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TCS on Sale of Goods

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tcson goods

There have been countless changes brought about in the Finance Act 2020, but the insertion of Section 206C (1H) to the Income Tax Act, 1961 is a welcome step to eliminate and monitor unaccounted money. As per the above relevant provision, a seller is required to collect tax (please add link for taxation services here) at source on sale of certain predetermined goods on exceeding a certain value, enabling the government to track the high-value transactions and create an audit trail of persons procuring goods without disclosing in their books of accounts.

Applicability of TCS on sale of goods
If a person, as a seller having turnover in the previous financial year exceeding ₹ 10 crores, receives any sum of money as a consideration against the sale of any goods having value individually or in aggregate over and above Rs. 50 lakh in a previous year, other than the exported goods or goods covered under sub-section (1), (1F) or (1G) of Section 206C of Income Tax Act 1961 shall, while receiving such amount, collect a sum from the buyer equal to 0.1 % of the consideration in excess to Rs. 50 lakh as TCS. 

It is further to be noted that tax shall be collected on “all” goods except those exclusively prescribed under sub-section (1), (1F) & (1G) of Section 206C of Income Tax Act 1961 or any goods exported. Further, where the buyer does not provide his PAN/AADHAR Number to the seller, the tax shall be collected @ 1% on the sale consideration. In essence:

Particulars Rate of TCS
PAN or Aadhaar number provided by the buyer 0.10%
PAN or Aadhaar number not provided by the buyer 1%

Following is the list of goods covered under other sub-sections for collection of tax at source:

Section Items covered under TCS
206C (1) a. Alcoholic Liquor for human consumption
b.Tendu leaves
c. Timber obtained under a forest lease
d.Timber obtained by a mode other than by way of a forest lease
e. Any other forest produce other than timber or tendu leaves
f. Scrap
g. Minerals, including coal or lignite or iron ore
206C (1F) a. Motor vehicle (if the aggregate value exceeds Rs. 10 Lakh)
206C (1G) * a. A sum of money above Rs. 7 Lakh remitted out of India
b. Seller of an overseas tour program package

* Inserted vide Finance Act 2020

Relevant definitions to understand the mechanism of TCS under section 206C (1H)

  • Seller: Any person whose sales/gross receipts/turnover from the business exceeds ₹ 10 crores in the preceding financial year relevant to the next financial year in which the sale of goods is carried out but does not include a person notified by CG through a notification in the Official Gazette.
  • Buyer: Any person who purchases any goods, but does not include–:
  • 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; 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.
  • Goods: Although, the term has not been defined in the Income-tax Act 1961 and hence reference for the term is made to Section 2(7) of the Sale of Goods Act, 1930 according to which goods mean “every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or making part of the land which are decided to be served before a sale or under the sale agreement”.

Important Points

  • The provisions of Section 206C(1H) of the Income Tax Act 1961 are applicable from 1st October 2020.
  • The person collecting the tax under section 206C shall deposit the tax amount within 7 days from the end of the month in which the tax was collected.
  • A person collecting tax under section 206C shall submit quarterly TCS returns in Form 27EQ in respect of all taxes collected by him during the quarter within 15 days from the end of the quarter. A certificate in form 27D will be issued for returns filed. Such an amount will be reflected in the buyer’s account.
  • The provision of the section 206C(1H) of Income Tax Act 1961 does not apply where the buyer is liable to deduct tax at source under any other section (e.g. u/s 194C, 194H) of Income Tax Act, 1961. The seller need not collect tax at source on sales to those buyers in such circumstances.

Value for Levy of TCS
For the purpose of levy of TCS, the tax shall be collected on the “amount being debited payable by the buyer to the seller”. On the other side, the section 15(2)(a) of the CGST Act, 2017 states that the tax shall be levied on the value of supply including “any taxes, duties, cesses, fees, and charges other than any taxes if charged separately by the supplier”.

On contrasting the above two definitions, we can conclude that both require the levy of tax on the value of supply of goods along with the other levies. Eventually, for a long time, there was ambiguity as to what is the amount on which GST or TCS would be levied as both laws require the collection of tax on the value of supply of goods and all the other levies against such supply. This conflict led to the adoption of various practices across the industry wherein one of the below two methodologies were followed:

  • GST is levied on the value of supply including TCS;
  • TCS being levied on the value of supply including GST.

Subsequently vide corrigendum to circular 76 of CGST Act 2017 dated 7th March 2019, it was made clear that GST would not be required to be levied on the value of TCS under the provisions of income tax Act 1961. Although, it can be interpreted that the TCS levy on the levy of the value of goods shall be exclusive of any GST component if charged separately by the seller.

At AJSH, we render hassle-free taxation services to our clients on various matters like consultancy and registration for TDS/TCS, tax planning, filing of income tax returns, tax audits, bookkeeping, auditing etc. If you any questions related to TDS/ TCS compliances, kindly contact us.

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