Introduction to TCS (Tax collection at source)
Tax Collected at Source (TCS) is the tax payable by a seller which he bills on to the from the buyer at the time of sale and is payable into the Government Treasury on receipt of money from the buyer.
The rate of TCS is different for goods specified under different categories. Section 206C of the Income Tax Act specifies the categories of goods on which the seller has to collect tax from the purchasers. TCS provisions under the Income Tax Act are similar to indirect taxes. Like an indirect tax, TCS is mentioned on the invoice, collected from the buyer, and is payable to the Government account by the seller only on the collection of money due on the bill.
The concept of TCS is not new in the Income Tax Act. The same has already been levied till now on specified goods like Timber, Tendu leaves, forest produces, scrap, minerals like iron ore, etc.
But for FY 2020-21, there have been some new inclusions in the applicability of TCS. Let us now discuss the provisions of section 206C (1H) which is currently relevant and applies universally to all goods subject to specified conditions.
Subsection 1H has been inserted in Section 206C by the Finance Act, 2020 for collection of TCS by the seller on the sale of ANY GOODS. This means it is not applicable to any specified goods but to all goods. Though the collection of TCS on sale of certain goods is already covered under different subsections of Section 206C, however, all the remaining goods, which are not so covered under other provisions of section 206C, has now been brought under the ambit of TCS by inserting subsection 1H in Section 206C.
Effective from 01.10.2020, subsection (1H) imposes the responsibility of collection of TCS on every person whose total sales, gross receipts, or turnover during the preceding financial year (i.e Fin Year 2019-20) is more than Rs.10 Cr. Such a person is liable to collect TCS @ 0.1% on the amount exceeding Rs.50L during the financial year in respect of the sale of goods made to a buyer.
However, in Non-PAN/Aadhaar cases the TCS rate shall be 1% as against 0.1% mentioned above. (Please note that TCS Rate is been reduced to 0.075% for the period from 01.10.2020 to 31.03.2021 due to the COVID-19 pandemic).
It is important to note that for calculating the threshold of Rs.10 Crore, the total turnover including gross receipts (services) and sales is to be taken into consideration whereas for computing the threshold of Rs.50 Lakhs, only sale of goods is to be considered.
Non Applicability of section 206C (1H) in the following cases:
1. If goods are exported from India to any country outside India. (So exports are not covered).
2. If the buyer is liable to deduct TDS under Income Tax Act. This is applicable only in specified cases which will be covered separately. (Sale of Services is not covered).
3. If the goods sold are already covered under subsections (1), (1C), (1F), and (1G)* of section 206C (already covered by existing TCS provisions)
1. Time of Collection of TCS:
The law envisages that the seller shall collect from the buyer a sum equals to 0.1%/ 0.075% for the period from 01.10.2020 to 31.03.2021 of the sales consideration at the time of receipt of such amount. That means the liability to collect TCS will arise even in case of advance payment received though the goods will be physically delivered at a later date,
Section 206C(1H) envisages that TCS at the rate of 0.10%/0.075% for the period from 01.10.2020 to 31.03.2021 of the sale consideration in excess of ₹ 50 Lakhs shall be collected by the seller. As such, TCS shall be collected on Total Sale Value less ₹ 50 lakh.
2. Buyer: means a person who purchases any goods but does not include:
- Central Government, State Government, an embassy, a High Commission, legislation, 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
- Any other person as Central Government may, by notification in the official gazette, specify for this purpose, subject to such conditions as may be specified therein.
Getting ready for compliance:
1. Firstly, the seller shall check whether the provisions are applicable to it. For this, the key is the sales /gross receipts/turnover of the immediately preceding financial year (i.e. sales of FY 2019-20 to be checked for applicability in FY 2020-21).
2. To identify the customers from whom receipts for consideration for the sale of goods is more than ₹ 50 lacs during the year. For this, customers already breached the threshold or potential customers who may cross the threshold shall be identified.
3. The entity may insert a specific line item in the invoice to charge TCS or it may charge TCS through a debit note. Further, it has to be made sure that the invoice or debit note format remains GST compliant.
4. The buyer shall be intimated in advance regarding levy of TCS provisions and obligation on him to pay for TCS.
5. Open a separate ledger account in books of account, to account for the TCS receivable from customer and TCS payable to Govt. A separate ledger account will help in reporting and reconciliation.
6. Setup the checklist and procedure for compliance such as deposit of TCS, filing of the statement, and issuance of a certificate to the buyer.
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