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Overview of new provisions under Section 206C(1H) for TCS on Goods - Aryan Consulting

Updated: Jul 21, 2023


New TCS Provisions on sale of goods 1H
New TCS Provisions on sale of goods 1H

Finance Act 2020 introduced a new provisions under Section 206C(1H) for the Tax Collected at Source (TCS) on Goods With effect from 1st of October 2020.

206C(1H) Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent”, the words “one per cent” had been substituted:

Provided further that the provisions of this sub-section shall not apply, if 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.

As per the new provision if any seller of any goods whose turnover in the preceding FY exceeds Rs. 10 Crore then, from 1st of October 2020, he shall be liable to collect TCS @ 0.1% (Rate will be 0.075% till 31.03.2021) of the sale value from the buyer if the buyer purchase goods for the value exceeding Rs. 50 Lacs (Limit of Rs. 50 Lac shall be seen for each buyer separately).

In other words, till the limit of Rs. 50 Lac there is no requirement to Collect TCS by the Seller however the moment purchases of the buyer exceeds Rs. 50 Lac from the same seller then on such excess amount seller shall collect the TCS.

However, in the First year of implementation of this new provision Sale made to buyers up to 30th September 2020 shall not be liable to collect the TCS.

Applicability – On entities whose turnover including GST was 10 Cr in last FY

Transactions covered – Receipts against all sale transactions exceeding 50 Lakhs. In case it is not exceeded 50 Lakhs till 30th Sep, it will be collectible when it exceeds. It already crossed, then it will be applicable now onwards.

Any transaction on which TDS provisions apply, are not covered, like works contract etc.

Any transaction on which any other TCS provisions apply, are not covered

In case the PAN or Aadhar of the buyer is not available, the rate is 1% i.e. 10 times more

Buyer – does not include an Govt body, local body, embassy, trade representation etc or a person importing goods into India and such other person(s) as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.


A perusal of the above provisions of Sub Section (1H) of section 206C would reveal the following 4 Point summary for applicability of the provisions: -


· Turnover: - Turnover (Including GST Component) of the Seller exceeds 10 Crores in the Previous Financial year.

· Goods Covered: - The Goods sold to the buyer is not covered under any other Sub Section of 206C on which tax is collected at source in accordance with their specific provision

· Threshold: - TCS is to be collected from Buyers if the Value/Aggregate Value of the goods supplied is more than 50 Lakhs in the Financial year to that particular customer.

· Rate of TCS: - TCS is to be collected at the rate of 0.1% of the Value determined above or 1% in case of PAN/Aadhaar Number not on record. (In Respect of F.Y 2020-21 TCS rates have been reduced by 25% from the existing rates on account of the ongoing Pandemic COVID-19, therefore reduced rate of 0.075% would be applicable in this case)

Steps for implementation:

Ø Identifying the Customers from whom total receipt during the Financial year exceeds 50 Lakhs or Potential Customers from whom estimated turnover would exceed 50 Lakhs during the Financial year.

Ø Intimating the Identified Customers regarding the applicability of the provisions and Collection of tax at source in the Invoice or On Receipt of amount via a Debit Note and updating their PAN in the records

Ø Creating a separate Line item in the Invoice to charge TCS from the Customers identified in point No. (3)

Ø Creating a separate Ledger in the Accounts as “TCS on sale of Goods” under current Liabilities

Ø COMPLIANCES


TCS payment - Withing 7 days of the next following month.


TCS Return - in FORM 27EQ Within 15 days from the end of each quarter except for the last quarter it is 15th May. Late Fee – Rs. 200 Per day


TCS Certificate - Within 30 days from end of each quarter except for the last quarter is 30th May.


Frequently Asked Question:-


Q.1 Whether for calculating the Turnover Limit of Rs 10 Crore, Turnover relating to services would also be included?

Ans. Yes, in the Turnover Criteria of Rs 10 Crore both the Turnovers i.e Goods and Services would be taken into account for calculating the applicability of the provisions.


Q.2 Whether for calculating the threshold limit of Rs 50 lakhs per Customer, Turnover relating to services would also be included?

Ans. No, turnover/Gross Receipt of Service with the Identified Customer need not be taken in account for calculating the Threshold limit of Rs 50 lakhs.


Q.3 Whether in case of Goods being returned (Issuance of Credit Note) the TCS collected has also to be reversed?

Ans. No, TCS once collected has to be deposited to the credit of Govt and the Buyer can take credit of the same while assessing the Advance Tax/Final tax Liability


Q.4 Whether TCS shall be collected by the seller where the buyer is also obliged to deduct TDS on payment being made?

Ans. No TCS shall be collected where the buyer is obliged to deduct TDS on payment being made, as specifically said in the 2nd Proviso to sub section (1H).


Q.5 Whether TCS has to be collected on the amount of sale including GST?

Ans. Yes, TCS has to be collected on amount including GST. Several courts have previously unanimously held regarding TDS that No tax can be deducted on amount of VAT/Service tax/GST. Further CBDT vide Circular No. 23/2017 dated 19th July 2017 has clarified that no tax shall be deducted under chapter XVII-B on amount of GST, however the above clarification relates to Chapter XVII-B whereas the provisions relating to TCS has been enumerated under Chapter XVII-BB . Therefore, TCS has to be collected on amount of GST also.


Q.6 Whether TCS is required to be collected on amount of Sales during the period 01.04.2020 to 30.09.2020

Ans. No, TCS would not be required to be collected on sales made prior to 1st October 2020, however TCS would be required to be collected on amount outstanding as on 30th Sept 2020 of the identified Customer in case the Turnover or the estimated turnover during the Financial year exceeds 50 lakhs.


Q.7 What is the meaning of ‘Goods’ under this provision?

Ans: – ‘Goods’ are not defined anywhere under the Income Tax Act. This provision also does not provide clarity as to ‘What are goods?’ Since, no specific definition is provided, therefore, all goods in whichever form are covered under this provision.


Q.8 Whether TCS is applicable on sale of property or flat by builder

Ans: – Hon’ble Supreme Court has clarified that flat sale by builder is not ‘Goods’, hence TCS will not be applicable on sale of property by builder. GST is also not chargeable on sale of property post completion. It is charged on pre-completion sale, due to the deeming provision in the GST Act which specifically defines it as service for charging GST.


Q.9 Whether TCS will be collected on Trade Receivables outstanding as on 30th September 2020?

Ans: – Since, this provision is applicable on a receipt basis, as per my view any payment received out of trade receivables outstanding as on 30.09.2020 will come under the TCS ambit. There may be divergent view as well considering that TCS shall not be applicable on Sales made before the provision is made applicable i.e. before 01.10.2020.


CBDT by way of press release dated 30-09-2020 has also clarified that in order to simplify and ease the compliance of the collector, it may be noted that this TCS provisions shall be applicable on the amount of all sale consideration received on or after 01-10-2020, without making any adjustment for the amount received in respect of sales made before 01-10-2020.


CBDT has further issued a Press Note on 30-09-2020 to provide that TCS shall be applicable only on the amount received on or after 01-10-2020.


Q.10 Whether TCS will be applicable to the Trading of Shares?

Ans: – CBDT has clarified that Shares and Securities transacted on recognised stock exchange are not covered under TCS. However, off market transactions of shares and securities are covered under the definition of Goods includes Shares and Securities. Therefore, TCS shall be applicable on shares.


Q.11 Whether TCS is applicable on Motor Vehicles of value less than 10 Lakhs?

Ans: – TCS on the motor vehicle is levied u/s 206C(1F) whose value is more than 10 Lakhs. As per the provisions of Section 206C(1H), TCS is not applicable to goods that are covered under other provisions of TDS/ TCS. As per clarification, TCS will be applicable to Motor Vehicle below 10 Lakhs. Therefore, TCS shall be applicable on sale of motors vehicles by manufacturer to Dealer and also by Dealer to bulk buyer whose amount crosses the threshold including those below 10 Lakhs


Q.12 Can an assessee apply for Lower Collection Certificate for this section?

Ans: – Section 206C(9) specifically bars an assessee to apply for a Lower collection certificate for this section. Hence, one cannot apply for Lower collection Certificate.


Q.13 What will happen in a situation where sale consideration is adjusted against Accounts Payable for purchases from the said party?

Ans: – In the given case, consideration is not received in cash/ cheque rather it is received in any other mode. Hence TCS provisions will be applicable. The parties should set up a procedure of recording the settlement of accounts so that TCS due date is triggered on such settlement. This point is not free from doubt as the mode of consideration is not defined moreover the Section uses the term ‘Amount received’


Q.14. On what amount will TCS be charged either on CIF/ FOB amount?

Ans: – Since TCS has to be charged on Total Invoice Value after including all taxes, freight and other charges, hence TCS amount will be charged on a CIF basis.


Q.15. Whether TCS has to be charged on full amount or amount exceeding 50 Lakhs?

Ans: – TCS has to be charged on the amount exceeding 50 Lakhs. For example: – Receipt of 55 Lakhs – TCS has to be charged on 5 Lakhs.


Q.16 Whether TCS shall be collected at the time of debiting the buyer with the sale value or at the time of collection?

Ans: - Section 206C(1H) specifically provides that the seller shall collect from the buyer a sum equals to 0.1% of the sales consideration at the time of receipt of such amount. That means the liability to collect TCS will arise even in case of advance payment received though the goods will be physically delivered at a later date.


Q.17 Since, TCS to be collected on advance payments, what shall be the course of action in case, the advance has to be refunded as the sale is not affected?

Ans: - Where the seller receives an advance for selling the goods and he deposits the TCS thereon, however later on such deal stands cancelled, in such a case, post month-end, no refund of the TCS can be made to a buyer. Even if it is collected on higher amount, the same will be deposited with the government. The buyer can claim credit for the TCS amount while depositing Advance Tax and/or determining the final tax liability.


Q.18 Whether GST to be charged by the seller on the amount of sale including TCS?

Ans: - Corrigendum to CBEC Circular No. 76/50/2018-GST issued on 07-03-2019 provides clarifications on certain issues that includes valuation methodology 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.


Q.19 Is there TCS on


a. Branch transfer?

Ans: - No. Since branch transfer does not involve sale of goods. Moreover, once cannot sell to oneself and deduct TCS from self.


b. Sale of Crops?

Ans: - Yes, as it is sale as per as per Sale of Goods Act.


c. Sale of electricity from power grid to DISCOMS?

Ans: - No TCS.


d. Sale of electricity from DISCOMS to consumer?

Ans: - Yes, TCS applicable as it is goods.

CBDT has clarified vide circular No. 17 dated, 29th September, 2020 that transactions in electricity, renewable energy saving certificates traded through registered power exchanges has been excluded from TCS


e. Forward Contracts?

Ans: - Yes, TCS is applicable


f. Sale to SEZ / EOU?

Ans: - TCS applicable – export not out of India.


g. Sale to Sub-Dealer by dealer?

Ans: - Yes, TCS is applicable


h. Sale of software?

Ans: – The simple rule is to check if TDS is applicable on such transaction. There are plenty of clarification regarding applicability of TDS on software transactions. In case TDS is applicable, TCS does not apply. If it is in the nature of off-the-shelf software TCS will apply. If it is in the nature of use of license or royalty no TCS will apply.


i. Bill Discounting?

Ans: - Bill Discounting is a loan and not a receipt, hence no TCS. However, when the actual payment is received against the Bill from the Buyer.


Q.20 In case motor car exceeding 10 Lakhs has been sold to a customer by a car dealer and TCS is already collected u/s 206C(1F), and subsequently lower priced vehicles are supplied leading to total receipt exceeding 50 Lakhs, what will be the TCS criteria

Ans: - TCS u/s 206C(1H) @ 0.1% will have to be collected on the amount exceeding Rs 50 Lakhs under the new provision. However, in my view, the amount on which TCS u/s 206C(1F) has been collected will be deducted from such calculation, since there cannot be double TCS on the same amount.


Q.21. How and when to charge TCS from buyer?

Ans: -

  • Alternative 1- The TCS can be collected by charging through invoice:

In this case, both buyer and seller need to do accounting as receivable and payable for these amounts. It may be noted that if the payment is being made in next financial year, TCS obligation may not be applicable on seller (due to turnover threshold) or may not be applicable on buyer due to not making payments breaching ‘collection’ threshold in that financial year. In those case, one need to keep track and write off and reconcile it with the liability.

  • Alternative 2: The TCS can be collected by charging through debit note:

The logic for issuance of debit note may be that debit note to be issued at the time of payment so that it can be charged only on the eligible cases and no hassles of write off etc. (as mentioned in above points). But in that case, a specific series of debit note number may need to be used to make sure that these debit notes do not create issues in GST compliance.


The opinion contained herein is not legal advice but for general guidance only. If you need specific advice, you may contact the author of this article or another qualified professional.

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