TCS on sale of Goods- Section 206C(1H) w.e.f. from 1st October 2020

  1. The new section 206C(1H) of the Income Tax Act, 1961 has been introduced by the Finance Act, 2020 for Tax Collection at Source(TCS) on sale of goods.
  • The provisions of this sub section is applicable and notified from 1.10.2020.
  • The provisions of this sub section is applicable in following circumstances:

a) It is applicable to all the sellers who are engaged in sale of goods. The term “seller” has been defined in the act.

b) The term “seller” means a person whose total sales, turnover or gross receipts from the business carried on by him exceeds Rs. 10 crores during the financial year immediately preceding financial year in which the sale of good is carried out.

c) Thus, the sellers who had a turnover/sales/gross receipts exceeding Rs. 10 crores in financial year 2019-20 will be required to collect TCS in financial year 2020-21.

d) If any person has turnover/sales/gross receipts below the above mentioned limit then it is out of scope of the term ‘seller’, meaning thereby the provision of this sub section shall not be applicable on that type of assessee.

e) The applicability criterion for TCS has to be considered & checked for every year

4. The provision of this subsection will not be applicable in the following circumstances:

  • This sub section is not applicable for export of goods & goods already covered under the existing provisions i.e., 2O6C(1), 206C(IF) and 2O6C(IG) governing TCS under chapter XVII-BB of the Income Tax Act,1961.
  • 206C(1) covers alcoholic liquor, tendu leaves, timber, other forest produce, scrap, coal, lignite and iron ore. 206(1F) covers motor vehicle of the value exceeding Rs.10,00,000/-. 206C(1G) covers overseas tour program package.
  • This subsection is not applicable in a case where value or aggregate value of sale consideration to an entity is below or equal to Rs. 50 lakhs during the year.
  • This subsection is not applicable if the buyer is Central Government / State Government / Local Authority / an Embassy / High Commission / Consulate & the representative of foreign states.
  •  This sub section is not applicable on import of goods.
  • This sub section is not applicable on a person who is notified by Government, (nothing is notified till date)
  • This subsection shall not apply if the buyer is liable to deduct TDS under any other provisions of the Act on the goods purchased by him from the seller and he has deducted such amount.
  1. The rate of TCS will be 0.1% of the value or aggregate value of the sale consideration if the buyer furnishes the PAN/AADHAR and in other cases it shall be considered as 1% of the value or aggregate value of the sale consideration.
  1. However, for financial year ending 31.03.2021, the rates of TDS and TCS are reduced to 75% and therefore the rates will be 0.075% and 0.75% respectively.
  1. Every person who is collecting tax at source under this sub section is required to submit a quarterly TCS return in Form 27EQ.  The TCS collected by the seller will be reflected in the Form 26AS of the buyer.
  1. The tax is to be collected at source from the buyer at the time of receipt of the amount from the buyer towards sale consideration.
  1. The TCS is to be collected at the time of receipt of the sale consideration. Therefore, it will be required to keep track of the receipt of sale consideration for the bills/invoices made after 01.10.2020.
  1. Though the provisions is effective from 01.10.2020, for calculating the Rs.50,00,000/- limit, sales of entire financial year will have to be taken into consideration.          
  1. The TCS has to be collected only on the figure of sale exceeding Rs.50,00,000/-.
  1. The TCS amount collected after every month is to be remitted to the Government by 7th of the next month.
  1. Though TCS is collectible on receipt basis practically it would be prudent to mention the TCS as a separate line item in the bills/invoices.
  1. In the context of law, even on the advances received TCS will have to be collected.