Income tax TCS under Section 206(1H) W.E.F 01/10/2020

Basic features:

This section is applicable only in case of seller whose total sales, gross receipt or turnover from the business carried on by him exceeds ₹10crores during the financial year immediately preceding financial year in which sale is carried out. This simply means that seller will be only liable to collect TCS when turnover is more than ₹10crores in financial year 2019-20.

According to this section, TCS is required to be collected from buyer only if the buyer’s aggregate purchases of buyer exceed ₹50lakhs in any previous year.

TCS shall not be collected from the buyer if the buyer’s sale consideration is less than ₹50lakhs.

The rate of TCS provided in this section is 0.1% of sale consideration. Vide press release dated 13/05/2020 rate of tax has been reduced for the current financial year to 0.075%.

This section shall not applicable to the goods exported out of India.

FAQs:

1. Whether TCS is to be collected in the invoice to be raised or at the time of receipt of sale consideration?
   Though the section uses the wordings receipt of consideration for sale of any goods, it will be practically difficult to raise demand against the buyer subsequently, if not raised in the invoice and collect TCS from buyer and make payment to the government. Therefore, TCS should be charged in the invoice to be raised for sale of goods. However, it is expected that CBDT would come out with clarification on this issue.

2. Whether TCS is to be paid within the prescribed time with reference to invoice for sale or same is to be paid with reference to receipt of sale consideration against the invoice?
   It will be difficult to match the amount of receipt, in case of practice of making payment on the basis of receipt of sale consideration is adopted and TCS with invoice value in the cases where part payments are received against the invoice or in the cases of running account where lump sum payments are received from time to time.
   Therefore, payment of TCS should be made with reference to invoice for sale consideration.

3. Whether TCS is to be collected on total sale consideration or only on the amount in excess of ₹50lakhs?
   According to this section TCS is to be collected on amount of sale consideration exceeding ₹50lakhs. Therefore, TCS should not be collected on amount of sale consideration not exceeding ₹50lakhs.

4. Whether sale for the full current financial year (2020-21) is to be considered or only the sales made after 01/10/2020 are to be considered?
   As per the section, full current financial year should be considered for deciding whether buyer is covered for TCS or not. However, TCS shall be collected and paid only on the sales made after 01/10/2020 to the extent same are in excess of ₹50lakhs.

5. Whether TCS is to be collected on value of goods where the seller is using the goods in executing a contract and buyer/ contractee is liable to deduct TDS on total contract value, including cost of material?
   According to this section, TCS is not be collected where buyer is liable to deduct TDS and has deducted TDS on value of goods. Hence, in this case TCS is not to be collected.

6. Whether sales made to public sector companies which are substantially or wholly owned by the Central/ State Government, are subject to TCS?
   According to this section, exemption has been provided only in case of sales made to Central government or state government. Companies owned wholly or substantially by the government are not exempt. Therefore, TCS is to be collected in such cases.

8. Whether TCS is to be collected on advance received from the buyer?
   As advance payment cannot be said in consideration received against the sale, TCS need not be collected and deposited at the stage of receipt of advance payment. TCS will be charged in the invoice and is to deposited within the prescribed time with reference to date of invoice.
9. Whether TCS is also to be collected on the amount of GST included in the invoice?
   GST will also be part of sale consideration and therefore, TCS is to be collected on total amount of invoice including GST.