Tax collected at source (“TCS”) is a concept envisaged in Income Tax Act which is similar to the Tax Deducted at source (“TDS”). Provisions which create liability for collection of TCS are given under Section 206C of Income Tax Act. Under TCS, supplier of goods or services, collects an additional amount from buyer of goods/service over and above the agreed sales consideration in form of TCS.
E.g. Mr. A sales goods to Mr. of INR 1,000. As per Section 206C, TCS is applicable at the rate of 1% on such goods. Therefore, Mr. A will collected INR 1,000 from Mr. B for sales consideration and additional INR 10 (1000*1%) for TCS.
As on date, provisions of TCS on goods are applicable on selected goods such as Alocholic Liquor for human consumption, Scrap, Tendu Leaves, Timber obtained from forest, lease contract of parking lots, toll plaza etc.
However, with an objective to curb black money generation, CBDT has widened the scope of provisions of Section 206C and tried to capture most of the transactions under its preview.
1. Applicability of TCS on sale of Goods (Section 206C(1H) of Income Tax Act, 1961)
Under Section 206C, Sub-section (1H) has been inserted vide Finance Act, 2020. As per sub-section (1H), every seller of goods, who receives consideration or aggregate of consideration for sale of goods exceeding INR 50 Lacs in any year, shall collect TCS @ 0.1% of sales consideration from buyer for amount exceeding INR 50 Lacs i.e TCS on sales of goods applicable from 1st October 2020.
For the purpose of this section, “Seller” means every person whose aggregate sales or gross receipts from the business exceeds INR 10 Crores during immediately preceding financial year.
Therefore, every seller, having aggregate turnover exceeding INR 10 crores during preceding year, shall be liable to collect TCS @ 0.1% where the aggregate receipts exceeds INR 50 Lacs.
Provisions of section 206C(1H) shall come into effect from 1st October, 2020.
E.g. Mr. A is supplier of goods to Mr. B. Following are different examples to understand applicability of Section 206C(1H) on Mr. A:
|Aggregate Turnover During immediately preceding year||Aggregate receipts against sale of goods to Mr. B during current year||Amount of TCS to be collected|
|INR 9 Crores||INR 60 Lacs||TCS not applicable. As Mr. A doesn’t fall in the definition of seller.|
|INR 9 Crores||INR 40 Lacs||TCS not applicable. As Mr. A doesn’t fall in definition of seller and also aggregate receipts during the year doesn’t exceed INR 50 Lacs.|
|INR 11 Crores||INR 60 Lacs||INR 1000 (0.1% of INR 1 Lacs).|
|INR 11 Crores||INR 40 Lacs||TCS not applicable as aggregate receipts against sale does not exceed INR 50 Lacs during current year.|
2. TCS under section 206(1H) not applicable on receipts of Sale under following categories
For the purpose of collecting TCS under section 206C(1H), following sales shall not be considered:
- Goods exported out of India
- Goods covered under section 206C(1), i.e., Scrap, Tendu leaves, Alcoholi Liquor for human consumption, Timber, Any other forest product etc.
- Goods covered under section 206(1F), i.e., Motor Vehicles
- Goods covered under section 206(1G), i.e., Authorised dealer for remittance of money outside India under Liberalised Remittance Scheme (LRS) of RBI
3. Buyers on which TCS on goods not applicable under section 206C(1H)
Buyer means any person who purchases goods but does not include following:
- The Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
- A local authority as defined in the Explanation to clause (20) of section 10; or
- 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;
Therefore, if the seller sells goods to any of these buyers, then, provisions of Section 206C(1H) shall not apply i.e TCS will not be collected.
4. Consequences of non-availability of PAN/ AADHAAR in case of TCS on goods
Similar to TDS, in case of TCS also, credit of amount collected as TCS is available as credit to the buyer.
If a buyer fails to furnish a valid PAN/ Aadhaar then TCS shall be collected @ 1% instead of 0.1 %.
5. Rate of TCS on Goods
|Particulars||Rate of TCS||Remarks|
|PAN/ Aadhaar of buyer is available||0.1%||0.075% (Reduced rate is applicable due to COVID-19 till 31.03.2021)|
|PAN/ aadhaar of buyer is not available||1%||0.75% (Reduced rate is applicable due to COVID-19 till 31.03.2021)|
6. Due date of collection of TCS on Goods
Liability of seller to collect TCS from buyer arises on the date of receipt of amount from buyer irrespective of date of sales. E.g. A limited sales goods to B limited on 13th October, 2020. However, the amount is received from B limited on 1st November, 2020. In such case, liability to collect TCS shall arise on 1st November, 2020.
7. Due date of deposit of TCS on goods and filing of TCS return
After collection of TCS, seller is required to deposit collected TCS on monthly basis. Collected TCS should be deposited within 7 days from the end of the respective month.
Further, Every seller should file his return for TCS on quarterly basis in form 27EQ disclosing PAN wise details of buyers and corresponding TCS collected. Following are the due dates for filing TCS Returns:
|April to June||15th July|
|July to September||15th October|
|October to December||15th January|
|January to March||15th May|
8. Penalty for delay in filing of TCS return
Any delay in filing of TCS return will attract a late fee of INR 200 per day during which default continues subject to maximum amount of tax collected.
9. Frequently Asked Questions
Few frequently asked questions related to collection of TCS on sales of goods under section 206C(1H) is as follows:
1. Who is responsible for collection of TCS?
Every seller, having gross receipts or turnover exceeding INR 10 crores during preceding financial year, shall be liable to collect TCS on receipts against sale of goods sales @ 0.1%. However, TCS shall be collected from such buyers only whose aggregate receipts exceeds INR 50 Lacs during the year.
2. If aggregate receipts from a buyer exceeds INR 50 lacs during the year then TCS should be collected on gross amount receipt or excess amount receipts only?
In such case, TCS should be collected only on sales receipts exceeding INR 50 Lacs. E.g. A Limited sold goods of INR 52 Lacs to B Limited during the year. Liability of A Limited of collection of TCS shall arise only after aggregate receipts against sale exceeds INR 50 Lacs. In given example, if entire payment received in same financial year, then A limited is liable to collect TCS on INR 2 Lacs.
3. If aggregate sales during the year is less than INR 50 lacs. However, aggregate receipts exceed INR 50 Lacs on account of receipts of opening outstanding amount or advance receipts then whether TCS should be collected on the same or not?
As per Section 206C(1H), liability to collect TCS arises if aggregate amount received for sale of any goods exceeds INR 50 Lacs during the year. Therefore, in the given case as aggregate receipts exceeds INR 50 Lacs therefore, liability to collect TCS shall arise on amount in excess of INR 50 Lacs irrespective of fact that such amount is received against sales of earlier year or next year.
4. For the purpose of computation of TCS, whether GST or any other taxes should be included in gross amount?
For the purpose of TDS, CBDT has clarified vide Circular No. 23/2017 dated 19th July, 2017 that for the purpose of deduction of TDS under chapter XVII-B, amount paid or payable shall be taken without including GST. However, no similar circular has been issued for the purpose of TCS.
Therefore, in absence of any clarification from department, sales consideration should be construed to include GST Amount. Accordingly, TCS should be collected on amount including GST.
However, like TDS, department should issue the relevant clarification on whether GST amount should be included in sales consideration or not.
5. How to consider Sales return, credit Note or Debit Note while collecting TCS under section 206C(1H)?
Liability of collection of TCS arises on the date of receipt of the sales consideration from the buyer. Therefore, if sales return is made or credit note is raised before collection of sales consideration and thereafter, sales consideration is received net of Credit Note then TCS shall be collected on net amount.
However, if sales return is made or credit note is issued after collection of sales consideration then TCS shall be charged on gross amount without deducting credit note or sales return.
In case of debit note, excess payment is received over and above the decided sales consideration. Therefore, the amount collected pursuant to debit note shall be liable to TCS on date of receipt.
|Date||Nature of Transactions||Amount|
|April, 2020||Sales made||INR 10,00,000|
|June, 2020||Sales return received||INR 2,00,000|
|July, 2020||Sales consideration received||INR 8,00,000|
Liability to collect TCS arises in the month of July, 2020 on INR 8,00,000
|Date||Nature of Transactions||Amount|
|April, 2020||Sales made||INR 10,00,000|
|June, 2020||Sales consideration received||INR 10,00,000|
|July, 2020||Sales return||INR 2,00,000|
Liability to collect TCS arises in the month of June, 2020 on INR 10,00,000. Whenever, supplier adjusts INR 2,00,000 in any future receipts then TCS shall be collected on such net receipts.
6. What is the TCS implication, If, sales and purchase is made from the same person and sales consideration is received on a net basis?
Seller is liable to collect TCS on the amount received. Therefore, sales consideration received after setting off the purchase amount will be considered for the purpose of computation of TCS liability.
7. How to compute aggregate sales of INR 50,00,000 to check applicability of TCS?
As per section 206(1H), if a seller receives any amount as sales consideration and aggregate of such amount is exceeding INR 50,00,000 during any year then liability to collect TCS arises. Therefore, the threshold limit of INR 50,00,000 is to be computed on an amount received basis.
- Aggregate sales made during the year to a buyer: INR 60,00,000
- Aggregate amount received during the year from such buyer: INR 45,00,000
As aggregate of sales consideration received doesn’t exceeds INR 50,00,000, therefore, TCS should not be collected.
- Aggregate sales made during the year to a buyer: INR 45,00,000
- Aggregate amount received during the year from such buyer (Including advances or dues of earlier year): INR 60,00,000
As aggregate of sales consideration received exceeds INR 50,00,000, therefore, TCS to collect TCS arises in the month when aggregate amount exceeds the threshold limit.
8. Whether TCS is applicable on receipt of Advance?
As per Section 206C(1H) of Income Tax Act, liability of collection of TCS on sales arises on the date of receipts irrespective of date of sales. Therefore, the seller is liable to collect TCS on advance receipts also if the aggregate amount received during the year exceeds INR 50,00,000.