TCS on Sale of Goods - Income Tax Update - Section 206C(1H) w.e.f 01st October 2020 and impact on your invoices to customers
New Income tax Provisions of 206C (1H) shall be implemented from 01st October 2020 which has been introduced in this year's Budget i.e. Finance Act 2020.
Please find below a note on Extent and Applicability of new TCS provisions on Sale of GOODS in the form of Q & A.
Effective Date: From 01.10.2020
Section: 206C (1H)
Q. Who is liable to Collect TCS?
A. It is the responsibility of Every Assessee whose Total Sales / Gross Receipts / Turnover during the preceding financial year (i.e. Fin Year 2019-20) exceeds Rs.10 Crore.
Q. When should TCS be collected?
A. TCS should be collected at the time when the consideration from the buyer exceeds Rs.50 Lac during the financial year in respect of sale of goods made to a buyer. However, for practical purposes, it is suggested to levy TCS on sales invoice itself since tracking receipts and raising debit notes would be cumbersome.
Q. What is the applicable rate?
A. TCS should be collected at 0.1%. However, in Non-PAN/Aadhaar cases the TCS rate shall be 1% as against 0.1% mentioned above.
Note : TCS Rate has been reduced to 0.075% for the period from 01.10.2020 to 31.03.2021 as a relief in the ongoing pandemic situation.
Q. Is there any exemption from the levy of TCS ?
A. Following is exempted from the levy of TCS:
- Export of Goods
- If Buyer is liable to deduct TDS
- If other TCS provisions under various other sub-section are getting triggered
- Sale of goods to any of the following
– Central Government, a State Government, an embassy, a High Commission, legation, 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 the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
Q. How should TCS be collected and changes in Billing software?
A. To collect TCS, a separate line item must be configured in the billing software such that, when the invoice is created, TCS is automatically calculated and added on the invoice.
For example:
Q. Whether GST is to be included while calculating the levy of TCS?
A. Yes, TCS is to be collected on the Total Invoice value i.e. Basic Amount + GST.
Q. Is the amount of Rs. 50 lacs Threshold or Exemption limit?
A. As per the language of the section, Rs. 50 lacs is the exemption limit i.e. no TCS to be charged on the first 50 lac of transaction value.
Q. 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?
A. Originally, this provision was to be implemented from 01.04.2020. But the government postponed its implementation to 01.10.2020 Thereby, specific instructions or clarification is awaited from the government in this regard. However, in the absence of specific clarification, our suggestion is as follows:
Sale consideration for the full financial year is to be considered for deciding whether Buyer is covered for TCS or not. TCS, however, is to be collected and paid only on the sales made after 01.10.2020 to the extent the same are in excess of Rs.50 lacs after including sales from April 2020 onwards. This is a conservative view owing to minor amount implication.
Q. Whether TCS is to be collected in the invoice to be raised or at the time of receipt of sale consideration?
A. 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.
The CBDT has also issued a Clarification on the above on 29.09.2020 which provides the guidelines clarifying the doubts arising on the applicability of TCS provisions on Sale of Goods under section 206C(1H) introduced vide Finance Act, 2020.
There were certain communications circulating in the media, wherein it was mentioned that TCS is an Additional Tax. The Circular clarifies this point and states that it is more in the nature of Advance Tax/ TDS for which the buyer would get the credit against the actual tax liability. It has also been clarified that : TCS applies only in cases where the receipt of sale consideration exceeds Rs. 50 lakhs in a financial year. As the threshold is based on the yearly receipt, it may be noted that only for the purpose of calculation of this threshold of Rs. 50 lakh, the receipt from the beginning of the financial year i.e. from 1st April, 2020 shall be taken into account. For example, in the above illustration, the seller has to collect tax on receipt of Rs. 5 lakh after 1st October, 2020 because the receipts from 1st April, 2020 i.e. Rs. 1.05 crore exceeded the specified threshold of Rs. 50 lakh. The circular has been attached for your ready reference. Feel free to revert for any clarification/ queries.
Conclusion: The above points clarify that every sale of Goods to a particular customer which exceeds Rs. 50lacs shall be subject to collection of TCS. Since the provisions are getting implemented in the Middle of the year, we would suggest that you enlist those parties with whom the Previous Year sales exceeded Rs. 50 lac and start charging TCS from 01.10.2020 itself.