After the introduction of GST, number of cases were noticed that some suppliers do not file the returns even though they have not opted for composition scheme or below threshold limit. They do not upload their transactions in the form of GSTR-1 and do not pay the tax thereon, full or partly and there was a heavy mismatch, which has evidence of tax evasion not only for the GST but also may be for Income Tax. Therefore, the provision was inserted in the Finance Act 2020 to levy TCS and therefore, Section 206C was amended by inserting Clause (1H), which read 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.”
The said section will come into the effect from 1st October 2020. Therefore, receipts upto 30th Sept 2020 are not covered under the TCS but any receipt more than Rs. 50 Lacs received after 1st October 2020 will attract TCS.
We will like to give below the “Frequently Asked Questions”, which will be very important to appreciate the concept of TCS on Sale of Goods as well as required to change the existing practice for complying the law.
- Whether TCS provisions were applicable earlier?
Yes. TCS provisions were well applicable earlier also for the followings:
Section 206c (1)
| (i) | Alcoholic Liquor for human consumption | One per cent |
| (ii) | Tendu leaves | Five per cent |
| (iii) | Timber obtained under a forest lease | Two and one-half per cent |
| (iv) | Timber obtained by any mode other | Two and one-half per cent than under a forest lease |
| (v) | Any other forest produce not being | Two and one-half per cent timber or tendu leaves |
| (vi) | Scrap | One per cent |
| (vii) | Minerals, being coal or lignite or iron ore | One per cent: |
Similarly, TCS is collected on sale of cars as well as immovable property.
- Whether TCS is applicable on Sale of goods?
Yes. It is applicable w.e.f. 1st October 2020 on the receipt basis.
- Who is supposed to collect TCS under section 206C (1H)?
As is the case with all TCS transactions, the seller of goods has been entrusted with the responsibility to collect TCS. However, only those sellers, whose gross turnover or receipts from the business for the immediately preceding Financial Year exceeds Rs. 10 Crores shall be liable for the collection of TCS. Such limit shall have to be checked every year.
The Central Government may exempt certain entities from application of this section subject to conditions as may be specified.
- When is section 206C (1H) not applicable?
The Section shall not be applicable in the following cases:
- If Gross Turnover/Sales/Receipts of the assessee, during immediately preceding FY is less than Rs.10 Crores.
- If the sale consideration received from the buyer is less than Rs. 50 lakhs.
- In case of any Import into India or Export from India.
- In case the sale is made to the Central Government, a State Government, an Embassy, a High Commission, legation, commission, consulate or any trade representation of a foreign State OR a local authority or such other person as may be specified.
- In case the transaction is covered by TDS under any other section.
- In case goods being sold are covered by
- Sec 206C (1) which covers – alcoholic liquor, tendu leaves, timber, forest produce other than timber and tendu leaves, scrap, minerals like coal or iron ore OR
- Sec 206C(1F) which covers – motor vehicles exceeding Rs. 10 lakhs in value OR
- Sec 206(1G) wherein remittance is being made outside India and TCS is being collected by Authorised Dealer for the same
- Transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by clearing corporations including recognized stock exchanges or recognized clearing corporations located in International Financial Service Centre.
- Transaction in electricity, Renewal Energy Certificate and Energy Saving Certificate traded through power exchanges registered in accordance with Regulation 21 of the CERC.
- Applicability on payment gateway and TDS is deducted by E-Commerce operator under Section 194(O). No TDS will be required under TCS on sale of goods.
- Receipt by Insurance Agent on which TDS is deducted under Section 194(O).
- Fuel supplied to non-resident air lines at Air Ports in India.
- From whom such TCS is to be collected?
TCS is to be collected only from those buyers from whom, sale consideration received during the FY exceeds Rs. 50 lakhs. This condition needs to be evaluated separately for each buyer and the amount needs to be evaluated separately every year. It is important to note here that the trigger point for collection of TCS is receipts and not sales. Hence, in case consideration is received for sales, made over a number of years, TCS shall still be applicable even if the annual sale does not exceed Rs.50 lakhs. Also, CBDT needs to clarify whether receipts against sales made prior to 1st Oct 2020, shall also be subject to TCS. As a prudent measure, the same shall be subjected to TCS, unless a contrary clarification is received. Another thing to note is that this section is applicable on sale of goods only and services have presently been kept out of the ambit of the section.
- What is the rate at which TCS is to be collected?
| PAN / AADHAAR furnished | Up to 31st March 2021 | From 1st April 2021 |
| YES | 0.075% | 0.1% |
| NO | 0.75% | 1% |
- What is the meaning of Buyer and what is the meaning of Seller?
| A | Buyer |
| Means any person who purchase 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 | |
| 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 |
| B | Seller means |
| whose total sales, gross receipts or turnover exceeds 10 Crore during the financial year immediately preceding the financial year in which the sale of goods is carried out |
- Whether GST can be charged on tax invoice issued under GST Act?
Yes. Since, seller is responsible to collect the TCS on consideration received by him on receipt basis, Seller needs to be charged on the invoice then only it will be recovered. Alternatively, after payment of TCS on the due date, separate invoice / debit note for TCS also can be raised. However, on the receipt of TCS no further TCS is required to be paid.
- On which amount TCS to be collected, whether before GST or after GST?
Ans. It has been clarified by the CBDT Circular No. 17/2020 dtd. 29-09-2020 that, no adjustment on account of sales return, discount on indirect tax including GST is required to be made for collection of tax, since collection is made w.r.t. receipt of amount of sales consideration.
- What are the Compliances?
The general compliances to be undertaken for all TDS/TCS like payment of tax by 7th of every month, filing of quarterly return within 15 days of the end of the quarter and subsequent issue of TCS Form shall apply to these transactions as well.
TCS Certificate:
When the tax collector files his quarterly TCS Returns in Form 27EQ, he has to provide a certificate of TCS to the buyer within 15 days of the date of filing.
Form 27D is the certificate issued for filing of TCS Returns. It comprises of the following details:
- Name of the Seller and Buyer
- TAN of the seller
- PAN of both seller and buyer
- Total tax collected by the seller
- Date of collection
- The rate of Tax applied
| Quarter Ending | The date for generating Form 27D |
| For the quarter ending on 30th June | 30th July |
| For the quarter ending on 30th September | 30th October |
| For the quarter ending on 31st December | 30th January |
| For the quarter ending on 31st March | 30th May |
- Kindly provide illustrative examples.
Receipt Basis
| Sales before 1st Oct 2020 | Sales After 1st Oct 2020 | Receipts before 1st Oct 2020 | Receipts after 1st Oct 2020 | Amount for which TCS applicable for FY 20-21 | Reason | Issues to be addressed |
| 60,00,000 | 20,00,000 | 50,00,000 | 30,00,000 | – | Threshold not crossed post the date of applicability | Invoice to be raised with TCS |
| TCS will also be applicable on amount that will be received after 01.10.20 pertaining to previous supplies but whose receipts crossed 50 Lacs and no TCS was charged on invoice | ||||||
| 20,00,000 | 40,00,000 | 6,00,000 | 54,00,000 | 4,00,000 | TCS applicable on amount exceeding 50 lakhs | |
| 70,00,000 | – | 5,00,000 | 65,00,000 | 15,00,000 | Trigger is Receipt and not sales. | |
| 30,00,000 | 1,00,00,000 | 1,30,00,000 | – | – | Trigger is Receipt and not sales. | |
| 25,00,000 | 35,00,000 | – | 30,00,000 | – | Threshold not crossed post the date of applicability | |
| – | 60,00,000 | 60,00,000 | – | – | Trigger is Receipt and not sales. | |
| 60,00,000 | – | – | 60,00,000 | 10,00,000 | Trigger is Receipt and not sales. |
- Some other issues, which needs to clarification from CBDT.
| Sr | Issues | Ans |
| 1 | Sale made prior to 01.10.20 and receipt after 01.10.20 having value exceeding 50 Lacs. Whether TCS will be applicable | Yes |
| 2 | TCS to be charged on Invoice at the time of sale or to be collected on receipt of consideration | To be levied on invoice and paid to revenue once it is received from customer |
| 3 | If TCS to be charged on invoice whether to be charged on Basic value only or Basic + GST | On Basic + GST |
| 4 | If not charged on invoice and to be collected on receipt basis then in such case whether to issue separate invoice / Debit note for TCS only | Individual Invoice or subsequent debit note after the month |
| 5 | Whether TCS is payable on advance received for supply of goods | Yes |
| 6 | Treatment of advance received is to be returned on account of cancellation of contract | Advance to be paid after adjustment of TCS paid to revenue |
| 7 | Supply of Software considering Supreme Court Decision – Whether to levy TCS on same or not | Customized Software is Service and Packaged Software is goods |
| 8 | Cumulative ascertainment of Billing / receipts has to be made for charging TCS in Invoice since payment has to be made @ 0.075% on incremental value over 50 Lacs | Tracking |
| 9 | Tracking of Billing and Receipts | Tracking |
| 10 | Tracking of Customer turnover / receipts on PAN India basis and not on GSTN basis | PAN India Basis |
| 11 | Supply to SEZ / FTWZ is not export as per Income Tax Act and whereas it is export for GST and SEZ under SEZ Act | Yes |
| 12 | Sales exceeds Rs 50 lakhs in current year but turnover is less than Rs 10 crores in Previous Year | No |
| 13 | Since records to be maintained at PAN India basis proper system needs to be designed since in GST records are maintained on GST registration basis | Yes |
- What should be the accounting entries?
| A | TCS is charged on Invoice |
| 1 | Customer A/C Dr |
| To Sale of Goods | |
| To GST Payable | |
| To TCS payable on receipt (Amount receivable form Customer) | |
| (Being goods sold vide Invoice no ——–) | |
| 2 | Bank A/C Dr |
| To Customer | |
| (Being amount received from customer against supply of goods) | |
| 3 | TCS Payable on receipt |
| To TCS to be paid | |
| (Being amount of TCS payable transferred to TCS to be paid on the basis of amount of TCS received from Customer) | |
| 4 | TCS to be paid |
| To Bank | |
| (Being amount of TCS paid to Revenue) | |
| B | TCS is not charged on Invoice |
| 1 | Customer A/C Dr |
| To Sale of Goods | |
| To GST Payable | |
| (Being goods sold vide Invoice no ——–) | |
| 2 | Bank A/C Dr |
| To Customer | |
| (Being amount received from customer against supply of goods) | |
| 3 | Customer A/C Dr |
| To TCS payable (Amount receivable form Customer) | |
| (Being invoice / DN for collection of TCS from Customer for the TCS already paid) | |
| 4 | TCS Payable |
| To TCS to be paid | |
| (Being amount of TCS payable transferred to TCS to be paid on the basis of amount received from Customer from sale of goods) | |
| 5 | TCS to be paid |
| To Bank | |
| (Being amount of TCS paid to Revenue – without waiting for receipt of TCS from Customer) |
- Issues to be faced during assessment.
Inconsistency of 26AS – Due to TCS being deducted on receipt and not sale, there may be a possibility that TCS is collected in a year in which there is no sale-purchase transaction between the parties and hence assessing officers may make enquiries as to why such transaction is not reflected in books. Examples for the above may be where advance is paid in one year and sale is made in subsequent years or payments are made for the sales in a year subsequent to the sale being made.
Cancellation of Sale Agreement – In case advance is paid in anticipation of purchase, TCS would be collected and paid to the Govt on the same, however, subsequently in case such transaction is cancelled owing to commercial or other reasons, whether such TCS may also be reversed or not needs to be clarified by the CBDT.
TCS on sale of goods will be additional burden on the seller. Seller will have to borne the cost, if it is not charged on the invoice and it is paid after receipt from one time buyer. It is going to be absolutely complicated and therefore, really raised the question mark on the dream of Hon. Prime Minister w.r.t. “Ease of Doing Business in India”.
