TDS and TCS have been a reliable weapon for the Government over the years serving the varied objectives of preventing tax evasion, widening the tax base and ensuring steady revenue collection for the Government. Thus, over the years, the Government’s clear intention has been to bring as many transactions under the ambit of TDS/TCS as possible. With the same intention of widening and deepening the tax base the Finance Act 2020 has introduced Sec 206C (1H) which 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.”
Now let us try and understand this in detail.
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 this TCS?
As is the case with all TCS transactions, the seller of goods has been entrusted with the responsibility to collect TCS. However, 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.
For Eg. An assessee had a turnover of Rs. 15 Cr during FY 2019-20. Thus, for FY 2020-21 he is liable for the collection of TCS as per the above provisions. Now let us suppose that due to the impact of COVID, his sales drop down to Rs. 9.9 Cr during FY 2020-21. In such a scenario he shall not be liable to collect TCS as per the provisions of this section during FY 2021-22. It is also important to note that the section talks about Sales, Turnover or Receipts from Business. Hence, if the same assessee had also received advances amounting Rs. 20 lakhs during the year, then (assuming no amount was due from Debtors), his total receipts would amount to Rs. 10.1 Cr during FY 2020-21 and thus he would be liable for the collection of TCS at appropriate rates for FY 2021-22.
The Central Government may exempt certain entities from application of this section subject to conditions as may be specified.
From whom such TCS is to be collected?
TCS is to be collected only from those buyers from whom, sale consideration received during the FY exceeds Rs. 50 lakhs. This condition needs to be evaluated separately for each buyer and the amount needs to be evaluated separately every year. It is important to note here that the trigger point for collection of TCS is receipts and not sales. Hence, in case consideration is received for sales, made over a number of years, TCS shall still be applicable even if the annual sale does not exceed Rs.50 lakhs. Also, CBDT needs to clarify whether receipts against sales made prior to 1st Oct 2020, shall also be subject to TCS. As a prudent measure, the same shall be subjected to TCS, unless a contrary clarification is received. Another thing to note is that this section is applicable on sale of goods only and services have presently been kept out of the ambit of the section.
When is this section not applicable?
The Section shall not be applicable in the following cases:
- If Gross Turnover/Sales/Receipts of the assessee, during immediately preceding FY is less than Rs.10 Crores.
- If the sale consideration received from the buyer is less than Rs. 50 lakhs.
- In case of any Import into India or Export from India.
- In case the sale is made to the Central Government, a State Government, an Embassy, a High Commission, legation, commission, consulate or any trade representation of a foreign State OR a local authority or such other person as may be specified.
- In case the transaction is covered by TDS under any other section.
- In case goods being sold are covered by
- Sec 206C (1) which covers – alcoholic liquor, tendu leaves, timber, forest produce other than timber and tendu leaves, scrap, minerals like coal or iron ore OR
- Sec 206C(1F) which covers – motor vehicles exceeding Rs. 10 lakhs in value OR
- Sec 206(1G) wherein remittance is being made outside India and TCS is being collected by Authorised Dealer for the same.
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 Sep 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 try to understand the same with a few examples.
|Sales before 1st Oct 2020||Sales After 1st Oct 2020||Receipts before 1st Oct 2020||Receipts after 1st Oct 2020||Amount for which TCS applicable for FY 20-21||Reason|
|60,00,000||20,00,000||50,00,000||30,00,000||–||Threshold not crossed post the date of applicability|
|20,00,000||40,00,000||6,00,000||54,00,000||4,00,000||TCS applicable on amount exceeding 50 lakhs|
|70,00,000||–||5,00,000||65,00,000||15,00,000||Trigger is Receipt and not sales.|
|30,00,000||1,00,00,000||1,30,00,000||–||–||Trigger is Receipt and not sales.|
|25,00,000||35,00,000||–||30,00,000||–||Threshold not crossed post the date of applicability|
|–||60,00,000||60,00,000||–||–||Trigger is Receipt and not sales.|
|60,00,000||–||–||60,00,000||10,00,000||Trigger is Receipt and not sales.|
What is the rate at which TCS is to be collected?
|PAN/AADHAAR furnished||Up to 31st March 2021||From 1st April 2021|
Compliance to be done
The general compliances to be undertaken for all TDS/TCS like payment of tax by 7th of every month, filing of quarterly return within 15 days of the end of the quarter and subsequent issue of TCS Form shall apply to these transactions as well.
Practical Issues in implementation
Inconsistency of 26AS – Due to TCS being deducted on receipt and not sale, there may be a possibility that TCS is collected in a year in which there is no sale-purchase transaction between the parties and hence assessing officers may make enquiries as to why such transaction is not reflected in books. Examples for the above may be where advance is paid in one year and sale is made in subsequent years or payments are made for the sales in a year subsequent to the sale being made.
Segregation of Indirect Taxes – The trigger point for such tax is receipts, hence, businesses need to segregate the indirect taxes to determine the amount on which TCS is to be paid. For Eg. In case a sale of Rs. 60 lakhs (including GST of 9.5 lakhs) is made to a party and Rs. 52 lakhs is received, whether GST of Rs.9.5 lakhs would be reduced from the same or not, also needs to be clarified by the CBDT.
Low Thresholds – The threshold of Rs. 10 Cr for sellers and Rs.50 lakhs for buyers is likely to bring a major number of transactions into the ambit of this section. Considering the current state of the economy, the threshold does not seem adequate.
Working Capital Blockage – There are many businesses which operate on a wafer-thin margin and rely purely on a heavy turnover for profits. E Comm operators, Bullion Traders, etc would fall under the category of buyers who sometimes operate on a net margin of 0.1% or even lower. In such a scenario, TCS may lead to blocking of Working Capital for such dealers.
Cancellation of Sale Agreement – In case advance is paid in anticipation of purchase, TCS would be collected and paid to the Govt on the same, however, subsequently in case such transaction is cancelled owing to commercial or other reasons, whether such TCS may also be reversed or not needs to be clarified by the CBDT.
The utility of such tax – The intent for this tax seems to be deepening and widening of tax base but any trader above Rs.20 lakhs of turnover (above Rs. 40 lakhs in many states) is liable for GST registration and thus such information could have been easily availed from GSTN and a TCS provision for the same is completely unwarranted and would lead to unnecessary compliance burden.
It can be inferred from the above that a major compliance burden awaits the taxpayers and the professionals are going to have an equally hard time coping up with all the due dates and reporting the same transactions, multiple times to different authorities.