TCS On Sale Of GOODS :- Emerging issues
Tax Collected at source (TCS) is the amount of tax seller is required to collect from buyer on sale of specified goods. TCS is required to be collected at a specified percentage as may be prescribed. Section 206C of the Act casts responsibility on the seller to collect TCS from the buyer on the value of sale of specific goods and deposit the same to the credit of account of Central Government within the prescribed due date.
With a view to widen scope of TCS and tax net, section 206C (1H) (i.e. TCS on sale of goods) has been introduced vide Finance Act, 2020, which is applicable from 1st, October, 2020.
1. Applicability
All the sellers having turnover or gross receipts from business exceeding Rs. 10 Crore in the year 2019-20 will be required to collect TCS in the year 2020-21 from 1st October, 2020.The applicability of provision is required to be checked every year.
2. Levy of TCS
TCS provisions are applicable if the value or aggregate value of sales consideration of goods from a buyer exceeds Rs. 50 lacs during the year. TCS will be applicable on sale of all goods except the export of goods and goods already covered under other provisions of TCS. Provisions of TCS are applicable at the time of receipt of consideration and will not be applicable if seller is already deducting TDS of buyer.
3. Rate of TCS
TCS rate will be 0.1% if the buyer furnishes the PAN (Reduced to 0.075% up to 31.3.2021). TCS rate will be 1% if the buyer does not furnished PAN.
4. Buyer exempt from this provision
The provisions of TCS have been made applicable for all the buyer except the following persons as specified in section 206C(1H) of the Act:
Central Government, State Government, an Embassy, a High Commission, Consulate, and the trade representation of foreign states. Local Authority, Person importing goods, Any other person as may be notified by the Government.
5. Process of depositing & Submission of Return:-
i. TCS collected needs to be paid within 7 days of the next month.
ii. Every tax collector shall submit quarterly TCS return in Form 27EQ in respect of the tax collected by him in a respective quarter.
iii. Every tax collector shall issue TCS certificate in Form 27D to collectee within fifteen days from the due date for furnishing the statement of tax collected at source.
Some FAQs On TCS On Sale Of Goods:-
Q.1 What is the meaning of Seller under the provisions of section 206C(1H)?
Ans. Here, Seller means a person whose Total Sales, Turnover, Gross Receipts from the business being carried out by him in preceding Financial Year exceeds ₹ 10 Crores.
The term turnover has not been specifically defined in the sub-section. In the “Guidance Note on Terms used in Financial Statements” published by ICAI, “the expression “Sales Turnover” has been defined as: “The aggregate amount for which sales are affected or services rendered by an enterprise.
In the statement issued by ICAI on the CARO the word ‘turnover’ has been defined as under- “The term ‘turnover’ for the purposes of this clause may be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprises”.
Q. 2 Whether sales consideration includes GST component?
Ans. Clarification provided by CBDT on 29th September 2020 states that “it is hereby clarified that no adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax under sub section (1H) of section 206C of the Act since the collection is made with reference to receipt of amount of sale consideration.” Thus, the intent is to have the TCS on sales consideration collected including GST
Q. 3 Whether TCS to be collected on total sales value to the buyer to whom sales in excess of ₹ 50 Lakhs has been made or only to the amount in excess of ₹ 50 Lakhs?
Ans. Section 206C(1H) envisages that TCS at the rate of 0.10% of the sale consideration received in excess of ₹ 50 Lakhs shall be collected by the seller. As such, TCS shall be collected on Total Sale Value received less ₹ 50 lakh
Q. 4 For calculating the amount of sales of ₹ 50 Lakhs, whether the sales before 01-10-2020 shall be considered?
Ans. This section was introduced by way of Finance Act 2020 and was initially to be made effective from 01-04-2020 i.e. from the beginning of the financial year 2020-21. Now, since, it is being made effective from 01-10-2020 i.e. middle of the FY 2020-21, the pertinent question that arises is whether the consideration received for sales effected up to 30-09-2020 shall be considered while determining the threshold of ₹ 50 Lakh.
Now, CBDT has clarified that since the threshold of ₹ 50 Lakh is with respect to the financial 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 ₹ 50 Lakh or more up to 30th September 2020 from a buyer, the TCS under sub-section (1H) of section 206C shall apply on all receipt of sale consideration during the previous year, on or after 1st October 2020, from such buyer.
CBDT has further issued a Press Note on 30-09-2020 to provide that TCS shall be applicable only on the amount received on or after 01-10-2020
PRESS RELEASE
Clarification on doubts arising on account of new TCS provisions
There are reports in certain sections of media wherein certain doubts have been raised regarding the applicability of the provisions relating to Tax Collection at Source (TCS) on certain goods introduced vide Finance Act, 2020. This press note is being issued to clarify those doubts about the applicability of these provisions.
Finance Act, 2020 amended provisions relating to TCS with effect from 1st October, 2020 to provide that seller of goods shall collect tax @ 0.1 per cent (0.075% up to 31.03.2021) if the receipt of sale consideration from a buyer exceeds Rs. 50 lakh in the financial year. Further, to reduce the compliance burden, it has been provided that a seller would be required to collect tax only if his turnover exceeds Rs. 10 crore in the last financial year. Moreover, the export of goods has also been exempted from the applicability of these provisions.
It has been reported in the media that TCS has been made applicable to the amount received before 1st October, 2020. It is clarified that this report is not correct. In this connection, it may be noted that this TCS shall be applicable only on the amount received on or after 1st October, 2020. For example, a seller who has received Rs. 1 crore before 1st October, 2020 from a particular buyer and receives Rs. 5 lakh after 1st October, 2020 would be required to collect tax on Rs. 5 lakh only and not on Rs. 55 lakh [i.e Rs.1.05 crore - Rs. 50 lakh (threshold)] by including the amount received before 1st October, 2020.
It has also been reported in certain section of the media that every transaction will attract this TCS. This report is not correct. It may be noted that this TCS applies only in cases where receipt of sale consideration exceeds Rs. 50 lakh in a financial year. As the threshold is based on the yearly receipt, it may be noted that only for the purpose of calculation of this threshold of Rs. 50 lakh, the receipt from the beginning of the financial year i.e. from 1st April, 2020 shall be taken into account. For example, in the above illustration, the seller has to collect tax on receipt of Rs. 5 lakh after 1st October, 2020 because the receipts from 1st April, 2020 i.e. Rs. 1.05 crore exceeded the specified threshold of Rs. 50 lakh.
Further, the seller in most of the cases maintains running account of the buyer in which payments are generally not linked with a particular sale invoice. Therefore, in order to simplify and ease the compliance of the collector, it may be noted that this TCS provision shall be applicable on the amount of all sale consideration received on or after 1st October, 2020 without making any adjustment for the amount received in respect of sales made before 1st October, 2020. Mandating the collector to identify and exclude the amount in respect of sales made up to 30th September, 2020 from the amount received on or after the 1st of October, 2020 would have resulted into undue compliance burden for the collector and also litigation.
It has been reported in certain section of the media that this TCS is an additional tax. This is obviously not correct. In this regard, it may be noted that TCS is not an additional tax but is in the nature of advance income-tax/TDS for which the buyer would get the credit against his actual income tax liability and if the amount of TCS is more than his tax liability, the buyer would be entitled for refund of the excess amount along with interest.
It may also be noted that this TCS shall be applicable only on the receipt exceeding Rs. 50 lakh by a seller from a particular buyer. Therefore, on payment of Rs. 1 crore made by a buyer to a particular seller only Rs.5,000 (Rs. 3,750 this year) i.e. [0.1% of (Rs. 1 crore - Rs. 50 lakh)] shall be collected. Hence, in case of a person making payment of Rs.1 crore each to 10 different sellers, the total tax collected shall be only Rs.50,000 (Rs. 37,500 this year) i.e 10 x [0.1% of (Rs. 1 crore- Rs. 50 lakh)] on the total payment made for purchase of Rs. 10 crore to ten different sellers.
Assuming a net profit of 8% on sales, his business income in respect of this payment of Rs. 10 crore made for purchase would be around Rs. 87 lakh. The incometax liability on the income of Rs. 87 lakh for an individual in the new taxation regime would be around Rs. 27 lakh. Hence, the amount of TCS collected i.e. Rs.50,000 (Rs. 37,500 this year) would be a miniscule part of his actual tax liability and would be easily adjusted against his tax liability. In a rare case, if his tax liability is less than even Rs.50,000 (Rs. 37,500 this year), he shall be entitled for refund of excess TCS with interest.
It has also been reported in certain section of media that every seller will have to collect TCS. This is also not correct. In this context, it may be noted that in order to reduce the compliance burden, this TCS is made applicable to only those sellers whose business turnover exceeds Rs. 10 crore. In other words, those having turnover of less than Rs. 10 crore will not be required to collect TCS. There are only around 3.5 lakh persons who have disclosed business turnover of more than Rs. 10 crore in FY 2018- 19. There are around 18 lakh entities which already deal with TDS/TCS. Therefore, this TCS collection under these new provisions would be required to be made by persons who, in most of the cases, would already be complying with the other provisions of TDS/TCS.
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