Article |Income Tax: The Indian Government has introduced several amendments to the Income Tax Act to regulate various transactions and reduce tax evasion. One such amendment is the introduction of Section 206C(1H) in the Income Tax Act, 1961, through the Finance Act, of 2020. This section requires sellers to collect tax at source (TCS) on the sale of goods from certain buyers.
What is Section 206C(1H) and Who is responsible for collecting TCS under this section?
Section 206C(1H) of the Income Tax Act requires sellers to collect TCS on the sale of goods to a buyer whose total sales, gross receipts, or turnover from the business exceeds Rs. 10 crores (inclusive of GST) in the preceding financial year. The tax collected at the rate of 0.1% is to be collected by the seller at the time of receipt of consideration for the sale of goods
TCS to be collected by the seller only when sale of goods consideration received per customer have exceeded Rs. 50 lakhs in a financial year (i.e., from 01-04-2020). TCS shall be collected on the amount after reducing Rs. 50 lakhs. TCS shall not be collected on consideration received before 01-10-2020 even though it is above Rs. 50 lakhs
The seller is responsible for collecting TCS under Section 206C(1H). The seller can be any person who is engaged in the business of selling goods. The seller may be an individual, a Hindu Undivided Family (HUF), a partnership firm, a company, or any other entity.
Also, the threshold of Rs.50 lakh is for the whole financial year. Thus, if the seller receives any sale consideration from the buyer from 1st April 2020 to 30th September 2020, the same will be considered for calculating the limit of Rs.50 lakh for that buyer.
Format of Invoice and Due Dates:
Suppose a supplier chooses to charge TCS in the invoice,
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- Value of goods = Rs.1,00,00,000
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- GST at 18% = Rs.18,00,000
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- Total = Rs.1,18,00,000
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- TCS on the total value = Rs.8,850
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- Total invoice value will be = Rs.1,18,08,850
The seller of goods is responsible for collecting TCS from the buyer and paying it to the government. The TCS is to be paid by the 7th of the following month.
For example, if you have received Rs 70 lakh from a buyer on 30th December 2021 and collected TCS of Rs 2,000 u/s 206C(1H). Then you have to deposit that liability by 7th January 2022.
Which transactions are covered under Section 206C(1H)?:
Section 206C(1H) applies to the sale of goods, excluding goods that are exported or sold to the Government or its departments, or to a person who is engaged in the business of manufacturing, processing, or mining. The provision applies only to B2B transactions and does not apply to B2C transactions.
Summary of TCS Section 206C(1H):
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- TCS provision is applicable to a seller when gross turnover from business carried on by him (inclusive of GST) in preceding financial year crosses 10 crore Rupees. Gross Turnover includes sale of goods, sale of services and other business income, it also includes export turnover and sale of capital assets.
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- TCS to be collected by the seller only when sale of goods consideration received per customer have exceeded Rs. 50 lakhs in a financial year (i.e., from 01-04-2020). TCS shall be collected on the amount after reducing Rs. 50 lakhs. TCS shall not be collected on consideration received before 01-10-2020 even though it is above Rs. 50 lakhs.
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- TCS to be collected @0.075% from 01-10-2020 to 31-03-2021 after that TCS rate is 0.1% w.e.f. 01-04-2021.
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- TCS to be collected on receipt basis irrespective of when sale made. (Cash basis TCS).
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- Seller is not required to collect TCS on export of goods.
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- There are certain exemptions to buyers discussed below.
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- TCS is applicable only on sale of goods.
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- TCS is applicable whether buyer uses goods for trading or manufacturing or in service or personal use.
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- As per Second proviso to Section 206C(1H) TCS provisions 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.
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- Lower deduction certificate under Section 206C (9) can be obtained? There is no provision in section 206C (9) for the buyer to apply lower deduction certificate for TCS under section 206C(1H).
Section 206C(1H) has significant implications for businesses engaged in the sale of goods. Businesses will need to identify buyers whose total sales, gross receipts, or turnover from the business exceeds Rs. 10 crores in the preceding financial year and collect TCS on the sale of goods to such buyers.
Tax collected at source is an advance tax for the buyer. Though normally tax including Advance tax/TDS is payable on income by the person who has earned such income. In case of TCS the Tax amount is collected by the person who has earned the income (seller) from the buyer and credit of the Tax so paid goes to the person who has incurred the expenses (Buyer). In order to widen and deepen the tax net, Finance Act, 2020 introduced new sub section (1H) to section 206C to levy TCS on consideration received from sale of goods above specified limit. TCS provision 206C(1H) is applicable from 01st October 2020. The provision has significant implications for businesses engaged in the sale of goods, who would need to identify buyers and collect TCS on the sale of goods. Businesses would also need to ensure compliance with this provision to avoid penalties and interest under the Income Tax Act. If there is a question of whether there is any impact of TCS on e-invoicing under GST the answer would be TCS will not have any impact on e-invoicing. It is mandatory to collect TCS under Section 206C(1H). if the buyer’s total sales, gross receipts, or turnover from the business exceeds Rs. 10 crores in the preceding financial year – JSPCO
