TCS on sale of all goods - Section 206C(1H)

1. Introduction

As per finance Act, 2020, a new section has been introduced by the govt. with the intent to curb and trace the unaccounted money in the economy. Govt. aim to unearth black money has led to another new section 206C(1H) in Finance act 2020 wherein seller has to collect TCS on sale of goods which will help in fixing accountability of huge transaction which earlier could not be traced.

2. Analysis

The sub-section prescribes that if a seller (being a person whose turnover in immediately preceding FY exceeds Rs. 10 crore.) makes a sale of "goods" whose value individually or in aggregate exceeds Rs. 50 lac in a previous year, the seller shall be liable to collect tax at source @ 0.1% of transaction value exceeding Rs. 50 lac from the buyer.

In non-PAN/ Aadhaar cases the rate shall be one per cent.

Levy of TCS under this shall be on ALL GOODS except where the seller is liable to collect TCS under other specific provisions of section 206C (Refer memorandum) i.e sub -section 1, 1F & 1G as listed below:-

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 any mode other than under a forest lease

e. Any other forest produce not being timber or tendu leaves

f. Scrap

g. Minerals, being coal or lignite or iron ore

206C (1F) a. Motor vehicle (if value exceeds 10 Lakhs)

206C (1G) a. Sum of money (above 7 Lakhs) for remittance out of India

b. Seller of an overseas tour program package

3. Threshold of levy

The tax shall be collected on the sale consideration value individually or in aggregate of more than one transaction exceeds Rs. 50 Lakhs in a financial year. Export of goods is not covered under TCS on sale of goods.

For example:-

1) Mr. A, seller of eligible goods, sells goods to Mr. B amounting to Rs. 60 lacs on 22nd July 2020. Only one transaction was made in a previous year. TCS @0.1% shall be levied on Rs. 10 lacs only.

2) Mr. A, seller of eligible goods, sells goods to Mr. B :-

On 31st May 2020 Rs. 25 lacs

On 15th August 2020 Rs. 10 lacs

On 12th Sep 2020 Rs. 25 lacs

TCS @ 0.1% shall be applicable on Rs. 10 lacs in the month of August.

4. Manner of remmitance to govt.

The person responsible for collecting tax shall deposit the TCS amount within 7 days from the last day of the month in which the tax was collected.

In example 1 above, due date to make payment of TCS is on 7th August.

In example 2 above, due date to maake payment of TCS is on 7th Sep.

5. Who is not required to collect TCS

Central Government may notify person, subject to conditions contained in such notification, who shall not be liable to collect such TCS.

6. From whom TCS shall not be collected

1. No TCS is to be collected from the Central Government, a State Government and an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in 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 conditions as prescribed in such notification.

2. If the buyer is required to deduct tax at source (TDS) under the relevant provisions on any of his other transactions with seller and has deducted such amount, the seller need not collect tax at source on sales to those specified buyers.

7. What shall be the value of transaction

Section 206C (1) of Income Tax Act states that tax shall be collected on the “value being debited as payable by the buyer to the seller.

As per Section 15(2) of 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 than this Act, the SGST Act, the UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier.”

Reading the above sections of both the acts, it seems that both the acts levy tax on the value of transaction including other levies also.

However, As per S. No. 5 of the Circular No. 76/50/2018-GST dated 31st December, 2018, it was clarified to charge GST on amount including GST which created confusion among the professional and taxpayers.

Various representations were made by the stakeholders and the matter was re-examined and vide Corrigendum to Circular 76, CGST, dated 7th March’19, it was clarified that for the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.

8. Applicability date

The above provisions shall apply with effect from 01.10.2020

Section 206C(1H) of Income tax Act, 1961 (Text for reference)

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.

Explanation.—For the purposes of this sub-section,—

(a)  "buyer" means a person who purchases any goods, but does not include,—

(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B) a local authority as defined in the Explanation to clause (20) of section 10; or

(C) a person importing goods into India 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;

(b) "seller" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a 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.