Understanding Key Issues of TCS on Sale of Goods-Section 206C(1H)

Understanding Key Issues of TCS on Sale of Goods-Section 206C(1H)

 

In order to widen and deepen the tax net the Finance Act, 2020 has amended the provisions of section 206C to levy TCS on sale of goods by inserting a sub-section (1H) to section 206C.

01. Introduction

The Finance Act, 2020 has made an amendment by insertion of sub-section (1H) in section 206C of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) which is effective from 01.10.2020. As a result of the said amendment, a seller who receives any amount as consideration for the sale of any goods of the value or aggregate of such value exceeding Rs. 50 Lakh in any previous year shall at the time of receipt of such amount collect from the buyer, a sum equal to 0.10% of the sale consideration exceeding fifty lakhs as income tax.

 

Section 206C of the Act provides for the collection of tax at source (TCS) on business of trading in alcohol, liquor, forest produce, scrap etc. Sub-section (1) of the said section, inter-alia, provides that every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of certain goods a sum equal to a specified percentage, of such amount as income-tax.

02. Bare provision of Section 206C(1H) levying TCS on sale of goods

The bare provision of Section 206C(1H) levying TCS on sale of goods reads as follows-

(1H) 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 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 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:

 

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words "five per cent", the words "one per cent" had been substituted:

Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Explanation.—For the purposes of this sub-section,—

 

(a)  "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 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;

 

(b) "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 therein.

These amendments will take effect from 1st October, 2020.

 

03. Salient features of section 206C(1H)

 

The salient features of section 206C(1H) are outlined below-

 

1. A seller of goods is liable to collect TCS at a rate of 0.1 per cent on consideration received from a buyer in a previous year in excess of fifty lakh rupees. In non-PAN/ Aadhaar cases, the rate shall be one per cent.

 

2. Only those sellers whose total sales, gross receipts or turnover from the business carried on by it exceed ten crore rupees during the financial year immediately preceding the financial year, shall be liable to collect such TCS.

 

3. Central Government may notify person, subject to conditions contained in such notification, who shall not be liable to collect such TCS.

4. No TCS is to be collected from the Central Government, a State Government and an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to conditions as prescribed in such notification.

5. No TCS is to be collected from the importer of any goods into India.

 

5. No such TCS is to be collected, if the seller is liable to collect TCS under other provision of section 206C or the buyer is liable to deduct TDS under any provision of the Act and has deducted such amount.

 

04. Amendments to Finance Bill, 2020 by the Finance Act, 2020

The provisions of section 206C(1H) to impose TCS on sale of goods were introduced in the Finance Bill, 2020. However, when the Bill was passed by the Loksabha various amendments in section 206C(1H) were made in the Bill through government amendments. 

In the Bill, the applicability date of TCS on sale of goods was 1st April, 2020 which was postponed and amended to 1st October, 2020 by the Finance Act. The Finance Bill, 2020 proposed the amendments to the provisions relating to TCS to be effective from 01-04-2020.

The Finance Act, 2020 has deferred the applicability of such amendments to be made effective from 01-10-2020.

 

The Finance Bill, 2020 (as passed by the LokSabha) has amended sub-section (1H) to provide that no tax shall be collected in respect of export or import of goods.

 

Power to remove difficulty- Finance Act, 2020 has empowered the CBDT to issue guidelines, with the approval of central government, if any difficulty arises in giving effect to the provisions of subsection (1G) or sub-section (1H). It is also provided that such guidelines so issued shall be laid before the Parliament and shall be binding on the Income-tax authorities and on the person liable to collect the sum. [Section 206C(1-I) and section 206C(1J)]

 

There were no such provisions in the Finance Bill, 2020.

 

05. Scheme of TCS provisions as contained in section 206C

 

Section 206C of the Act provides for the collection of tax at source (TCS). It has 11 sub-sections. 

 

Sub-sections (1) to (1H) provides for the rate of TCS on various sale of goods as follows-

Section	Nature of Transaction Goods and/or Services liable to TCS	Rate of TCS		Status
		If PAN or Aadhaar is furnished	If PAN or Aadhaar is NOT furnished
206C(1)	Alcoholic Liquor for human consumption	1%	5%	Existing Provision
	Tendu leaves	5%	10%	Existing Provision
	Timber obtained under a forest lease	2.5%	5%	Existing Provision
	Timber obtained by any mode other than under a forest lease	2.5%	5%	Existing Provision
	Any other forest produce not being timber or tendu leaves	2.5%	5%	Existing Provision
	Scrap "scrap" means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons	1%	5%	Existing Provision
	Minerals, being coal or lignite or iron ore	1%	5%	Existing Provision
206C(1C)	Where the Nature of contract or licence or lease, etc.
	Parking lot	2%	5%	Existing Provision
	Toll plaza	2%	5%	Existing Provision
	Mining and quarrying shall not include mining and quarrying of mineral oil and “mineral oil” includes petroleum and natural gas	2%	5%	Existing Provision
206C(1F)	Sale of a motor vehicle of the value exceeding Rs. 10 Lakh	1%	5%	Existing Provision
206C(1G) (w.e.f. 01-10-2020)	Remittance under Liberalised Remittance Scheme of Reserve Bank of India exceeding Rs. 7 Lakh			New Provision
	(a) If the remittance is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education	0.5%	5%	New Provision (Amended by Finance Act, 2020)
	(b) Others	5%	10%	New Provision
	Sale of the Overseas Tour Package	5%	10%	New Provision
206C(1H) (w.e.f. 01-10-2020)	Sale of goods in excess of Rs. 50 Lakh in a year by a seller whose turnover is more than Rs. 10 Crore	0.1%	1%	New Provision

Sub-Section to Section 206C	Provisions covered
S. 206C(1-I)	Power to remove difficulties in giving effect to the provisions of sub-section (1G) or sub-section (1H) by issuing guidelines.
S. 206C(1J)	Every guideline issued by the Board under sub-section (1-I) shall be laid before each House of Parliament.
S. 206C(2)	This section is only a mode of recovery
S. 206C(3)	Deposit of TCS by the collector to the government’s account and furnishing of TCS statement
S. 206C(3A)	Furnishing TCS statements by government collector
S. 206C(3B)	Correction of furnished TCS statements by government collector
S. 206C(4)	TCS is the tax paid by the buyer
S. 206C(5)	Issue of TCS Certificate
S. 206C(5A)	Furnishing of Annual TCS Return, applicable for TCS before 01.04.2005
S. 206C(5B)	Furnishing of Annual TCS Return in computer media
S. 206C(5C)	Annual TCS Return furnished in computer media shall be the Annual Return for sub-section (5A)
S. 206C(5D)	Defective Annual TCS Return
S. 206C(6)	Deposit of TCS in case of failure
S. 206C(6A)	Assessee-in-default in certain circumstances
S. 206C(7)	Interest payable in case of delay in deposit of TCS
S. 206C(8)	Charge on assets for Arrear TCS and interest
S. 206C(9)	Lower rate of TCS certificate
S. 206C(10)	Lower rate of TCS certificate shall prevail
S. 206C(11)	Power to make Rules for sub-section (9)

Who shall collect tax under section 206C(1H)

Every seller of goodsis liable to collect tax from the buyer under this provision in the following circumstances-

1. The term ‘seller’ is defined in the provision itself to mean any person. Thus an individual, firm, HUF, company, trust, AoP, BoI, society, - all are covered, who sells goods to buyers whether in wholesale or retail.

2. Only sellers of goods are covered by this provision. Services are not covered. If a person sells goods as well as render services, then tax shall be collected only on the sale of goods. No tax shall be collected on the sale of services. If the seller is a registered supplier under GST laws, GST will be charged on both the invoices for sale and services.

3. The seller must be a person whose total sales, gross receipts or turnover from the business carried on by him exceedRs. 10 crore during the financial year immediately preceding the financial year in which the sale of goods is carried out.

All the sellers are not covered under this provision. Only those sellers of goods whose turnover or gross receipts in the preceding financial year exceeds Rs. 10 crore are only liable to collect tax under this provision.

 

In computing the threshold limit of Rs. 10 crore, the sale of goods, as well as sale of services, will be counted and added.

 

Further, in computing the total sales/turnover/gross receipts, the amount of GST shall be included. This is by virtue of the specific provisions of section 145A.

 

Example 1:Rakesh Trading & Servicing Co. is a partnership firm and sells refrigerators. It also provides repairing, maintenance services of the refrigerators. During the FY 2019-20, its turnover from sale of a refrigerator is Rs. 8 crore and income from repairing and maintenance services is Rs 4 crore. The rate of GST is 18% in both cases. Determine whether the firm is liable to collect TCS in the FY 2020-21. 

For the applicability of a provision of section 206C(1H) for the FY 2020-21, its turnover for the FY 2019-20, the immediately preceding financial year, is to be considered.

Computation of turnover of M/s Rakesh Trading & Servicing Co. for the FY 2019-20:

Particulars	Amount (in Rs./Crore)
Sale of refrigerator	5.00
Sale of Services	4.00
Add: GST @ 18%	1.62
Turnover for the FY 2019-20	10.62

Since the turnover of M/s Rakesh Trading & Servicing Co. exceeds Rs. 10 crore including GST, it is liable for TCS u/s 206C(1H) from the sale of goods in the FY 2020-21.

4. The Central Government may by a notification exclude any person, being a seller, from the applicability of provisions of section 206C(1H).

5. The seller must sell the goods to the buyer. Thus if the seller draws the goods for personal consumption, it will not come under the purview of TCS since one cannot sell to himself.

6. The term ‘buyer’ is defined in the provision itself to mean any person who purchases any goods. In other words, a buyer is a person who purchases the goods from the seller. However, the term ‘buyer’ does not include the followings-

 

(i) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

 

(ii) a local authority as defined in the Explanation to clause (20) of section 10; or

 

(iii) 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;

Thus if a seller even if preceding year turnover exceeds Rs. 10 crore and sells goods for more than Rs. 50 Lakh to the Central Government, State Government or other excluded persons as mentioned above, he shall not collect TCS on such sale of goods.

 

Further, it may be noted that Government entities or corporations are not exempt from the TCS provisions. They will be considered as buyers for the purpose of section 206C(1H).

 

7. The seller shall collect the tax or TCS from the buyer only if he receives consideration of more than Rs. 50 Lakh in a previous year in aggregate from the buyer towards the sale of any goods. This shall apply per buyer basis. It does not apply when the per buyer receipt of sale consideration does not exceed Rs. 50 Lakh but exceeds Rs. 50 Lakh in aggregate from more than one buyer.

 

Example 2: Continuing from Example-1, Suppose M/s Rakesh Trading & Servicing Co. receives the following amount from the buyers during FY 2020-21 as sales consideration for the sale of goods-

Buyers	Amount Received during FY 2020-21	Remarks
Buyer A	Rs. 25,00,000	No TCS shall apply
Buyer B	Rs. 35,00,000	No TCS shall apply

 

In the above case, no TCS shall apply even if the seller is liable to collect TCS. This is because receipt of consideration from a single buyer does not exceed Rs. 50 Lakh, though in aggregate receipt from all the buyers exceeds Rs. 50,00,000. This fact is irrelevant.

Suppose, the firm receives Rs. 51,00,000 from Buyer C then it shall collect TCS from Buyer C only.

Buyers	Amount Received during FY 2020-21	Remarks
Buyer A	Rs. 25,00,000	No TCS shall apply
Buyer B	Rs. 35,00,000	No TCS shall apply
Buyer C	Rs. 51,00,000	TCS shall apply on in this case

 

The TCS shall be collected when the seller receives the amount of sale consideration from the buyer and not at the time of issuing invoices.

 

Meaning of ‘goods’ for section 206C(1H)

 

8. The term ‘goods’ is neither defined in the provision nor the Income Tax Act has defined the term ‘goods’. The provision simply states the sale of any goods. It means goods of all kinds are covered. However, the sale of the following goods are excluded, since on these goods TCS provisions are already covered, except for export of goods-

 

Goods covered in section 206C(1)	This sub-section covers alcoholic liquor, forest produce, scrap, etc. as ‘goods’
Goods covered in section 206C(1C)	This includes lease or a licence or enters into a contract or otherwise transfers any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry
Goods covered in section 206C(1F)	This includes motor vehicle
Goods exported out of India

 

The Sale of Goods Act, 1930 is the law that governs the sale of goods in India. As per section 2(1) of the Sale of Goods Act, 1930, a buyer is someone who buys or has agreed to buy goods. Since a sale constitutes a contract between two parties, a buyer is one of the parties to the contract.

 

The Sale of Goods Act, 1930 defines the term ‘seller’ in section 2(13). A seller is someone who sells or has agreed to sell goods. For a sales contract to come into existence, both the buyers and seller must be there. These two terms represent the two parties of a sales contract. As per the Sale of Goods Act, 1930, even the person who agrees to buy or sell is qualified as a buyer or a seller. The actual transfer of goods doesn’t have to take place for the identification of the two parties of a sales contract.

 

The Sale of Goods Act, 1930 defines the term “goods” in its section 2(7) in the following manner-

"goods" means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.

 

Under GST, ‘goods’ have been defined as every kind of movable property other than money and securities but includes actionable claim, 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.

Though under both the laws, ‘goods’ means movable goods but there are certain differences with certain items-
1. Under Sale of Goods Act, 1930 actionable claims are excluded but GST law includes it within the definition of goods.

2. Under GST law, stocks and shares are excluded from the definition of goods but are specifically included in the definition of ‘goods’ under the Sale of Goods Act, 1930.
However, there are similarities in case of money and immovable properties as both are excluded from the definition of goods under both the laws.

Though GST laws also define the term goods, it is the definition of goods under the Sale of Goods Act, 1930 shall prevail. This is because the Sale of Goods Act, 1930 is the mother law in a contract of sale of goods and has universal application. The GST definition of the goods under the GST laws is specific to the GST area only. Section 206C(1H) has also used the term 'sale of any goods’ whereas GST applies to ‘supply of goods as well as services’, though the term supply includes sale.

 

Hence, as per my view, stocks and shares are also liable for TCS under this provision.

 

Goods are generally tangible. They can be possessed, stored, delivered, transferred, bought and sold. Services are generally intangible.  However, some intangibles, like electricity, trade-mark, copyright, technical know-how have also been interpreted by Courts as ‘goods’ as they are capable of being possessed, stored, delivered etc. On the other hand some services can also be tangible e.g. a prepaid card with talk time. 

Growing crops, timbers and Grass: As per Section 3 of the Transfer of Property Act, 1882, ‘immovable property’ does not include standing timber, growing crop and grass. The word standing timber includes Babool Tree, Shisham, Nimb, Papal Banyan, Teak, Bamboo, etc. The fruit bearing trees like Mango, Mahua, Jackfruit, Jamun, etc., are not standing timber, and they are immovable properties [Fatimabibi v. Arrfana Begum, AIR 1980 All 394].

 

Whether trees can be regarded as movable or immovable depends upon the circumstances of the case. If the intention is that trees should continue to have the benefit of further sustenance or nutriment by the soil (land), e.g., enjoining their fruits, then such tree is immovable property. But if the intention is to cut them down sooner or later for the purpose utilising the wood for building or other industrial purpose, they would be timber and of accordingly be regarded as movable property [Shantabai vs. State of Bombay, AIR 1958 SC 532]

Electricity: Electricity has been held to be “goods” by a Constitution Bench of the Supreme Court in the case of State of Andhra Pradesh vs. National Thermal Power Corporation Ltd.  (2002) 5 SCC 203. It was held that electricity though an intangible object is ‘goods’ covered by Entry 54 of List II of Schedule VII to the Constitution of India.

 

Lottery: Earlier, the Hon'ble Supreme Court in the decision reported in 1986 61 STC 165 in H.Anraj vs. Government of Tamil Nadu took a view that the sale of lottery tickets involved the sale of goods.

 

However, a Constitutional Bench of the Supreme Court  in Sunrise Associates vs. Government of NCT of Delhireported in 2000 (10) SCC 420 (decided on 28 April 2006) overturned the decision in the H Anraj case, holding that the sale of lottery tickets is not ‘goods’ and is, at best, only a transfer of an actionable claim.

 

Note: It should be noted that Timber is already subject to TCS u/s 206C(1) and hence shall not be liable to TCS u/s 206C(1H).

When to collect TCS on sale of goods u/s 206C(1H)

The trigger point to collect the TCS on sale of goods u/s 206C(1H) is the ‘receipt of consideration’ from the buyer and not at the time of issuing invoices to the buyer. Therefore, TCS under this section shall be required to be collected at the time of receipt of sales consideration from the buyer. It should be noted that even if the seller receives ‘advance money’ from the buyer for sale of goods, the seller is liable to collect TCS on the advance amount.

Every time the seller receives part of the sale consideration in advance, the seller is mandated to deduct TCS under Section 206C(1H). The difficulty arises in the calculation of the amount when TCS is deducted on multiple advance payment transactions and when payments transactions are adjusted against Invoice amount. 
If the seller sells the goods on a cash basis i.e. cash sale, the seller can collect the TCS immediately. It would not create any compliance problem as the seller can charge the TCS on the invoice itself.

 

However, the situation is not the same in the case of credit sale where the seller issues invoices on sale of goods and receives the consideration at a later date. Since at the time of issue of invoices, he cannot charge TCS under this provision, how will he comply with the provisions of section 206C(1H) when he receives the consideration. It appears that he has to raise a separate ‘Debit note’ for TCS as and when the seller receives the payment from the buyer. It is also possible that the seller does not receive the payment of the whole invoice but on installments. In such a situation, it would lead to great trouble to keep a track on the threshold limit and issue of the debit note. Further, it would be a matter of great concern for the seller if the transaction with the buyer is not regular or if the buyer refuses to pay the TCS separately later on. This may lead to high compliance cost to the seller.

 

Alternatively, in order to remove complexities and to simplify the matter, the seller may charge the TCS amount on the invoice and after receipt of consideration from the buyer shall deposit the same to the credit of the central government within the prescribed time limit to be computed from the month in which consideration is actually received.

 

Since this requires identification of buyers with turnover of more than Rs. 50 Lakh, in order to simplify the identification procedure, the seller may start charging TCS to all the buyers irrespective of the amount of turnover with the buyer. However, please note this may be resisted by many buyers if their transactions with the seller is less than the threshold limit.

This provision is different from the provisions as contained in sub-section(1) where TCS needs to be collected at the time of issuing the invoices if it happens before the collection of consideration.

The liability to deposit the TCS shall arise only when the consideration is received from the buyer. This will save the seller from blocking his own working capital. Seller can deposit the TCS amount when the amount is actually realized. On the other hand, if the buyer is not liable to pay tax this will block his working capital since there is no provision to apply for a lower TCS rate of certificate under section 206C(9).

 

What is the rate of TCS on sale of goods u/s 206C(1H)

The rate of TCS on Sale of Goods under section 206C(1H) is 0.1% of Sales Consideration if the buyer provides his PAN or Aadhaar Number to the seller.

If the buyer fails to provide his valid PAN or Aadhaar Number, then the rate of TCS on Sale of Goods under section 206C(1H) shall be 1% of the Sales Consideration, instead of 0.1%. 

CBDT vide Press Release dated 13.05.2020 has reduced the rate of TCS under section 206C(1H) from 0.1% to 0.075% which shall be applicable from 01-10-2020 to 31-03-2021. However, where the buyer does not provide his valid PAN/Aadhaar there is no reduction in rate of TCS and the prescribed rate of 1% shall prevail. From 01-04-2021, the prescribed rate will prevail unless the benefit is extended.

Rate of TCS u/s 206C(1H) for sale of goods (other than Alcohol, Tendu Leaves, Timber, Forest Produce, Scrap, Coal, Lignite, Iron or a Motor Vehicle)

 

Nature	Rate of TCS from  1-10-20 to 31-3-21		Rate of TCS  from 1-4-21
	PAN/Aadhaar available	No PAN/Aadhaar case	PAN/Aadhaar available	No PAN/Aadhaar case
Sale of Goods u/s 206C(1H)	0.075%	1%	0.1%	1%

What is the effective date of applicability of provisions for TCS on sale of goods u/s 206C(1H)

 

When the Finance Bill, 2020 was introduced it was originally proposed to be made effective from 01-04-2020. But the Finance Act, 2020 has deferred the applicability of the provisions of section 206C(1H) to 01-10-2020.

 

What is the threshold limit for applicability of section 206C(1H) and how to compute the threshold limit

 

The threshold limit prescribed for the applicability of TCS on sale of goods u/s 206C(1H) is Rs. 50,00,000 in a financial yearin respect of each buyer.

The law provides that the threshold limit is required to be computed with reference to the amount of sales consideration received during a previous year. Thus the limit is not linked to the amount of sales made in a previous year but it is linked with the amount of consideration received during a previous year. The receipt thus may include receipt of consideration from the preceding year sales also.

For example, if the seller (liable for TCS under this provision)  sold goods worth Rs. 40 Lakh the Sales to a buyer in the FY 2020-21 and collected Rs. 10 Lakh in the FY 2020-21.

 

In the next FY 2021-22, he sold goods worth Rs. 30 Lakh to the same buyer. In the FY 2021-22, the buyer paid all the due amount of Rs. 60 Lakh. The liability to collect tax under section 206C(1H) shall arise in FY 2021-22 since the amount collected is more than Rs. 50 Lakh in the FY 2021-22.

Further, TCS shall be required to be collected on the amount received in excess of Rs. 50 Lakh. Thus in the given example, tax shall be collected under section 206C(1H) on Rs. 10 Lakh and not on the entire amount of Rs. 60 Lakh.

Thus,  TCS will be collected on Trade Receivables outstanding as on 30th September 2020 and received on or after 1-10-2020.

It is really harsh to charge TCS on receipt of consideration against the sales effected when the provisions were not in existence. Therefore, a contrary view is also not ruled out.

CBDT should come out with a clarification on applicability of TCS on Trade Receivables outstanding as on 30th September 2020 and received on or after 1-10-2020.

Computation of threshold limit for FY 2020-21

The provisions of section 206C(1H) shall  come into effect from 01-10-2020. The limit of Rs. 50 Lakh is given for a financial year. Thus the limit of Rs. 50 Lakh receipt of sales consideration shall be computed from 1-4-2020 itself but liability to collect TCS shall apply from 1-10-2020.

Thus, TCS shall be collected under various situations as given below-

Amount Collected from 1-4-2020 to 30-9-2020	Amount collected from 1-10-2020 to 31-03-2021	Remarks
Rs. 40 Lakh	Rs. 20 Lakh	TCS on Rs. 10 Lakh Rs. 60 Lakh - Rs. 50 Lakh shall be collected
Rs. 55 Lakh	Rs. 12 Lakh	TCS shall be collected on Rs. 12 Lakh. sInce the threshold limit already crossed before 1st Oct., all the subsequent collection shall attract TCS.
Rs. 20 Lakh	Rs. 25 Lakh	No TCS shall be required since the threshold limit of Rs. 50 Lakh not crossed.

It is assumed that the seller is liable to collect TCS u/s 206C(1H) since his turnover in the preceding FY exceeds Rs. 10 crore.

Mode of receipt of Consideration

 

Section 206C(1H) simply states that the fact of ‘receipt of consideration for sale of any goods…”. It does not specify the mode of receipt whether in cash or cheque or in kind. 

 

The term ‘consideration’ is not defined in the Income Tax Act. The term ‘consideration’ is defined in the Indian Contract Act, 1972. Section 2(d) of the Contract Act defines the term ‘Consideration’ as: "When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such act or abstinence or promise is called consideration for the promise".

 

Thus it is not necessary that the consideration must be in money. If the consideration is paid in kind, the same shall also be liable to TCS. Further, if the consideration is adjusted with some other amount through journal entry, the same also shall constitute ‘consideration’ liable to TCS. It is also irrelevant to decide the adequacy of the consideration for the sale of goods.

 

What is the meaning of Sales Consideration? Will it include GST?

 

Tax on sale of goods under section 206C(1H) is collected on the receipt of any amount as consideration for sale of any goods. If we look into other provisions of section 206C which imposes TCS on various other goods and items we can see different terminology is used.

Section 206C(1) for sale of alcoholic liquor, forest produce, scrap,etc.	Amount payable by the buyer
Section 206C(1C) for lease or a licence of parking lot or toll plaza or mine or quarry	Amount payable by the licensee or lessee
Section 206C(1F) for sale of motor car	Receives any amount as consideration for sale of a motor vehicle

The provision of this section is somewhat similar to the provisions of section 206C(1F).

As stated above, the term consideration is defined in the Indian Contract Act, 1872. Further, section 2(10) of the Sale of Goods Act, 1930 defines the term ‘price’ as “price” means the money consideration for a sale of goods. Though section 206C(1H) used the term ‘consideration’ and not ‘price’, the former being more wider in coverage then latter, the definition of ‘price’ will not be going to help much.

Section 145A of the Income Tax Act, 1961 requires to include any amount of tax, by whatever name called, in the amount of sales.

However, CBDT has issued a Circular No. 23/2017 on 19.07.2017to provide for non-deduction of tax on the GST amount. The rationale of such exclusion was that the amount of GST is collected on behalf of the government and does not take the character of consideration for services rendered. Though the clarification was issued in respect of TDS, similar clarification in the case of TCS is not yet released.

Therefore, it is not clear whether TCS shall be collected on the amount of consideration inclusive of GST or exclusive of GST. Collecting tax on GST amount would amount to collection of tax on tax and not on the consideration for sale of goods which is not the intention of the legislature.

Therefore, a clarification from the CBDT on the matter in the line of TDS is highly desirable. However, till the clarification by CBDT, it will be more appropriate that TCS should be collected on Sales Value including GST.

Freight, Insurance and other charges: However, freight, insurance and other charges will be included in the amount of consideration. Hence TCS amount will be charged on a CIF basis.

 

Adjustment for Sales Return for TCS

In case of sales return, credit or debit note may be issued which will ultimately reduce the amount receivable by the seller from the buyer. Thus TCS shall be collected on the net amount collected from the buyer. However, if the sales return happens after the receipt of consideration and furnishing of TCS statement, the only option left to the seller is to file a correction statement and adjust the same with any subsequent TCS liability or claim refund of the TCS.

 

Non-applicability of TCS when TDS is applicable

 

The second provision to section 206C(1H) provides that the provisions of this sub-section shall not apply if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

The two noteworthy conditions are-

1. The buyer is liable to deduct TDS, and

2. The buyer has actually deducted the TDS.

 

Both conditions are required to be satisfied.

In the case of works contract, both the goods and services are involved. However, such a transaction is covered under section 194C and is subject to TDS thereunder. Hence, there shall not be any TCS on works contract only if the buyer has deducted the tax. 

If the seller has obtained any Nil TDS certificate u/s 197 authorizing the buyer not to deduct tax from any payment to the seller and if following the certificate u/s 197 the buyer does not deduct the tax it does not mean that the second proviso is violated and there should be TCS. In this case, even if the buyer does not deduct TDS, the seller shall not collect TCS by virtue of second proviso to section 206C(1H). This is advocated on the following grounds-

1. The buyer is liable to deduct TDS as required under the second proviso.

 

2. The buyer has actually deducted the tax though at NIL rate. A Nil rate is also a rate though the amount of tax comes to ‘zero’. Hence, it cannot be said that the buyer has not deducted the tax. The certificate u/s 197 only authorizes the deductor to deduct the tax at the rate as mentioned in the certificate instead of the prescribed rates.

 

3. The buyer/deductee has to intimate the transaction in the TDS statement in Form No. 26Q with appropriate flag mark which suggests that tax is duly deducted though at Nil rate.

 

Applicability of Lower TCS certificate provisions 

 

Section 206C(9) read with Rule 37Gprovides for making an application in Form No. 13 to the Assessing Officer by the buyer for issuing a lower or Nil TCS certificate. The Assessing Officer shall issue the lower or Nil TCS certificate if he is satisfied that the total income of the buyer justifies the collection of the tax at any lower rate than the prescribed rates of TCS. Further, Where a lower or Nil TCS certificate is issued by the Assessing Officer under sub-section (9), the person responsible for collecting the tax shall, until such certificate is cancelled by the Assessing Officer, collect the tax at the rates specified in such certificate.

However, such an application for a lower TCS certificate can be made only for TCS covered under section 206C(1) or under section 206C(1C). The amended sub-section (1H) is not included in sub-section (9). Thus a buyer cannot apply for a lower or Nil TCS certificate under section 206C(9) for TCS under section 206C(1H).

Due date of deposit of TCS collected under section 206C(1H)

It is clarified under the law that TCS on sales of goods will be collected when actual payment is received by the seller.

However to collect TCS on sale of goods, the seller needs to raise the sale invoice including the amount of TCS, account in the books as a TCS liability even in actual sense it is not payable. Even though the TCS amount is debited to the buyer, the liability under Section 206C (1H) does not arise until the time the amount is collected.

The TCS collected under this provision shall be required to be deposited within 7 days of the next month in which the TCS is collected. For example, if the goods are sold on 10th Oct., 2020 but the amount is received on 15th Nov., 2020, liability to collect tax arises on 15th Nov., 2020. The seller is required to deposit the TCS by 7th Dec., 2020. [Section 206(3) read with Rule 37CA]

 

Due date for filing of TCS statements

After collecting the TCS and deposit of the same to the credit of the government account, the seller is required to furnish a quarterly statement of TCS to the income tax authority in electronic mode in Form 27EQwithin the following due dates- [Section 206C(3) read with Rule 31AA).

 

Sl. No.	Quarter of the financial year ended	Due date of furnishing TCS statement
1.	30th June	15th July of the financial year
2.	30th September	15th October of the financial year
3.	31st December	15th January of the financial year
4.	31st March	15th May of the financial year immediately following the financial year in which collection is made

CBDT videNotification No. 54/2020 dated 24.07.2020has amended the Form 27EQ to incorporate the provision of section 206C(1H) in the TDS statement.

Late Fees:  In case of delay in furnishing the TCS statements beyond the due date specified above in the table, late fees of Rs. 200 per day shall be required to be filed by the seller before furnishing the belated statements. The amount of late fees shall not exceed the amount of TCS. [Section 234E]

Due date to Issue the TCS Certificates to the buyers

 

After furnishing the TCS statements, the seller is required to issue certificate of TCS to the buyer in Form no. 27D as per section 206C(5) read with Rule 37D within 15 days from the due date for furnishing the statement of tax collected at source specified under Rule 31AA-as specified above.

Thus the due date for furnishing the TCS certificates are as under-

Sl. No.	Quarter of the financial year ended	Due date of furnishing TCS statement	Due date of issuing TCS certificates
1.	30th June	15th July of the financial year	30th July of the financial year
2.	30th September	15th October of the financial year	30th October of the financial year
3.	31st December	15th January of the financial year	30th January of the financial year
4.	31st March	15th May of the financial year immediately following the financial year in which collection is made	30th May of the financial year immediately following the financial year in which collection is made

Conclusion

 

The provisions of TCS have been in the statute for a long time. However, this time, these changes introduced by section 206C(1H) shall affect a wide range of businesses across various industries. Hitherto, TCS was applicable to a select few industry verticals, but the new changes are slated to affect a wide range of entities into the business of selling various kinds of goods. At the end one should keep in mind that TCS has to be collected in the following scenario w.e.f. 01.10.2020.

 

1. If the sales, turnover or gross receipts of the person selling goods is more than Rs. 10 crores during the financial year 2019-2020.
2. The seller sells goods of value Rs. 50 lakhs or more either in single transaction or in aggregate during the financial year 2020-2021.
3. The seller is not liable to collect tax on sale of goods under any other sub section (1), (1F) or (1G) of the value of goods sold by him. 
4. The buyer is not liable to deduct any TDS on the transaction.
The amount of turnover of Rs. 10 crore and the sale transaction with the buyer in excess of Rs. 50 Lakh gives the impression that the provisions of section 206C(1H) intends to cover B2B transactions.