TCS on Sales of Goods w.e.f. 1st of October 2020 Under Income Tax Act, 1961

Hon. Finance Minister Nirmala Sitharaman introduced TCS on sale of Goods by an amendment to section 206C by inserting Clause (1H) w.e.f. 01.10.2020 in Finance Act, 2020.

Let's read first section 206C (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.

Please note that TCS Rate is been reduced to 0.075% for the period from 01.10.2020 to 31.03.2021 due to the #COVID-19 pandemic

Now, let's do analysis and understand the above section

Who will collect the TCS?

With the reading of section 206C(1H), we can understand that seller had to collect the TCS.

Note 1 - Further, for the purpose of checking applicability refer above explanation b to sub-section 1H to section 206C for a definition of the seller.

Note 2 - Furthermore, for the purpose of calculating the threshold of 10 Crore sale of goods and services both shall be considered and not only the sale of goods.

From whom the seller will collect the TCS?

TCS to be collected from those purchasers to whom the value or aggregate value of the goods sold in the previous year exceeds fifty lakh rupees (50 lakhs).

Note 3 - Further, for the purpose of calculating the threshold of 50 lakhs only sale of services shall be considered and not both ale of goods and services.

When the Seller should collect the TCS?

At the time of real receipt of consideration by the seller, TCS is to be collected.

In personal Opinion TCS should be charged in the 'sales invoice' itself, to allow the customer to know the applicability of the levy. The mere charging of TCS in the sales invoice does not give rise to payment liability. TCS liability shall be released only if the sales consideration for sales made on or after 1st of October 2020 has been received.

When TCS is not applicable on what all transactions?

According to explanation a to sub-section 1H to section 206C:

1. The TCS provisions are not applicable to the export of goods.

2. TCS provisions shall not apply where the purchaser is Central Government, State Government, Local Authority, Embassy, Commission or Consulate, etc.

3. The provisions of the TCS shall not apply to the sale of goods already covered by other subsections of section 206C viz. Sales Liquor / Scrap, Motor Vehicles etc.

4. TCS provisions shall not apply where the purchaser is required to deduct TDS for such purchases.

Examples for better understanding the above provision

Seller: Raj Collection Limited (hereafter referred to us Raj) [Assume Turnover exceeds 10 Cr in PY 2019-20 (AY 2020-21) and 100% Sale is on Cash Basis i.e no Credit Sale. Further receipts are on First Bill First Payment Basis (I.e FIFO)]

Buyer: R2M Traders Private Limited (hereafter referred to us R2M): [Assume PAN has been provided to Seller]

Situation No. 1

Sales up to 30.09.2020 of INR 18,00,000

Sales after 01.10.2020 of INR 72,00,000

Sales consideration received up to 30.09.2020 is of INR 15,00,000

Sales consideration received on or after 01.10.2020 is of INR 65,00,000

Q1. Whether TCS is applicable for FY 2020-2021? (YES / NO) ?

Ans. Yes. As the R2M purchase has crossed the 50 lakhs limit.

Q2. Sales consideration (exceeding INR 50,00,000) on which TCS is payable

Ans. INR 27,00,000 (i.e INR 15,00,000+65,00,000-50,00,000-3,00,000)

Reason - Since sales were carried out in the period when provisions of section 206C(1H) were not applicable, therefore, this sub-section shall not get triggered on receipt of amount from debtors standing in books as on 30.9.2020 which INR 3,00,000 in this case.

Situation No. 2

Sales up to 30.09.2020 of INR 52,00,000

Sales after 01.10.2020 of INR 45,00,000

Sales consideration received up to 30.09.2020 is of INR 52,00,000

Sales consideration received on or after 01.10.2020 is of INR 45,00,000

Q1. Whether TCS is applicable for FY 2020-2021? (YES / NO) ?

Ans. Yes. As the R2M purchase has crossed the 50 lakhs limit.

Q2. Sales consideration (exceeding INR 50,00,000) on which TCS is payable

Ans. INR 45,00,000

Reason - Limit of INR 50 Lakhs already exceeded before 30-09-2020. Hence, each sales consideration received for sales made after 01-10-2020 is liable for TCS.

Situation No. 3

Sales up to 30.09.2020 of INR 58,00,000

Sales after 01.10.2020 of INR 56,00,000

Sales consideration received up to 30.09.2020 is of INR 3,00,000

Sales consideration received on or after 01.10.2020 is of INR 51,00,000

Q1. Whether TCS is applicable for FY 2020-2021? (YES / NO) ?

Ans. No. As the R2M purchase has crossed the 50 lakhs limit but receipts are from outstanding as on 30-09-2020 and consideration not received for sales effected after 01-10-2020 hence, TCS is not payable.