FAQ on TCS on Sale of Goods under Section 206C(1H)

TCS on Sale of Goods under section 206C(1H) is effective from 01-10-2020. Subsection 1H has been inserted to Section 206C by the Finance Act, 2020. In this article i have covered a detailed analysis of Section 206C(1H) with the help of FAQ on TCS on sales of goods U/s 206C(1H).

Before moving to frequently asked questions (FAQ) on Section 206C(1H), You might be interested in-

We have covered all possible FAQ on section 206C(1H)- TCS on sale of Goods.

Frequently Asked Questions(FAQ) on TCS on Sale of Goods U/s Section 206C(1H)

Q1 What is the effective date of levy of the Provision of Section 206C(1H)?

Section 206C(1H) is effective from 01-10-2020.

Q2 What is the Threshold limit for levy of TCS under Section 206C(1H)?

For the applicability of the provisions of Section 206C(1H), the TOTAL TURNOVER in the Preceding Financial Year should exceed 10 Crore & for the levy of TCS the Sales of GOODS exceeds 50Lakhs. The applicability of this section will fluctuate with the fluctuations in the turnover of the assessee.

Q3 What is the meaning of Seller under the provisions of Section 206C(1H)?

Seller means a person whose Total Sales, Turnover, Gross Receipts from the business being in the preceding Financial Year exceeds 10 Crores.

Q4 What is the meaning of Buyer as per Section 206C(1H)?

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.

Q5 What is the meaning of Goods as per Section 206C(1H)?

The Term “Goods” has not been defined in the Income Tax Act and will lead to litigation as there will always be difference of opinion between the person collecting TCS and the tax Authorities.
As per section 2(52) of CGST Act, “Goods” means every kind of movable property other than money & securities but includes actionable claims, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

Q6 What is to be included in calculating the Limit of 10 Crore?

While calculating the threshold of Rs.10 Crore, the TOTAL TURNOVER including gross receipts and sales is to be taken into consideration. Also, the Sale of Service shall also be taken into consideration while calculating the Limit of 10 Crore. Whereas for computing the threshold of Rs.50 Lakhs, ONLY SALE OF GOODS is to be considered. GST Component is to be included while calculating the Sales Consideration.

Q7 What should be the Treatment of Sales Return?

Sales return is to be adjusted(reduced) while calculating the threshold under the provisions of this section. However, in case of sales return in subsequent years it may lead to some practical challenges that need to be clarified by CBDT.

Q8 Whether TCS is to be Collected on Sale of Services?

TCS shall be collected on sale of goods only.

Q9 What is the time of Collection of TCS- RECEIPT OR ACCRUAL?

The seller shall collect TCS from buyer equal to 0.1% of the Sales Consideration at the time of receipt of such amount. It means in case Advance Payment is being received for sale of Goods then the liability to collect the TCS shall arise even though the physical delivery of goods takes place at a later date.

Q10 Whether TCS is to be collected on total sales value to the buyer to whom sales in excess of 50 Lakhs has been made or only to the amount in excess of 50 Lakhs?

TCS shall be collected 0.1% ON THE VALUE OF SALE CONSIDERATION EXCEEDING 50 Lakhs from the buyer”.
For Example: If in the Preceding Financial Year, the Turnover is exceeding 10 Crore & the Sale of Goods is 65 Lakhs then the TCS shall be Collected @ 0.1% of Rs. 15 Lakhs (65 Lakhs- 50 Lakhs).

Q11 Whether TCS is applicable on Export of Goods?

No, TCS shall not be collected on Sales from export of Goods being made outside India.

Q12 What shall be the Rate of TCS in case the buyer is not having PAN/Aadhaar?

In case of NO PAN/AADHAR Case the TCS rate shall be 1% as against 0.1%. Provisions of section 206CC have been specifically overruled by section 206C(1H).

Q13 Whether the TCS Rate shall be reduces by 25% as per the Relief measures provided by Government in COVID-19?

Yes, the rate of TCS u/s 206C(1H) shall also be reduced by 25% i.e. rate at which TCS to be collected shall be 0.075% w.e.f. 01-10-2020 to 31-03-2021.

Q14 Whether TCS is to be collected by Seller where buyer is required to Deduct TDS under the Provisions of Income Tax Act?

The Provisions of Section 206C(1H) shall not apply where the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount. It may be inferred that if the buyer is required to deduct tax source on any of his other transactions (e.g. 194C / 194H) as per business requirements, the seller need not collect tax at source on sales to those specified buyers.

Q15 Whether the Provisions of Section 206C(1H) are applicable on Newly Incorporated Sellers?

No, as the Seller will not meet the applicability Criteria of Turnover of 10 Crore in the Preceding Financial Year.

Q16 What if the Advance received for Sales of Goods later refunded & the Sale is not affected?

The TCS shall be collected & deposited to Government on Advance Receipt & if later the Advance is refunded then the TCS shall be deposited with the Government on a higher side & the buyer shall claim the Tax Credit & adjust the same in his Tax Liability.

Q17 While Calculating the Limit of Sales of GOODS 50 Lakhs, whether the sales before 01-10-2020 shall be considered?

No clarification has been issued by the CBDT in this respect. Therefore, in the absence of any clarifications and to be on the safer side, the seller should consider the sale of goods made up to 30-09-2020 while calculating the threshold of 50 lakh.

Q18 Whether TCS is to be collected on the amount of sale including GST?

CBDT vide Circular No. 23/2017 dated July 19, 2017 has clarified that no tax shall be deducted under Chapter XVII-B, if the GST on services is indicated separately. The above clarification issued by the CBDT covers only tax deduction under chapter XVII-B, whereas section 206C of the Act is governed by Chapter XVII-BB.
Further, the FAQ issued by the Income Tax Department on TCS provides that the “amount debited to the account of buyer or payment shall be received by seller inclusive of VAT /Excise /GST. As such, TCS to be collected on inclusive of GST.”
Considering the above FAQs and no specific clarification in respect of section 206C(1H), TCS should be levied on the GST component as well to be on safer side.

Q19 Whether GST to be charged by the seller on the amount of sale including TCS?

CBEC Circular No. 76/50/2018-GST issued on 07-03-2019 provides clarifications on certain issues in case of TCS under Income Tax Act. In this matter, it states that Section 15(2) of the CGST Act specifies that the value of supply shall include ‘any taxes, duties, cesses, fees and charges levied under any law for the time being in force other that GST Laws.
Further, it clarified that for the purpose of determination of value of supply under GST, TCS under the provisions of Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.

Q20 Whether TCS will be applicable on sale of properties?

The question for consideration is whether a receipt for sale of immovable properties is covered for TCS or not. The sale of properties distinctly covered under Section 194IA for value exceeding 50 lakhs. Therefore the receipts for sales made by builders to customers are not covered under Section 206C (1H) since the subject matter of sale does not fall under the definition of “Goods”.

Q21 Whether TCS will be applicable on Security deposits?

Where a buyer is required to keep earnest money deposit, security deposit, or performance guarantee, and if such amounts are later on adjusted towards sale consideration, the seller still will have to remit TCS.

Q22 Whether provisions of TCS would be applicable? If Trade receivables adjusted against the amounts payables from the said party.

TCS is to be collected at the time of receipt of an amount of consideration. As in the instant case, though the amount is not received in cash/cheque / electronic mode a genuine debt (receivable and payable is adjusted) is received by any other mode and hence, the provisions for TCS will be applicable.

Q23 Whether TCS would be applicable if bad debts recovered?

Bad debts recovered is an amount received from a buyer belatedly and the only nexus between the seller and the buyer is on account of sale of goods and the amount received is only for the sale consideration with timing differences and cannot become anything else in the hands of the seller. The treatment in the books of seller as bad debts recovered, cannot take away his liability under Section 206C(1H).

Q24 Whether TCS will be on the settlement of debts like barter transaction?

Many times, it is a business practice to sell and buy in settlement of debts. Such settlement of debts, may not be a receipt, but a deemed receipt of sale consideration, and in our considered opinion, TCS is applicable.

Q25 Whether TCS will be applicable if partly payment received as a subsidy amount by Central or State Government?

In quite a few cases, the sale proceeds are partly paid by the Government as a release of subsidy, or the costs are funded by third-party payments. All such transactions also amount to receipts on behalf of a buyer and hence the seller will be under obligation to remit TCS.

Q26 Whether TCS will be applicable if TDS is applicable on that transaction? Like; composite contract and turnkey Projects?

The provisions of Section 206C (1H) is not applicable if the buyer is liable to deduct tax at source under any other provision of the Act on the goods purchased by him from the seller under the said contract.

Q27 How the impact of sales return, credit note, and debit note would be considered in collecting TCS?

If sales return/credit note/debit note is before receipt of any consideration, then the impact thereof will be included in the amount of consideration, and accordingly, on receipt of the revised consideration, the provisions of TCS would be applicable.
If the amount of consideration is already received and TCS is collected and paid, no impact thereof will be required to be made at the time of passing entry for sales return/credit note/debit note.
However, against the subsequent realization, if the same gets adjusted and net consideration is paid then on such net consideration TCS should be collected.

Also read: All About Section 206C(1H)- TCS on Sale of Goods

Author Profile

CA Shiwali Shukla
Shiwali Shukla is a member of ICAI since 2018 & She has excelled in Chartered Accountancy & follows an innovative & talented approach towards work, She is also an Ex- Employee of Ernst & Young. She is having the Expertise in the filed of Direct Taxation, Indirect Taxation, Company Law matters & Finance. She is also having more than 3 years of Experience in the same field. & more than 3 years if Experience in the field of Direct as well as Indirect Taxation..

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