Tax Collected at Source (TCS) on sale of goods

Tax Collected at Source (TCS) is the tax payable by a seller which he bills on to the from the buyer at the time of sale and is payable into the Government Treasury on receipt of money from the buyer. This tax is payable by the seller who collects in turn from the lessee or buyer.

Over many years, the government has been bringing as many transactions as possible under the gambit of TDS/TCS. With the same intention of widening and deepening the tax base, the Finance Act 2020 has introduced Sec 206C(1H).

  • When does this section come into effect?

The Finance Bill 2020 had intended to make this section effective from 1st April 2020 but the Finance Act 2020 has delayed the applicability to 1st October 2020. Hence, receipts up to 30th Sep 2020 are out of the purview of this section.

 

  • Who is supposed to collect TCS under this section?

As is the case with all TCS transactions, the seller of goods has been entrusted with the responsibility to collect TCS. However, under this section, only those sellers, whose gross turnover or receipts from the business for the immediately preceding Financial Year exceeds Rs. 10 Crores shall be liable for the collection of TCS. Such limit shall have to be checked every year.

 

  • What are the provisions for applicability to pay TCS?

TCS shall be applicable where the seller receives any amount as consideration of more than Rs. 50 Lakhs from a single buyer for the sale of any goods within India. This means provisions of this section shall not be applicable if there is export sale.

The provisions of this section shall not be applicable in case the buyer is Central Government/State Government/Embassy/High Commission/ Legation/ Commission/ Consulate/ Trade representation of a foreign state/Local Authority/Importer/any other person as may be notified.

If the transaction is already been covered by TCS [under Section 206C(1), 206C(1F) and 206C(1G)] or TDS provisions from buyer’s end then provision of section 206C(1H), TCS on sale of goods shall not be applicable.

 

  • What are the applicable rates for TCS under Sec 206C(1H)?

  • What is the amount on which TCS is to be collected?

One of the most important distinctions of this section from other TDS/TCS provisions is its applicability solely based on a receipt and not sales. Hence, the amount of receipt post 30th September, 2020 shall determine the applicability of this section. Only if the seller has received an amount above Rs. 50 lakhs from a buyer on or after 1st Oct 2020, during the same Financial Year, then these provisions shall be attracted.

 

Let us understand the same with help of an example: –

  • What are the various compliances to be done?

The general compliances to be undertaken for the TCS payments is that the Seller should have valid TAN for collecting TCS. After collecting TCS seller is required to deposit TCS within 7 days from the end of month. Once the provisions are applicable on any seller he is required to fill quarterly returns in Form 27EQ and Issue TCS certificate in Form 27D, within below mentioned due dates.

 

Important Points to be considered

  1. Sale consideration for the full financial year is to be considered for deciding whether Buyer is covered for TCS or not. TCS, however, is to be collected and paid only on the sales made after 01.10.2020 to the extent same are in excess of Rs. 50 lakhs.
  2. TCS will be collected on (Gross value – Discount + GST) i.e. on total invoice value (clarification awaited).
  3. Post month end, no refund of the TCS can be made to a buyer. Even it is collected on higher amount, the same will be deposited with the Govt.
  4. The buyer can claim credit for the TCS amount while depositing Advance Tax and/or determining the final tax liability.


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