Note on Tax Collection at Source (TCS) on Sale of goods

Applicability of TCS on sale of goods

The Finance Act, 2020 has inserted sub-section (1H) in Section 206C of the Income Tax Act to levy Tax Collection at Source (“TCS”) on sale of goods for amount or aggregate of such amount exceeding Rs 50 Lakh in any financial year. The salient features of the new provisions are given below:

  • Applicable on sale of any goods i.e. goods of any nature are covered.

  • Exports are exempted from the purview of TCS.

  • Non- residents not liable to collect TCS when goods are imported into India.

  • TCS to be charged only on the amount exceeding Rs 50 lakh.

  • The responsibility for collection of such TCS shall be on a seller whose total sales, gross receipts or turnover from the business in the immediately preceding financial year is more than Rs 10 Crore.

Section 206C(1H) will be effective from 1 st October, 2020.

Excluded buyers or transactions

  • If the buyer is liable to deduct TDS or collect TCS under any other provision of the Act and has deducted/collected such amount on the goods purchased by him from the seller; or

  • If the buyer is the Central Govt, State Govt, local authority, an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign state; or

  • Any person importing goods into India or any class of person notified by the Central Govt.

Rate of TCS

  • TCS will be applicable at the rate of 0.1% (for financial year 2020-21 reduced TCS rate of 0.075% will be applicable from 1.10.2020 to 31.3.2021 as per Press Release dated 13.05.2020).

  • In case PAN / Aadhaar number of the buyer is not available, TCS will be applicable at higher rate of 1%.

  • A seller when purchasing goods from another seller (i.e. acting as a buyer) may be liable to pay TCS, subject to fulfilment of the prescribed threshold and other conditions.

  • No option to apply for Nil / lower tax collection rate before tax officer, where a buyer is of the view that his income justifies Nil/ lower tax collection rate, for TCS under section 206C(1H). Therefore, even when a business entity is expecting loss during the relevant financial year, the option to approach tax officer for seeking lower tax collection rate is not available.

Buyers need to be informed or contract should include a clause regarding levy of TCS to avoid disputes.

TCS Payment, Return and Certificate

  • TCS collected during a month is required to be paid on or before the 7th day of the next month. Buyer can claim credit of the taxes collected by the seller.

  • Quarterly TCS return has to be submitted for the tax collected in Form 27EQ giving all the particulars of tax collected at source and paid to the government along with the following party-wise details:

    • Name and PAN of the party

    • Total value of the transaction

    • Amount received

    • Date of receipt of the amount

    • TCS collected

    • Date of collection

    • Reason for non-collection, lower collection or higher collection

TCS Payment, Return and Certificate contd…

  • Due date of TCS return in a quarter is as below:
  • April to June Quarter                    15th July

  • July to September Quarter           15th October

  • October to December Quarter      15th January

  • January to March Quarter            15th May

  • Issue TCS Certificate in Form 27D in respect of all the sale transactions from which tax has been collected.

  • To give effect to these provisions, changes will be required to be made in ERP system.

Consequence of non-collection or deposit

  • In case of failure to collect TCS or pay to the government, the person shall be deemed to be an ‘assessee in default’ and shall be liable to pay such tax along with interest @ one per cent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid and such interest shall be paid before furnishing the quarterly statement for each quarter to the government.

  • Tax officer has power to levy penalty equal to the TCS not collected for such default.

  • No saving clause (as available to certain other transactions subject to TCS) extended to failure to collect applicable TCS on sale of goods even if the buyer has considered the amount, on which the seller has failed to collect TCS, for computing income in the return of income and has paid tax due on it.

  • Non-deposit of TCS collected to invite prosecution.

Challenges in application of TCS provisions on sale of goods

  • TCS as introduced with effect from October 1, 2020 on sale of goods is applicable only on receipt of consideration for sales the value (or aggregate value) of which exceeds Rs 50 lakh. However, there are some unanswered questions as to whether payment received from debtors for sales concluded before 1.10.2020 are to be considered. Further, the manner of computation of threshold with regard to the sales entered into before 1.10.2020 is also not specified.

  • Also, timing of collection of TCS, consideration of value of GST for computing TCS, etc are required to be looked into while implementing the new TCS provisions and integrating into ERP system.

Challenges in application of TCS provisions on sale of goods contd…

  • The government has not come out with some clarifications with respect to implementation of the new TCS provisions, as such, the taxpayers need to formulate implementation measures based on the nature of business activities carried on and making changes in ERP system.

  • TCS changes coinciding with the coming into effect of e-invoicing provisions for B2B and export invoices under GST law from October 1, 2020 for taxpayers having turnover exceeding Rs 500 crore during FY 2019-20. Changes made for e-invoicing provisions in ERP systems should also take into account TCS changes under the Income-tax Act. Presently, TCS is not part of e-invoice schema provided by National Informatics Centre. It has been clarified that the government will soon provide clarification on this.

  • While devising the required changes in the systems, consideration needs to be given to some common eventualities such as cancellation of contracts, bad debts, etc.

NOTE:   This presentation is for discussion and general guidance purposes. No party should rely on this presentation without taking necessary prior professional advice