10 Interesting Issues in TCS U/s 206C(1H) on sale of Goods

With effect from 01/10/2020, every seller whose turnover in the FY 2019-20 is more than Rs. 10 Crore will be required to collect Tax at Source @ 0.075% if the value or aggregate value of sale to any buyer during the year exceeds Rs. 50 Lakh.

The TCS rate will be 1% if the PAN or Aadhar of the buyer is not available with the seller.

It may be noted that the actual rate of TCS as quoted above is 0.10% & 1% but due to Covid– 2019, the rate has been reduced till 31.03.2020 by 25% to 0.075% from 0.10%. There is no reduction in the TCS rate by 25% if the PAN / Aadhar of the buyers are not available.

Let us know 10 important issues as far as TCS U/s 206C(1H) is concerned:

1. If a person has the sale of Rs. 9 Cr & interest income of Rs. 2 Cr, then technically TCS Provisions u/s 206C(1H) would be applicable. For calculating the threshold limit of Rs. 10 crore in the preceding financial year, section 206C(1H) provides that Total Sales, Turnover, Gross Receipts from the business shall be considered. As such, the receipts of sale of services shall also be considered.

2. Even if the person has not sold the goods to the buyer during any particular financial year then also the TCS liability could arise if the amount is received during such financial year against old book debt is exceeding Rs. 50 Lakh.

3. For reckoning the limit of Rs. 50 Lakhs, whether the sales effected before 01/10/2020 shall be considered?:

Section 206C(1H) is introduced by the Finance Act 2020 and was supposed to be effective from the beginning of the FY 2020-21 i.e., 01-04-2020. However, due to pandemics covid-19, its implementation is deferred till 30.09.2020. There is nothing in section 206C(1H) as to the mode of reckoning the limit of Rs. 50 Lakh in such cases. Further, CBDT has also not issued any clarification in this respect. Going by the past examples in similar scenario, it is likely that the turnover till September 2020 will also be considered for reckoning the threshold limit of Rs. 50 Lakh.

4. Illustration as to the applicability of TCS under different circumstances

Let us consider the case of M/s Seller Pvt Ltd who is dealing with M/s Buyers Pvt Ltd under 3 different scenario:

Case -1:

TCS shall not be applicable On the initial receipt of Rs. 25 Lakh after 01/10/2020. So, Rs. 15 Lakh [Rs. 35 Lakh + Rs. 30 Lakh – Rs. 50 Lakh] shall be liable for TCS.

Case – II:

TCS shall not be there on the initial receipt of Rs. 20 Lakh after 01/10/2020. TCS shall be applicable as and when Rs. 35 Lakh [Rs. 65 Lakh + Rs. 20 Lakh – Rs. 50 Lakh] is received.

Case – III:

Since section 206C(1H) is effective from 01/10/2020. No TCS required on Rs. 55 Lakh already collected till 30/09/2020. TCS shall be charged on the receipt of amount on or after 01/10/2020 i.e. on Rs. 30 Lakh [Rs. 65 Lakh + Rs. 20 Lakh – Rs. 55 Lakh].

5. Lower TCS Certificate from the AO:

Section 206C(9) allows the assessee to seek from assessing officer Nil/lower tax collection at source certificate. However, the benefit of this section is not available in case of buyer covered by section 206C(1H) of the Act. The transactions covered by section 206C(1H) will have to compulsory undergo the TCS provision without any other remedy. This is seriously going to hamper when the buyers is already suffering losses. Buyer in such cases have to wait for the year end for filing income tax return and getting refund thereafter.

6. Triggering Point for TCS:

The provision is made applicable from 01/10/2020. However, the way the section is drafted; even receipt of money against sale done prior to 01/10/2020 will be subject to TCS. It will be better if CBDT clarifies the non applicability of amount amounts outstanding as on 30.09.2020.

7. TCS has to be done not only on the amount of basic sale price but has to be done on GST components also. For example, a person has sold a goods worth Rs. 1 Cr to Mr. X and charged GST @ 18%. In short, the total amount receivable is Rs. 1.18 Cr. In such case, TCS will be required on Rs. 1.18 Cr and not merely Rs. 1 Cr.

8. In case of Sales return and refund of money thereafter, the amount of TCS cannot be returned to the buyer. The buyer would be able to get the credit towards the amount of TCS while filing their income tax returns.

9. It may be noted that TCS is leviable on “any amount as consideration for sale of any goods of the value”. In normal course, all the amount charged which has becomes the part of consideration and so, in my considered opinion, TCS will be applicable on such amount also. Even following conservative approach or considering the quantum involved, it would be advisable to comply with the TCS provisions on this amount as well.

10. TCS on receipt of money would mean that the liability will arise even in case of receipt of advance, though the goods may be delivered or billed at a later date. Further, if the deal gets cancelled in subsequent months then no refund of the TCS can be made to a buyer. The buyer would only be able to take the credit of such TCS in their income tax return.

Sub-section (1H) in section 206C in the Income Tax Act-1961 reads as under:

(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.

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