B J S And Associates

Income Tax Section 206C [1H] Explained

Introduction of 206C(1H) in Income tax act for collection of Tax at Source (TCS) on Sale of Goods w.e.f. 01-10-2020 (Today)

Applicability

  • Persons whose turnover in preceding financial years exceeds 10 Crore, 
  • On sale of goods exceeding 50 lakhs except 
  1. export or goods 
  2. Sale of goods which are already covered in other TCS Provisions (I.e. Motor vehicle, Scrap, Tendu Leaves-Tendu Leaves and other forest produce, Alcoholic liquor for human consumption and certain minerals)
  3. Buyer is liable to deduct TDS on this transaction and under any other provision of Income tax Act and has deducted such amount.
  4. Sale made to Central Government, a State Government, Local Authority, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State or an importer of goods.

Levy of Tax

TCS is to be collected from the buyer at the time of receipt of the consideration.

Rate of TCS

  1. PAN or Aadhar of Assessee is available – 0.1% of sales consideration exceeding 50 Lakhs.
  2. Any other case 1 % sales consideration exceeding 50 Lakhs.
  3. Rate of TCS for the period 1-10-2020 to 31-3-2021 (FY 2020-21) will be .075% of sales consideration 

Due dates for Deposit TCS:

The TCS collected by the seller shall be paid to the account of the government by the 7th of the next month.

Due dates for TCS return Filling:

Quarters Due Dates

1st Quarter 15th July

2nd  Quarter 15th October

3rd Quarter 15th January

4th Quarter 15th May

Issues to be taken care while applying the TCS and required Clarification:

  1. TCS is applicable only on sale of goods, but the threshold limit of Rs. 10 crores is dependent on Total Turnover i.e including services and all other exempted transaction of the Section 206C(1H)
  2. Definition of Goods is not defined anywhere in income tax Act. Generally, definition under Sale of Goods Act is considered but recently enacted CGST Act also defines Goods which slightly differs from the Definition under Sale of Goods Act. Additionally, In cases where it is not clear if the invoice is for goods or services, it will be difficult to determine the liability of TCS.  
  3. TCS is to be collected from the buyer on receipt of the Consideration. Practically, Seller will charge TCS in invoice once the limit of 50 Lakhs is crossed. Problems may arise in cases where actual sales and receipt of the money are in 2 different Financial years, Advance receipt of the consideration and subsequent cancellation of the contact, subsequent reduction in the invoice value or conversion to bad debts. 
  4. TCS has to be collected as a percentage of sale consideration. The word consideration is not defined anywhere in income tax act. Practically, Consideration only includes income portion. Also, CBDT has clarified through circular number 23/2017 that TDS is not required on GST component. But similar circular is not available for TCS. So as per conservative view, the TCS should be collected on amount including GST. 
  5. In case of cross selling, where only net payment is made, it is not clear how and when the TCS liability will arise. TCS will not allow to set-off even if there are buying and selling both the transections with a single party.

Certain clarification received from CBDT on 30th September is enclosed for reference.

Please feel free to contact us by E-mail for any clarification: [email protected]

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