TCS (Tax Collected at Source) On sale of Goods- New Income Tax Compliance w.e.f 01.10.2020

With a view to widening the tax net, the Indian government has extended the scope of Tax Collected at Source (“TCS”). The Government of India has added a new sub-section (1H) in section 206C which would be called section i.e 206C (1H) of the Income Tax Act, 1961 with regards to “Tax Collection at Source”. In this blog information on what is Section 206C (1H), and the applicability of TCS on the sale of goods will be explained in detail.

What is Section 206C (1H)?

“Every person, being a seller, who receives any amount as consideration for the sale of any goods of the value or aggregate of such value exceeding 50 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 percent of the sale consideration exceeding fifty lakh rupees as income-tax”.

That means, that Every seller who has received any amount as sale consideration above Rs. 50 lakhs (limit to calculate from 1st April, 2020) has to collect 0.075% of bill amount from such buyer, collect PAN and pay as TCS every month.

Applicability of Section 206C(1H)

• It would be applicable to all sellers of goods whose turnover for the preceding Financial Years exceeds Rs. 10  Crores (100 Million) rupees.
• That means, if during FY 2019-20, turnover was exceeded INR 10 Crores, then For FY 2020-21 w.e.f 01.10.2020, this provision will be applicable to such sellers.

Applicability Date of TCS (Tax Collected at Source) on sale of Goods under section 206C(1H)

• The new provisions added by subsection 1(H) of section 206C will be Applicable from the 1st of October, 2020.

Important Out Come of the Newly added provisions of section 206C (1H)

Buyer

Buyer means a person who purchases any goods, but does not include:

1. The Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
2. A local authority as defined in the Explanation to clause (20) of section 10; or
3. 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.

Seller

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 (Sale of Services is not covered) 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.

• According to the definition, only those people are sellers whose turnover exceeded Rs. 10 crores in the financial year preceding the financial year in which the sale was made.
• For eg: If a sale is being made by a person in FY 2020-21 then he will be eligible to collect TCS on the same if his turnover in FY 2019-20 was above Rs. 10 crores. Therefore a business that started in FY 2020-21 won’t be liable to collect such TCS.
• Even payment received on or after 01.10.2020 pertaining to sales made before 01.10.2020 would be liable for TCS. In such a case, TCS should be recovered by raising a debit note to a buyer for the TCS amount.
• TCS would be collected from buyers to whom sales exceed Rs. 50 lakhs is made in a year and this will not include the sale of service or export sale.
• TCS shall be applicable only on the amount of sale exceeding Rs. 50 lakhs in a year. That means if a person has sold goods worth Rs, 60 Lakhs to one buyer, then TCS needs to be collected 0.1% only on Rupees 10 Lakhs.
• Amount of TCS which needs to be collected if PAN or Aadhar card not available would be 1% instead of 0.1%. However, till 31.03.2021 this rate has been reduced to 0.075%.
• TCS under this section shall not be applicable where TDS is being deducted on same transaction or TCS is collected.
• This provision is not applicable in the case of export of goods and sales made to the Government.

Note: Sellers will need to add 0.075% to the total bill value and deposit with the government every month. This Tax Collected at Source rate would be 0.1% from 01.04.2021. So everyone is advised to complete accounting for half year till 30.09.2020 and separate parties with whom payment received crosses Rs. 50 lakhs.

Suggested Read: TDS rate chart for FY 2020-21

FAQs on TCS on sale of goods

1. Who is responsible for deducting TCS from sales?

Seller is liable to deduct TCS from sales

2. Are the Section 206C(1H) provisions applicable to newly incorporated sellers?

No, because the Seller will not fulfil the application criteria of a previous financial year’s turnover of 10 crores.

3. Is TCS required to be collected on products exported?

TCS will not be collected on export sales made outside of India.

4. Is TCS required to be collected on all purchases, including service sales?

TCS (Tax Collected at Source) will only be collected when products are sold.