The Government vide Finance Bill, 2020 has introduced Section 206C(1h) in the Income Tax Act, to levy Tax collection at Source (‘TCS’) on sale of goods applicable with effect from 01 October 2020 when the total consideration received from a buyer exceeds Rs. 50 lakhs during any previous year. TCS shall be collected by the seller of the goods in case his total sales or gross turnover or receipts exceeds Rs. 10 crores in the previous financial year. Following are the key highlights of the new provision:
Applicability
- Every person, being a seller of goods, is required to collect tax at source from the buyer in a F.Y. if total sales, turnover or gross receipts from the business carried on by such seller in the immediately preceding financial year is more than Rs. 10 Crore;
- The tax is required to be collected from ‘buyer’ of goods in a financial year when the total consideration (excluding the consideration for goods exported outside India) received during such F.Y. from such buyer exceeds Rs. 50 lakhs. TCS under this provision is required to be collected at source @ 0.1%. However, if the buyer of goods does not provide Permanent Account Number (PAN) / Aadhar Number, the same is required to be collected @ 1%;
- TCS under this provision is to be collected at the time of receipt of consideration and the same would be collected on the consideration amount itself.
- It would further be pertinent to note that the following transactions would not attract the TCS provision u/s. 206C(1h):
- Exports, where goods are exported out of India;
- Imports, where goods are imported into India;
- Transaction of sale of goods where TDS provisions are applicable, for e.g., contract manufacturing;
- Transactions where other TCS provisions of the Income Tax Act are attracted;
- Sale of goods to Government and local authorities or any person as the Government may notify
Regulatory compliances
- Quarterly TCS returns are to be filed in the following manner:
Quarter Ended
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Due Date
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June
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15 July
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September
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15 October
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December
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15 January
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March
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15 May
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- The TCS Certificates are required to be issued by the seller to a buyer in Form No.27D within 15 days from the due date of filing TCS return as mentioned above.
- A buyer from whose account tax has been collected at source is entitled to claim credit of TCS. Such TCS credit shall be allowed in the F.Y. in which such tax collection has been made by the seller. Such amount of tax collected and deposited by the seller will be reflected in Form No. 26AS of the buyer based on TCS return filed by the seller. The same can also be verified based on TCS certificate as received from seller.
Procedural
- There is no specific requirement to disclose TCS either in invoices or the in receipt advices, however, since the seller is required to collect such tax from buyer, one may consider to intimate the same to the buyer either through invoice or through a debit note to demonstrate that the seller is collecting the tax at source from the buyer;
Current Year considerations
- The provisions u/s. 206C(1h) should apply only in respect of transaction of sale effected on or after October 1, 2020 as the said provision comes into effect only on 01 October 2020. Therefore, the sales made prior to 01 October 2020, should not be subject to TCS. Nonetheless, such consideration is required to be included while computing the threshold of Rs. 50 lakhs for a buyer;
Key Considerations
- As the credit of TCS is given to the buyer of goods, the argument of applicability of TCS only on income component does not exist. In terms of a catena of judicial precedents, it has been held that TCS is also applicable on duty included in invoice value. Notably, that CBDT in one of its FAQs on Tax Deduction at Source, has clarified in the context of TCS on Sale of Scrap that tax should be collected on total value inclusive of GST. Accordingly, TCS u/s. 206C(1h) may be charged on GST component.
- In another school of thought, it is contemplated that as GST may already have been levied on sale of goods, it ought not be included in sales consideration as the same is accounted for separately to be paid to the Governments with Seller acting as their collecting agent, and it would amount to dual taxation, first on value of goods sold and second on GST levied. Accordingly, the Government shall suitably clarify the position of TCS on GST component of sales consideration;
- There exists a lack of clarity in respect of cases where TCS has already been paid and subsequently, the sales consideration is changed. The Government shall issue a suitable clarification in this regard.
GLS Comments:
With the addition of new provision under the Income Tax Act, the Government has cast additional responsibilities upon the taxpayers even in procedural aspect. In order to comply with the new provision, taxpayers may be required to suitably alter their accounting software to incorporate the necessary changes. Further, the new provision would certainly block the working capital of the taxpayers. Therefore, this new provision would certainly create hurdles for the taxpayers.
Basis the above, it can be seen that the Government might have brought the provision in effect a bit too early. It would be interesting to see whether the Government would issue any clarification in respect of the said provision or extend the effective date or not.
Disclaimer:
The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.