New TCS as per Section 206C(1H)

Background – TCS as per Section 206C(1H) :

With effect from 01.10.2020 , Government has introduced Tax Collection at Source (TCS as per Section 206C(1H)) @ 0.10% (0.075% upto 31.03.2021) on Sales consideration exceeding Rs. 50 Lakhs in case buyer provide PAN or Aadhar otherwise TCS has to be collected @ 1% . New TCS is applicable in case of Sales consideration exceeds Rs. 50 Lakhs during the Financial Year.

Income Tax Provision

Let us understand Basic Provision of TCS as per Section 206C(1H) of Income Tax Act, 1961

Section 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.

Basic summary of new TCS provision as per Section 206C(1H) :

1. “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
2. TCS is applicable on Sale consideration and not on Sale Value.
3. TCS is applicable @ 0.10% (0.075% upto 31.03.2021) on sale consideration exceeding Rs. 50 Lakhs in case buyer provides PAN/Aadhar otherwise 1% .
4. TCS is applicable in case sales consideration exceeds Rs. 50 Lakhs for the Financial Year.
5. TCS is not applicable in case of export or to government customer or existing TCS items e.g. Scrap or in case buyer is liable to deduct TCS.
6. Seller is required to collect TCS on Sale consideration received after 30.09.2020
7. As per CBDT guidelines, No adjustment should be made on account of Credit Note or Sales Return for the purpose of collect of TCS

Handling New TCS with ERP

Though TCS is applicable on Sale Consideration, Industry is following various ways of collecting TCS . Few industry is showing TCS on invoice by changing their ERP System so that when customer makes payment for invoice, they can pay TCS as well . This will provide lots of administrative convenience to both buyers and Seller rather than handling transaction separately raising debit note after receipt of collection from customer. This collection in some of cases may be net of Credit Note as well.

It should be noted that TCS is applicable on advance receipt also from 01.10.2020 and also applicable on receipt from sales made before 01.10.2020 . Necessary Changes in ERP system is required. With regards to collection from outstanding as on 30.09.2020, this looks very harassing provision that you have to collect TCS on sale when provisions were not in existence at all . This will create litigation.

Conclusion:

We have tried to provide basic understanding of the income provision related to new TCS U/S 206C(1H) to keep it as simple as possible however it is highly recommended to take professional Advice or refer to Income Act ,rules or notification in this regard.

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