TCS applicability on Sale of Goods/ Provision of Services above Rs. 2 Lakhs

Deepak Gupta | Jun 2, 2016 | Views 2296738

TCS applicability on Sale of Goods/ Provision of Services above Rs. 2 Lakhs

Act

Every person, being a seller, who receives any an amount in cash as consideration for the sale of bullion [***] or jewelry, or any goods (other than bullion or jewelry) shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one percent of sale consideration as income-tax, if such consideration,

i. for bullion exceeds two hundred thousand rupees; or

ii. for jewelry, exceeds five hundred thousand rupees.

iii. for any goods, other than those referred to in clauses (i) and (ii), or any service, exceeds two hundred thousand rupees.

Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B.

Sub Section 1D of Section 206C

Q1.The rate at which tax to be collected at the source

A 1. At the rate of 1%, on Sales consideration tax, is to be collected at source.

Q2.Value means for collection of tax at source

A 2.Here value means Sales Consideration i.e. Invoice Amount.

Q3. If goods/services sold/provided of value Rs.2,00,000/- whether TCS provisions will be applicable

A 3. Based on the reading of the provisions, it is inferred that TCS Provision will not be applicable, as the act uses the word exceeding Rs. Two lakh, however, do not include Rs. Two lakh.Act .value exceeding two lakh rupees.

Q4. In consideration of amount for goods sold/provision of service received directly in Bank account; whether applicable

A 4. No, as TCS provision applies only if any amount of sales consideration is received in cash.

Q5. In consideration of amount for goods sold/provision of service, directly deposited by a customer in the bank account of the seller

A 5. Yes, then TCS provision is applicable, as the amount received in cash but deposited in the bank.

Q6. Does receipt of bearer cheque or cheque which is crossed without the words account payee amount to receiving consideration in cash?

A 6. Since Section 206 (1D) uses the words cash, and not otherwise than by crossed account payee cheque or bank drafts like in other provisions, it would appear that bearer cheque or cheques crossed without the words account payee would not be regarded as cash. This matter also needs CBDT’s clarification.

Q7. Whether TCS is applicable where goods are exchanged under Barter System [say Motor Vehicle is exchanged for another Motor Vehicle]

A 7.Since TCS applies only to the receipt of cash as consideration for the sale, TCS provisions u/s 206C(1D) shall not apply where payment is received through the exchange of goods. But provided if, after the exchange, a certain amount is received in cash, TCS provision will be applicable and therefore tax @ 1% to be collected on the entire Invoice Value.

Q8. Whether TCS to be collected, if Goods sold/Services provided of value exceeding Rs. 2,00,000 purchased/received for personal consumption from Retail Buyer

An 8. Yes, still TCS provision will be applicable as not exception for such clause is there; every buyer/service provider is covered under this section.

Q9. Collection of TCS to be on Receipt basis or on an Invoice basis

A 9. Collection of TCS to be on Receipt basis; no regards to when Invoice raised. Act Everyperson being a seller, at the time of receipt of such amount, collect from the buyer Sub Section 1D.

Q10. In case Invoice generated before the applicability of law and amount received in cash after June 2016; whether TCS provision will be applicable

A 10. Based on the reading of the provisions, it is inferred that no liability arises to collect TCS; as event arises (Sale of Goods/Provision of Service) already before the applicability of the law, no need to collect tax at source along with the amount received for sale consideration during the period, the law became effective. Yet the CBDTs clarification on such issue is pending.

Q11. In case goods delivered/ services provided and complete invoice amount received before June 2016 and Invoice generated on or after 1st June 2016; whether the liability to collect TCS arises

An 11. Yes, liability to collect TCS arises, as an event; generation of the invoice is during the period of applicability of the law, however, if no amount is received in cash during the period of applicability of the law, then no need to collect TCS. From the customer amount of TCS is to be asked and collected, if required.For applicability, 2 events must occur invoice generation + cash receipt, in the law applicability period.

Example Car delivered and complete sales consideration received in May 2016 but Invoice generated in June 2016 no need to collect TCS. However in the above example, if in June 2016 any amount i.e. maybe Rs. 5,000 received in cash then the liability to collect TCS arises on the complete invoice amount.

Q12. Limit of Rs. 2,00,000/- will be considered on the amount inclusive of Taxor exclusive of Tax

A 12. Based on the reading of the provisions, it is inferred that for Limit, the amount will be considered inclusive of VAT/Service Tax i.e. Sales Consideration.

Q13.Rate of 1% for collection of TCS to be charged on Value inclusive of Tax or exclusive

A 13.TCS to be collected on Value inclusive of VAT/Service Tax i.e. on our Invoice Amount.

Act .a sum equal to one percent of the sale Consideration as income tax.+

Q14.Discount is given to buyer/service provider will be considered or not

A 14.TCS to be collected on Invoice Value (which is after deducting discount), which means discount to be considered, if and only if the discount is given on Invoice value,in the case is given through any mode, say by raising credit not discount will not be considered.
Act .a sum equal to one percent of the sale Consideration as income tax.

Q15.If bill raised, for two different goods sold/two different services provided and single bill raised, whose value exceeds Rs. Two Lakh, whether TCS provision will be applicable

A 15. Yes, TCS is to be collected, as the seller/service provider creates a single invoice, it can be for two different goods/services. So even though the individual value does not exceed Rs. Two Lakhs, but if the invoice amount exceeds Rs. 2,00,000, then TCS is to be collected from customers.

Q16.In case TDS Provisions are applicable on the amount on which TCS provision are also applicable, which provision will override

A 16.TDS provisions override the provision of TCS {Proviso of Section (206C) (1D) (iii)}.If the value of services exceeds Rs. 2,00,000/- and any amount received in cash, liability to collect TCS arises until and unless on such provision of service no amount is deducted under Chapter XVII-B.

Q17.Whether TCS to be collected, in case amount on which TDS not deducted does not exceed Rs. 2,00,000/-

A 17. Yes, still to be collected consider example given above.

Q18.TDS Provisions applicable on part of the amount only, then TCS is to be collected If yes, on what amount

An 18. Based on the reading of the provisions, it is inferred that yes still TCS to be collected,but not on the complete Invoice amount, amount of TCS to be collected the only amount on which TDS has not been deducted, provided any such amount received in cash.

Example Service provided of Rs. 2,50,000; from service receiver Rs. 2,00,000 received after deduction of TDS on such amount and rest Rs. 50,000 received in cash from service receiver. TCS is to be collected on Rs. 50,000/- at the rate of 1%,therefore from service receiver Rs. 50,500 (50000+500) to be collected.

Example Service provided of Rs. 2,50,000; and Rs.2,00,000 received after deduction of TDS on such amount and rest Rs. 50,000received in a cheque, from the service receiver; no need to collect TCS.

Example Service provided of Rs. 2,50,000; and Rs. 2,00,000 received after deduction of TDS on such amount and rest Rs. 45,000 received in cash and Rs. 5,000 in a cheque, from the service receiver. TCS is to be collected on Rs. 50,000/- at the rate of 1%, therefore from service receiver Rs. 50,500 (50000+500) to be collected.

Q19.Is the threshold limit Rs. 2,00,000 ;transaction-wise/ person – wise or in aggregate

A 19. Based on the reading of the provisions, it is inferred that the threshold limit for the purpose of collection of tax of Rs. 2,00,000 in case of sale of goods/provision of services should be considered transaction-wise and not the aggregate of all the transactions for the year.
Example In the case of a Motor Vehicle, to a single customer, 3 old cars are sold of value Rs.1,50,000 and Rs. 1,80,000 and Rs. 1,90,000 with three different invoices raised.

Now here since the limit of Rs. 2,00,000 will be considered transaction wise i.e. Value of each car sold through a different invoice, and in the above said example no Invoice Value (i..value of the old car) exceeds Rs. 2,00,000. Therefore, no liability to collect Taxat Source arises.

Q20.If motor vehicle sold of value less than Rs.10,00,000 but more than Rs. 2,00,000 and any amount of sales consideration received in cash; whether TCS provision will be applicable

A 20. Based on the reading of the provisions, it is inferred that still, the TCS provision will be applicable under subsection 1D; as 3 conditions of section satisfied, the value of goods(Motor vehicle) exceeds Rs. 2,00,000 and any amount of sales consideration received in cash and no provision of TDS applicable on such sale of a motor vehicle. So TCS provision will be applicable.

From reading the provision, clause (iii) of subsection 1D excludes only clause (i) and clause(ii) of such subsection, which means clause (iii) covers every event of sale of any goods (i.e. it can be a motor vehicle), other than bullion or jewelry of value more than Rs. 2,00,000 provisions of TCS will be applicable.

This matter needs further CBDTs clarification.

Q21.Whether TCS provisions under section 206C(1D) also cover the goods or services covered by other provisions

A 21.As there is a general rule, one which may follow, which is the Latin Maxim GeneraliaSpecialibus Non-Derogant i.e. the provisions of a general statute must yield to those of a special one.

As per this rule if for a particular situation a specific provision is there, then a specific provision will override the general provision.

Say, for example, a motor vehicle of value Rs. 11,00,000 sold in cash, now issue arises is that whether 206C(ID) can result in Duplication of levy of tax, as for such situation already specific provision under subsection (1F) is there.

Here subsection(1F) of such section will prevail.

But the matter should have been clarified by the legislature instead of leaving the taxpayer to the mercy of tax officials.

Q22.Amount of Sale Consideration received in parts/stages

A 22.Based on the reading of the provisions, it is inferred that; yes, on the first receipt itself the TCS to be collected, which means TCS is to be collected along with the first receipt itself.

Act Every person, being a seller, who receives any amount as consideration for the sale of, shall at the time of receipt of such amount,collect from the buyer, a sum equal to one percent of the sale consideration as income tax.: – Sub Sec. 1D.

In case of sale of motor vehicle : – practically, it’s not possible to collect TCS on the full amount of Sales consideration, at the time of booking the motor vehicle of value exceeding Rs. 10,00,000, with booking amount itself; therefore considering practical life, the amount on which 1% to be charged for the collection of TCS booking Amount.

Further, on every second receipt of sales consideration, the full amount of Tax can be collected at source less already received at the time of booking a motor vehicle.

The booking amount received will be inclusive of Tax required to collect at the source. This means whatever amount we are receiving to book a motor vehicle is 101% which includes 1% of income tax collected at source.

Example in case, sale of Motor Vehicle, car booked of value Rs. 11,00,000 on 7th June, 2016 with receipt of Rs. 11,000(here booking amount is Rs. 10891 100% and tax Rs. 109 1%) & On 11th June 2016 the amount received Rs. 5,00,000/- and on 5th July 2016 rest amount, Rs. 589000/- received.

Here on 11thJune, 2016 along with Rs. 5,00,000 (1st receipt after booking amount) TCS of Rs. 10890/- (1% of Rs. 1089000/-) to be collected and so on 11th June 2016 net amount to be taken is Rs. 510890/- (500000+10890)

On 5th July, only Rs. 5,89,000/-.

This matter needs further CBDTs clarification.

Q23. In case, a motor vehicle of value more than Rs. 2 Lakh but less than or equal to Rs. Ten Lakh, financed and the part amount received from Financer and some amount in cash from buyer, when and how TCS to be collected

A 23. As from the above answer, tax is to be collected at the rate of 1% on booking amount at the time of booking and the rest amount of TCS i.e. 1% on sales consideration, after deducting TCS, collected at the time of booking; but in Finance case, part of the amount is received from Financer, here at the time of receiving margin money (before receiving money from Financer) from buyer tax at the rate of 1%can be collected, considering the practical situation.

This matter needs further CBDTs clarification.

Q24.Whether liability of TCS arises in case of a motor vehicle sold of value more than Rs. Two Lakh in cash and invoice is directly generated by Dealer and invoice value received by Retail Seller If yes, then on whom liability of collection arises

A 24. Yes, obvious liability to collect TCS arises, but here the question arises “on whom”. Since the amount of Invoice value is collected by Retail Seller practically tax should also be collected by Retail Seller itself and be paid by retail Seller to Government and reflect such transaction in there QuarterlyReturn; until and unless any clarification or guideline received by RetailSeller from there Dealer.
So it is advisable to collect tax from the buyer by Retails Seller only.

Yet the matter needs further CBDT’s clarification.

Q25.In case any amount received, refunded to buyer/service receiver after payment of TCS to Government, in the event service is not provided/ or sold goods returned

A 25.To buyer/service receiver, amount refundable can be an amount agreed between seller/service provider and buyer/service receiver, in respect of Goods sold/Provision of Service, not amount collected from buyer/service receiver for TCS can be refunded to buyer/service receiver, as tax collected from the customer would be already paid to Government and in Act there is no provision of refund of TCS deposit or to adjust such TCS deposit, the only provision for TDS is specified.

So practically, it would not be possible to refund tax to buyer/service receiver on cancellation of services to be provided or return of goods of value exceeding. Ten Lakh after depositing it with Government.

Q26.Nonavailability of PAN of Buyer.

A 26. For the other part of prepaid taxes, that is TCS, new section 206AA is not applicable.

This section covers only the payments under Chapter 17B of Income Tax Act. TCS falls under Chapter 17BB. So any Tax collected through TCS provision does not make sense of higher rate determination i.e. 20% for PAN deficiency.

Act – As per section 206AA, furnishing of PAN by the persons entitled to receive any sum under chapter XVIIBof the Income Tax Act, 1961 (Act)is now mandatory w.e.f 01.04.2010failing which TDS has to be deducted at the higher rate.

Final thoughts

In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high-value transactions within the tax net, it is proposed to amend the aforesaid section to provide that the seller shall collect the tax at the rate of one percent from the purchaser on sale of goods/provision of services of the value exceeding two lakh rupees

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