TCS on sale of Goods

 

Introduction:

 

1.   Through Finance Act, 2020, sub-section (1H) in section 206C was introduced in the

I.T  Act,1961  (the  Act)  for  collection  of  tax  by  the  seller  of  goods  from  financial  year 2020-21, however due to Covid-19,Pandemic the applicability of the provision deferred to 01.10.2020.

 

Section 206C(1H) introduced under the Act reads as under:

 

"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  or  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.

 

Meaning of 'Buyer' as defined under Explanation (a) to section 206C (1H):

 

2.  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 in to India or any other person as the Central Government may by notification in the Official Gazette, specify for the purpose, subject to such conditions as may be specified.

 

Meaning of 'Seller' as defined under Explanation (b) to section 206C (1H):

 

3.  '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 there in.

 

Meaning of 'Goods' not defined in section 206C (1H):

 

5.  The term ' Goods' have not been defined under the Act, hence we have to borrow the reference from other Acts where the term ' Goods' is defined like Sales of Goods Act,1930 or Goods and Service Tax Act,2017 . In both the Acts the term 'Goods' has been defined as 'Goods' means every kind of movable property other than money and securities but includes actionable claims, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply

.

 

Salient features of the section 206C (1H):

 

6.  Considering the provision of section 206C (1H) reading with Explanation (a) and (b) the salient features of the section 206C (1H) are as under:

(i)              Seller of goods whose turnover, sales or gross receipts from business is exceeding Rs.10.00 Crores in the immediately preceding financial year 2019-20 shall be liable for TCS from the buyer for the financial year 2020-21 w.e.f 01/10/2020.

(ii)              Immediately preceding financial year is the base year whose business turnover, gross receipts or sales has to be considered so as to decide the fulfilment of criteria of threshold limit of rupees ten crore and applicability of TCS under section 206C(1H). (For example: For financial year 2021-22 the turnover, sales or gross receipts from business of the financial year 2020-21 has to be considered).

(iii)              Normal rate of TCS @0.1%( Rate will be 0.075% till 31.03.2021).

(iv)               In absence of Permanent Account Number or the Aadhaar number of the buyer TCS @1% is applicable.

(v)              Receipt of sale consideration during the financial year in excess of rupees fifty lakhs is buyer specific.

(vi)               TCS is applicable on the balance excess amount of sale consideration received beyond rupees fifty lakhs from a buyer during the financial year.

(vii)            TCS is applicable as soon as receipt of sale consideration during a financial year from a buyer exceeds rupees fifty lakhs irrespective of the year in which the actual sale was made. (Clause 4.4 of the CBDT Circular No.17 of 2020 dated 29/09/2020).

 

Exceptions given under the section 206C (1H):

 

7.  Seller is not required to collect TCS on all types of sale of goods under section 206C (1H), there are some exceptions given to this provision. These are listed below:

(a)             Goods exported out of India.

(b)             Goods are of such type on which TDS is liable to be deducted by the buyer (Like in case of Job Work, Composite Supply).

(c)             Goods covered for TCS under section 206(1) such as Alcoholic Liquor for human consumption, Tendu leaves, Timber, Scrap, Any other forest produce, Minerals, being coal or lignite or iron ore.

(d)           Goods covered under section 206(1F) i.e. Motor Vehicle dealer is liable to collect TCS where the value of a motor vehicle exceeds Rs.10.00 Lacs. [Where sale consideration from a buyer exceeds rupees fifty lakhs during a financial year on account of sales of motor vehicles having sales value of Rs10.00 Lacs or less than that TCS is applicable under section 206C(1H).(Clause 4.5.2(ii) of the CBDT Circular No.17 of 2020 dated 29/09/2020).

(e)            Gods covered under section 206C (1G) i.e. Authorised Dealer for remittance of money outside India under the Liberalized Remittance

Scheme (LRS) of Reserve Bank of India.

 

 

 

 

 

 

 

 

 

 

Due date for deposit of TCS, filling of Quarterly E-TCS Return, Issuance of TCS certificate and late fee for delay in filling Quarterly E-TCS Return:

 

8.  Due date for deposit of TCS collected under section 206C (1H) including filling of E- TCS quarterly returns are same as applicable to other TCS provisions .

 

After collection of TCS on sale of goods from the buyer, seller is required to deposit TCS on monthly basis . Collected TCS should be deposited within 7 days from the end of the respective month.

 

Every seller shall file his E-TCS return on quarterly basis in Form 27EQ disclosing PAN wise details of buyers and TCS collected.

 

Further every seller shall issue TCS certificate in Form 27D to the buyer within fifteen days from the due date for furnishing the statement of tax collected at source.

 

Following are the due dates for filling quarterly E-TCS returns and issuing TCS certificates.

Quarter             Period              Due date for Quarterly

return in Form 27EQ

Due date for Quarterly certificate in Form 27D

Q1        April to June          15th July                               30th July

Q2        July to September

Q3        October to December

Q4        January to March

15th October                         30th October

 

15th January                          30th January

 

15th May                               30th May

A delay in filling quarterly E-TCS return will attract a late fee of Rs200/- per day during which delay continues subject to maximum amount of TCS collected.

 

Some practical issues which needs attention of the CBDT:

 

9.  (A) Mis-Match of 26AS and Books:

 

Since under the section  206C  (1H) liability to deposit the TCS amount with the Govt. will  be  arises  on  receipt  on  sale  consideration  hence  there  may  be  instances  where Buyer purchase the goods in one financial year and made payment in the next financial year and seller will deposit TCS on receipt basis i.e. in the next financial year . This may lead to mismatch in the buying as shown in the books of accounts and buying reflecting in the Form 26AS.

 

(B) Hybrid system of Accounting:

 

Liability to deposit TCS with the Govt. arises on receipt basis it is going to be aburdensome task, as every time seller received the payment from the buyer he has to remit the TCS to the Govt. That means for accounting of sales, seller may follow Mercantile system of accounting however for accounting TCS the seller is bound to follow Cash system of accounting.

 

© Inconsistency with other provisions of TDS/TCS :

 

Other provisions of TDS/TCS creates liability to deposit TDS/TCS on the basis of Due or Receipt which ever is earlier and as this provision of TCS is creating liability on receipt basis hence seller can not follow the practice of charging and depositing TCS on the invoice basis.

 

(d)  GST charged on sales is a part of TCS when collected where as GST is excluded for TDS purpose:

 

TCS under this provision is collected on receipt of sale consideration hence GST collected from the buyer being part of sale consideration will also suffer TCS . (Clause

4.6 of the CBDT Circular No.17 of 2020 dated 29/09/2020).

 

CBDT  vide  Circular  No.1/2014  dated  13/01/2014  relying  upon  the  judgment  of  the Hon'ble  Rajasthan  High  Court  in  the  case  of  CIT  (TDS)  Jaipur  v.  Rajasthan  Urban Infrastructure reported in (2013) 37 taxmann.com 154 has decided not to deduct TDS on the service tax portion when service tax component was shown separately on the face of the invoice.

 

Referring   to   above   CBDT   Circular   No.1/2014   dated   13/01/2014   as   GST   charged separately on the face of the invoice is not suffering TDS hence under the same principle 'GST' when collected may not suffer TCS .

 

 

(e) GST charged on sales is a part of TCS when collected where as no GST is charged for TCS shown separately on the face of the invoice:

 

CBIC  vide  corrigendum  letter  dated  7th  March  2019  as  corrigendum  to  Circular  No: 76/50/2018-GST  dated  31st  December,2018  has  made  it  clear  that  no  GST  has  to  be charged   for   TCS   shown   separately   on   the   face   of   the   invoice   than   how   sales consideration collected inclusive of GST shall suffer GST.

 

 

(f)  Applicability of levy of TCS under B2B arrangements where goods are sold for manufacturing, processing or producing articles or things or for generation of power and not for trading purpose:

 

Under the current TCS regime, no tax is required to be collected at source from a buyer who is resident in India and who purchases goods specified under section 206C(1) for the purpose of  manufacturing,  processing or producing any  article or  thing or for the purpose  of  generating  power  and  not  for  trading.  The  buyer  is  required  to  furnish  adeclaration in Form 27C to the seller under section 206C (1A) that the goods purchased are to be utilized in the carrying on aforesaid purpose.

 

Under the newly introduced law related to TCS on sale of goods, there is no such enabling provision where in buyer of goods can declare the purpose of utilization of goods so as to free from tax collection and hence, it seems all buyers would be covered for TCS under the new TCS law.

 

(g)  Applicability of levy of TCS in case of indivisible contracts:

 

In the case of indivisible contract there is no bifurcation of contract price between goods and services and accordingly invoice is raised for an absolute figure without bifurcation of goods and services.

 

In such case an issue may arise regarding the applicability of TDS under section  194C vis-a-vis  TCS  on  the  sale  consideration  in  case  of  indivisible  contracts.  The  nature  of overall  transaction  whether  sale  of  goods  or  rendering  of  services,  will  be  critical  to determine  whether  TDS  or  TCS  will  apply.  In  case  considering  the  nature  of  the transaction,  TDS  in  not  applicable,  the  issue  which  require  consideration  is  whether TCS  would be required  on the contract  price which includes  both for supply of  goods and services. Therefore, a clarification may be issued regarding indivisible contracts.

 

(h)  Past taxable event that is sales made in earlier years shall suffer TCS on collection basis :

 

Taxable  event  that  is  sale  was  happened  in  earlier  years.  Tax  has  to  be  collected  on collection of sale consideration in the financial year 2020-21 which was collected after 30th  September,  2020  once  the  collection  from  individual  buyer  exceeds  rupees  fifty lacs. This shows that tax is going to be collected on those past sale even when originally sale was made, the new tax collection law was not in the Act. Accordingly the new tax collection   rule   is   inconsistency   in   the   accepted   principle   that   past   taxable   event happened in one financial year shall not create any compliance burden upon the parties i.e. both seller and buyer in another financial year because each financial year is distinct and separate.