The Finance Act, 2020 has extended the scope of Tax Collected At Source (TCS) on sale of Goods by specified sellers vide section 206C (1H) of the Income Tax Act, 1961. The same is applicable with effect from 1st October, 2020 in the following situations:
1) A “Seller” is a person whose business turnover exceeds Rs 10 crores during the financial year immediately preceding the financial year in which the sale of goods is carried out. For instance, for the current Financial year 2020-21 w.e.f. 01.10.2020, the provision is applicable
if the Turnover during 2019-20 exceeded Rs 10 crores.
Specific Exclusion : TCS on sale of goods under section 206(1H) shall not apply:
- Where buyer is required to withhold taxes and such buyer has done withholding of required amount.
- TCS under sub-section (1), (1F) or (1G) of section 206 will not apply to Alcoholic liquor for human consumption; Tendu leaves; Timber or any other forest produce; Scrap: Minerals, being coal, or lignite or iron ore; Motor Vehicle.
- On export of goods.
- TCS is not to be collected when the sale is made to the Central or State Government or Embassy/High-commission, Consulate or Trade Representative/Local Authority.
- TCS is also not applicable when sale is made to a person who is importing any goods into India.
2) “Buyer” means a person who purchase any other goods not covered by other provisions of section 206C from seller and value or aggregate value of goods during previous year exceeds Rs 50 lakhs.
3) Seller has to collect TCS from buyer after 01.10.2020 on Receipt basis 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 when he receives any amount as consideration for sale of any goods of the value exceeding Rs 50 lakhs from any single buyer.
It is to be noted that Government of India vide press release dated 13 May 2020 has announced reduction in TCS rates by 25 per cent of the existing rates. New reduced rates are applicable till 31 March 2021. Accordingly, lower rate of TCS at the rate of 0.075 per cent shall be applied instead of 0.1 per cent till 31 March 2021.
If the buyer fails to provide PAN/Aadhar, TCS shall be collected at the rate of 1 per cent.
Points to be considered on applicability of TCS :
- For current Financial year 2020-21, sale made to buyers upto 30th September, 2020 is not liable for calculation of amount to be collected as TCS. Threshold of receipt of 50 lakh as sales consideration u/s. 206C (1H) shall be computed from 1st April 2020 and hence if a person has already received 50 lakh or more till 30th September 2020 from a buyer, TCS shall be applicable on all receipt from 1st October 2020. It is further submitted that sub-section (1H) of section 206C of the Act provides for collection of TCS at the time of receipt of sale consideration received after 1st October (including advance amount received for sale) even if sales are made before 1st October 2020. Consequently, provisions of section 206C(1H) is triggered on actual receipt of sales consideration which gives an impression that w.e.f. 01.10.2020 i.e. the date from which the provisions of section 206C(1H) becomes applicable, recovery of amounts outstanding as on 30.09.2020 would also come within the ambit of section 206C(1H) of the Act even though such sale, as per mercantile system of accounting followed by the seller, would have taken place before 01.10.2020.
- “Sales consideration” will not include GST and Cess, if any imposed thereon, as the same is accounted separately to be paid to the Governments with Seller acting as their collecting agent. As per Sale of Goods Act, the Sale Consideration is simpliciter restricted to the consideration for the goods sold and will not include any taxes on sale. The GST authorities vide their letter F.No. 20/16/04/2018 -GST dated 7th Mar, 2019 have stated that no GST is to be collected on TCS. Section 15(2) of CGST Act specifies that the value of supply shall include “any taxes, duties cesses, fees and charges levied under any law for the time being in force other than this Act, the SGST Act, the UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier.”
- No adjustment is required to made on account of Sales Return, Discounts, GST or indirect taxes as the collection is made with reference to receipt of amount of sale consideration.
- Tax collection at source results in blockage of funds for assessees who are incurring huge losses. Such assessees do not have the option to approach the Assessing Officer to issue Nil or Lower tax collection at source certificate for transactions covered under section 206C(1H), as applicable in case of sub-section (9) of section 206C of the Act which allows the assessee to apply to the assessing officer for Nil/lower tax collection at source though subsequently such amount is required to be claimed as refund by the assessee from the Income Tax Department.
- TCS not applicable on transaction in securities and commodities traded through recognised stock exchanges. TCS not applicable on transaction in electricity, renewable energy and energy saving certificates.
- In case of sale to consumer, receipt on account of sale of Motor Vehicle of the value of ten lakh rupees or less would be subject to TCS u/s. 206 (1H) if receipt from such sale of vehicles exceeds Rs. 50 lakhs during the previous year. However, in case of sale to consumer, receipt on account of sale of Motor Vehicle shall not be subject to TCS u/s. 206 (1H) if such sale is subjected to TCS u/s. 206C (1F).
- Since the threshold of fifty lakh rupees is with respect to the previous year, calculation of receipt of sale consideration for triggering TCS under sub-section (1 H) of section 206C shall be computed from 1 April, 2020.
- The Finance Act, 2020, widens the scope of TCS provisions to cover the sale of goods, sale of overseas tour packages and overseas remittance of funds under the Reserve Bank of India’s (RBI) Liberalised Remittance Scheme (LRS). It also introduced a new provision under section 194-O, relating to the tax liability of e-commerce operators. The new norm mandates e-commerce operators to deduct TDS at 1 percent in respect of the amount of any sale of goods and services.
- 5 percent TCS would be applicable on amounts exceeding Rs 7 lakh in a financial year for foreign remittances under the Liberalised Remittance Scheme (LRS) of the RBI. Additionally, a restricted TCS of 0.5 percent would apply in case of remittances towards loans for pursuing education. Further, a 5 percent TCS on purchase of overseas tour packages, irrespective of the value, is applicable under the new norms. Also, TCS at 0.1 percent on sale of goods of over Rs 50 lakh in a year.
- It is to be noted that necessary changes in the invoice/receipt vouchers is required to be done to facilitate TCS collection. Further, Changes in the accounting software package or ERP and standard operating procedure may also be considered to keep a check on sales
Due date to deposit TCS :
- Rule 37CA of the Income Tax Rules, 1961 requires the TCS collected by the seller shall be paid to the account of the Government by the 7th of the next month.
- TDS/TCS Book Adjustment Statement as per Form 24G requires information on total TCS amount transferred for TCS in Form 27EQ
Section 234E of the Income Tax Actstates where a person fails to deliver or cause to be delivered a statement within the time he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues. However, the amount of fee shall not exceed the amount of tax collectible.
Further, where refund of any amount becomes due to the assessee he shall be entitled to receive, as per the provisions of section 244A, in addition to the said amount, simple interest thereon calculated such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period, from the 1st day of April of the assessment year to the date on which the refund is granted, if the return of income has been furnished on or before the due date specified under sub-section (1) of section 139; or from the date of furnishing of return of income to the date on which the refund is granted.
- Rule 31AA of the Income Tax Rules, 1961 requires every collector to deliver a Quarterly Statement in Form 27EQ. Due date to file the TCS return and issue certificate:
|Quarter ended||Quarterly statement||TCS certificate|
|30 June||15 July||30 July|
|30 September||15 October||30 October|
|31 December||15 January||30 January|
|31 March||15 May||30 May|
The collector at the time of preparing statements of tax collected shall –
(i) Quote his tax deduction and collection account number (TAN) in the statement.
(ii) Quote his permanent account number (PAN) in the statement except in the case where the collector is an office of the Government.
(iii) Quote the permanent account number of all collectees.
(iv) Furnish particulars of the tax paid to the Central Government including book identification number or challan identification number, as the case may be.
(v) Furnish particulars of amount received or debited on which tax as not collected in view of the furnishing of declaration under sub-section (1A) of section 206C by the buyer.
Penalty for failure to furnish statements :
Section 271H states that a person shall pay by way of penalty, if, he fails to deliver within the time prescribed in the proviso to sub-section (3) of section 206C or (b) furnishes incorrect information in the statement which is required to be delivered thereof. The penalty shall be a sum which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
Further section 272A states if any person fails to furnish a Certificate as required by section 206C or fails to deliver a statement within the time specified in due time a copy of the declaration, he shall pay, by way of penalty, a sum of one hundred rupees for every day during which the failure continues. Provided that the amount of penalty shall not exceed the amount of tax collectible.
No order under this section shall be passed by any income-tax authority unless the person on whom the penalty is proposed to be imposed is given an opportunity of being heard in the matter by such authority.