in the amount of consideration. Hence TCS amount
will be charged on a CIF basis.
Adjustment
for Sales Return for TCS
In case of sales return, credit or debit note may be issued which will
ultimately reduce the amount receivable by the seller from the buyer. Thus TCS
shall be collected on the net amount collected from the buyer. However, if the
sales return happens after the receipt of consideration and furnishing of TCS
statement, the only option left to the seller is to file a correction statement
and adjust the same with any subsequent TCS liability or claim refund of the TCS.
Non-applicability
of TCS when TDS is applicable
The second provision to section
206C(1H) provides 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.
The two noteworthy conditions are-
1. The buyer is liable to deduct TDS, and
2. The buyer has actually deducted the TDS.
Both conditions are required to
be satisfied.
In the case of works contract,
both the goods and services are involved. However, such a transaction is
covered under section 194C and is subject to TDS thereunder. Hence, there shall
not be any TCS on works contract only if the buyer has deducted the tax.
If the seller has obtained any Nil TDS certificate u/s 197 authorizing the
buyer not to deduct tax from any payment to the seller and if following the
certificate u/s 197 the buyer does not deduct the tax it does not mean that the
second proviso is violated and there should be TCS. In this case, even if the
buyer does not deduct TDS, the seller shall not collect TCS by virtue of second
proviso to section 206C(1H). This is advocated on the following grounds-
1. The buyer is liable to deduct
TDS as required under the second proviso.
2. The buyer has actually
deducted the tax though at NIL rate. A Nil rate is also a rate though the
amount of tax comes to ‘zero’. Hence, it cannot be said that the buyer has not
deducted the tax. The certificate u/s 197 only authorizes the deductor to
deduct the tax at the rate as mentioned in the certificate instead of the
prescribed rates.
3. The buyer/deductee has to
intimate the transaction in the TDS statement in Form No. 26Q with appropriate
flag mark which suggests that tax is duly deducted though at Nil rate.
Applicability
of Lower TCS certificate provisions
Section 206C(9) read with Rule
37G
provides for making an application in Form No. 13 to the Assessing
Officer by the buyer for issuing a lower or Nil TCS certificate. The Assessing
Officer shall issue the lower or Nil TCS certificate if he is satisfied that
the total income of the buyer justifies the collection of the tax at any lower
rate than the prescribed rates of TCS. Further, Where a lower or Nil TCS
certificate is issued by the Assessing Officer under sub-section (9), the
person responsible for collecting the tax shall, until such certificate is
cancelled by the Assessing Officer, collect the tax at the rates specified in
such certificate.
However, such an application for a lower TCS certificate can be
made only for TCS covered under section 206C(1) or under section 206C(1C). The
amended sub-section (1H) is not included in sub-section (9). Thus a buyer
cannot apply for a lower or Nil TCS certificate under section 206C(9) for TCS
under section 206C(1H).
Due date of deposit of TCS collected under section 206C(1H)
It is clarified under the law that TCS on sales of goods will be collected when
actual payment is received by the seller.
However to collect TCS on sale of goods, the seller needs to raise the sale
invoice including the amount of TCS, account in the books as a TCS liability even
in actual sense it is not payable. Even though the TCS amount is debited to the
buyer, the liability under Section 206C (1H) does not arise until the time the
amount is collected.
The TCS collected under this provision shall be required to be deposited within
7 days of the next month in which the TCS is collected. For example, if the
goods are sold on 10th Oct., 2020 but the amount is received on 15th Nov.,
2020, liability to collect tax arises on 15th Nov., 2020. The seller is
required to deposit the TCS by 7th Dec., 2020. [Section 206(3) read with
Rule 37CA]
Due
date for filing of TCS statements
After collecting the TCS and deposit of the same to the credit of the
government account, the seller is required to furnish a quarterly statement
of TCS to the income tax authority in electronic mode in Form 27EQ
within the following due dates- [Section 206C(3) read with Rule 31AA).
Sl. No. |
Quarter of the financial year
ended |
Due date of furnishing TCS
statement |
1. |
30th June |
15th July of the financial year |
2. |
30th September |
15th October of the financial year |
3. |
31st December |
15th January of the financial year |
4. |
31st March |
15th May of the financial year immediately following the
financial year in which collection is made |
CBDT videNotification No. 54/2020 dated
24.07.2020
has amended the Form 27EQ to incorporate the provision of section 206C(1H) in
the TDS statement.
Late Fees: In case of delay in furnishing the TCS statements
beyond the due date specified above in the table, late fees of Rs. 200 per day
shall be required to be filed by the seller before furnishing the belated
statements. The amount of late fees shall not exceed the amount of TCS. [Section
234E]
Due date to Issue the TCS Certificates to the buyers
After furnishing the TCS
statements, the seller is required to issue certificate of TCS to the buyer in
Form no. 27D as per section 206C(5) read with Rule 37D within 15 days from the
due date for furnishing the statement of tax collected at source specified
under Rule 31AA-as specified above.
Thus the due date for furnishing the TCS certificates are as under-
|
Quarter of the financial year
ended |
Due date of furnishing TCS
statement |
Due date of issuing TCS
certificates |
1. |
30th June |
15th July of the financial year |
30th July of the financial year |
2. |
30th September |
15th October of the financial year |
30th October of the financial year |
3. |
31st December |
15th January of the financial year |
30th January of the financial year |
4. |
31st March |
15th May of the financial year immediately following the
financial year in which collection is made |
30th May of the financial year immediately following the financial
year in which collection is made |
Conclusion
The provisions of TCS have been
in the statute for a long time. However, this time, these changes introduced by
section 206C(1H) shall affect a wide range of businesses across various
industries. Hitherto, TCS was applicable to a select few industry verticals,
but the new changes are slated to affect a wide range of entities into the
business of selling various kinds of goods. At the end one should keep in mind
that TCS has to be collected in the following scenario w.e.f. 01.10.2020.
1. If the sales, turnover or gross receipts of the person selling
goods is more than Rs. 10 crores during the financial year 2019-2020.
2. The seller sells goods of value Rs. 50 lakhs or more either in single
transaction or in aggregate during the financial year 2020-2021.
3. The seller is not liable to collect tax on sale of goods under any other sub
section (1), (1F) or (1G) of the value of goods sold by him.
4. The buyer is not liable to deduct any TDS on the transaction.
The amount of turnover of Rs. 10 crore and the sale transaction with the buyer
in excess of Rs. 50 Lakh gives the impression that the provisions of section
206C(1H) intends to cover B2B transactions.
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