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

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

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.

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

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.

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.

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.

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.

TCS shall be collected on sale of goods only.

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.

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).

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

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).

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.

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.

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

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.

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.

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.

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.

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”.

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.

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.

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).

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.

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.

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.

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.