With effect from October 1, 2020, Section 206C(1H) of the Income-tax Act, 1961 has come into force which requires collection of tax by a seller, whose total sales, gross receipts or turnover in the preceding financial year exceeds Rs 10 crore. The tax shall be collected from the amount received as consideration for the sale of goods in excess of Rs 50 lakh in any previous year.
So if you are buying goods of more than Rs 50 lakh be ready to pay TCS on the same and claim the credit at the time of filing your income tax return.
In this article, we have touched upon 10 important key issues about this requirement.
1. Timing of collecting TCS
The tax should be collected at the time of receipt of amount from the buyer if the sale consideration received in a previous year exceeds Rs 50 lakh. There is no requirement to collect TCS on any sale consideration received before October 1, 2020.
This provision shall apply on all sale consideration (including advance received for sale) received on or after October 1, 2020 even if the sale was carried out before October 1, 2020.
2. How to compute the threshold limit of Rs 50 lakh?
The threshold of Rs 50 lakh shall apply to the entire financial year starting from April 1, 2020. If up to September 30, 2020 the seller has already received Rs 50 lakh or more from the buyer, tax under this provision shall be collected on all sum received on or after October 1, 2020.
3. Whether TCS to be collected on sale of service?
TCS shall be collected on the consideration for “sale of any goods”. The term ‘goods’ is not defined in the Income-tax Act. The term ‘goods’ is of wide import. Anything which comes to the market can be treated as goods. Therefore, the sale of services are not subject to collection of TCS.
4. Whether TCS has to be collected on Sale of Immovable Property?
TCS is required to be collected on sale of goods. As per Section 2(7) of the Sales of Goods Act, 1930, ‘goods’ means every kind of movable property. Thus, the immovable property shall not be treated as ‘goods’. Consequently, the TCS shall not be collected from the sale of immovable property.
5. Whether TCS has to be collected on GST amount?
TCS is required to be collected on the sale consideration inclusive of GST
. The CBDT has clarified that since the collection is made with reference to receipt of the amount of sale consideration, no adjustment on account of indirect taxes including GST is required to be made for the collection of tax under this provision.
6. Rate of collecting TCS
The tax shall be collected by the seller of goods at the rate of 0.1 per cent of the sale consideration exceeding Rs 50 lakh if the buyer has furnished his PAN or Aadhaar. If buyer does not submit PAN or Aadhaar, then, the tax shall be collected at the rate of 1 per cent.
The rate of TCS has been reduced to 0.075 per cent till March 31, 2021 due to the economic situation arising out of the COVID-19 pandemic. However, if the buyer does not submit the PAN or Aadhaar, the tax shall be collected at the rate of 1 per cent.
7. Requirement to collect TCS on advance received from the buyer
TCS is required to be collected under this provision from the advance received for sale. If the trigger event (i.e., receipt of sale consideration) has occurred before October 1, 2020, no liability to collect tax will arise.
On the contrary, where the sale has been made before October 1, 2020 but the sale consideration is received after the said date, the same shall be subject to TCS. Consequently, it would apply on all sale consideration, including advance, received on or after October 1, 2020 even if the sale was carried out before October 1, 2020.
8. No requirement to collect TCS on branch transfers
The TCS under this section is required to be collected by any person, being a seller receiving consideration for the sale of goods. Thus, the existence of two distinct parties as ‘seller’ and ‘buyer’ is a pre-requisite to construe a transaction as a sale. The condition of sale is not fulfilled in the context of branch transfer. Therefore, the provisions of this section shall not apply in the case of branch transfers.
9. Due date to deposit TCS
Tax collected during the month shall be deposited on or before the seventh day of the next month in which tax has been collected. For example, the TCS collected in the month of October shall be deposited by November 7, 2020.
10. Consequences for failure to collect or pay TCS
If a collector fails to collect or after collection fails to pay it to the credit of the Central Government, he shall be liable to pay interest at the rate of 1 per cent for every month or part thereof on the amount of tax he failed to collect or pay. The interest shall be calculated for the period starting from the date on which tax was required to be collected and ending on the date on which tax is deposited. The interest is required to be paid before furnishing of TCS return.