TCS on Sale of Goods with Practical FAQ’s & Solutions – Marg ERP

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A seller collects a tax known as “Tax Collected as Source (TCS)” from the buyer as sale consideration for selling the goods with a value above Rs. 50 Lakhs. The rate of TCS on the sale of goods under GST varies on the goods under various categories. The goods categories have been specified under Section 206C of the Income Tax Act, 1961 on which the seller is entitled to collect tax from the buyer.

Introduction

As you see, Finance Act 2020 Section 206C has added a sub-section (1H) to collect TCS from the seller for any sale consideration. Section 206C has various sub-sections to cover the sale of some goods for the collection of TCS. However, the goods which were not covered under other provisions have been covered under sub-section (1H). 

With effect from October 1, 2020, the provisions of section 206C (1H) mention that: 

  •  A seller collects TCS for the sale of goods from the buyer 
  • Seller’s turnover should be above Rs. 10 Cr in the previous financial year 
  • If aggregate Value/Value received from the buyer for the goods is exceeding Rs. 50 Lakhs, TCS must be collected in the financial year 
  • If a buyer submits the PAN, rate of TCS shall be 0.1% (or 1% for non-availability of PAN) 
  • TCS will be collected on the difference between Rs. 50 Lakhs and total sale value (i.e. TCS – Rs. 50 Lakhs) 

With the doubts in industry and trade based on compliance and interpretation of the provisions which have been introduced recently, there are further clarifications introduced by the Central Board of Direct Taxes through circular 17/2020 on Sept. 29, 2020, and press release on Sept 30, 2020. 

This guide lists all the obligations and compliances on the seller’s part along with a detailed list of actions that should be performed by the seller before the effect of provisions. Here are some of the FAQs with practical solutions to clarify all our doubts about TCS on sale of goods –  

Tax Collected at Source
Tax Collected at Source (TCS) is a tax which the seller collects from the buyer at the time of selling the goods. The Government has added a New Sub Section (1H) under Section 206 C which means that a seller who is selling goods within India may require collecting TCS from the buyer.

10 Important Things of TCS on Sale of Goods

  1. Who is the “Seller” under sub-section 1H of Section 206C?
    Seller is an individual with Gross Receipts, Total Sales, and Turnover from the business conducted in the last FY exceeds Rs. 10 Cr. under Section 206C (1H).
    This subsection hasn’t clearly defined “turnover” here. According to the ICAI’s “Guidance Note on Financial Terms”, the “Sales Turnover” refers to the total sales of products or services by the business.

  2. Does Sales include GST?

    On September 29, 2020, the CBDT issued a clarification that there is no need to make any adjustment of discount or sale return or indirect taxes like GST for collecting tax under section 206C (1H) as the amount is collected on receiving the sale. Hence, the intent is to get TCS on sales.

  3. Is TCS collected on the total amount of sales from the buyer or only to the total value above Rs. 50 Lakh?
     According to the sub-section (1H) of Section 206C, the TCS on sale of goods above 50 Lakhs will be collected @ 0.10%

  4. If sale is made before October 1, 2020, will it be considered to estimate the sale amount of Rs. 50 Lakhs?

    The Finance Act 2020 introduced this section. It was originally intended to be effective on April 1, 2020, i.e. the beginning of FY 2020-21. Since it has been effective in the middle of Financial Year 2020-21, w.e.f. October 1, 2020, whether the sale consideration up to September 30, 2020 of the amount exceeding Rs. 50 Lakh shall be determined is the main concern here.

    Since the Rs. 50 Lakh threshold limit is considered for the whole financial year, the sale consideration for receiving TCS under section 206C (1H) shall be calculated w.e.f. April 1, 2020. If a seller has received above Rs. 50 Lakh up to September 30, 2020, the TCS shall be applicable on all sale considerations in the preceding year under section 206C (1H), on October 1, 2020 or beyond from the buyer. A Press Note has also been issued by CBDT on September 30, 2020 regarding the applicability of TCS only on amount of sale collected on October 1, 2020 or beyond.

    Example 1 – If the sale is below Rs. 50 Lakhs on or before Sept 30, 2020

    Sales before Sept 30, 2020Rs. 35 Lakh
    Amount of sale received before Sept 30, 2020Rs. 25 Lakh
    Invoices w.e.f. Oct 1, 2020Rs. 30 Lakh

    TCS is not applicable under the sales receipts of INR 50 Lakhs. So, TCS is not applicable on the sale of Rs. 25 Lakh received after October 1, 2020. On the other side, TCS will be applicable when the difference is received (Rs. 35 Lakh + Rs. 30 Lakh – Rs. 50 Lakh = Rs. 15 Lakh).

    Example 2 – If sales are made above Rs. 50 Lakh to the buyer before Sept 30, 2020

    Sales before Sept 30, 2020Rs. 65 Lakh
    Amount received before Sept 30, 2020Rs. 30 Lakh
    Invoices from Oct 1, 2020Rs. 20 Lakh

    TCS is applied when the sale is beyond Rs. 50 Lakhs. When the invoice is raised after October 1, 2020 for Rs. 20 Lakh, TCS is not applied. On the other hand, it is applicable when a sale of Rs. 65 Lakh is made (65 Lakh + 20 Lakh – 50 Lakh) to be received. 

    Example 3 – Amount from a buyer is above Rs. 50 Lakh before Sept 30, 2020

    Sales before September 30, 2020Rs. 65 Lakh
    Amount received before September 30, 2020Rs. 55 Lakh
    Raising invoices from October 1, 2020Rs. 20 Lakh

    As TCS shall be effective under section 206C (1H) as of October 1, 2020, TCS cannot be charged before October 1, 2020, on collections. TCS should be charged in this case on receiving amount as on October 1, 2020, on the difference of Rs. 30 Lakh (65 Lakh + 20 Lakh – 55 Lakh – Rs. 30 Lakh).

  5. Who is the buyer here?

    Any individual who buys goods, excluding –

    • Someone who is importing any goods in the country
    • A state government, the Central Government, a High Commission, an Embassy, commission, legation, trade representation of a state from foreign nation, and consulate
    • A local authority

     

  6. Is TCS collected on sale of services?

    No, TCS is applicable only on sale of goods.

  7. Will the amount of consideration be based on CIF or FOB basis?

    It would rely as per the terms of contract. The consideration will add freight and insurance if it is based on CIF.

  8. Will TCS be collected on export sales?

    No, TCS is not applicable on the export of goods outside India.

  9. What will be the rate of TCS if Aadhaar or PAN is not available from the buyer?

    According to Section 206C (1H), 1% of TCS will be collected for sale consideration if the buyer doesn’t show Aadhaar or PAN.

  10. Will the sale of service be considered to calculate Rs. 10 Cr. threshold limit in the last financial year?

    According to section 206C(1H), the Gross Receipts, Turnover, and Total Sales will be considered to calculate Rs. 10 Cr. threshold limit in the last financial year. It will also consider the receipts of services provided as such.

Different Rates Applicable Under Different Categories

Type of Goods Rate
Alcohol & Liquor made for consumption by humans Other consumable goods by humans 1%
Timber wood under a forest 2.5%
Tendu leaves 5%
Timber wood by any other mode than forest leased 2.5%
A forest produce other than Tendu leaves and timber 2.5%
TCS on Scrap 1%
Minerals like lignite, coal and iron ore 1%
Exceeds over Rs. 2 lakhs/ Jewellery that exceeds over Rs. 5 lakhs 1%
Purchase of Motor vehicle exceeding Rs. 10 Lakhs 1%
Parking lot, Toll Plaza and Mining and Quarrying 2%

Frequently Asked Questions

Tax Collected at Source (TCS) is the tax payable by the seller which he collects from the buyer at the time of sale.

TCS will be collected by the business operator while making a payment to the merchant. This payment will be the amount collected for the seller's benefit for the provisions made by him through the online platforms. This expense will be collected on the net estimation of available supplies.

The supplier supplying goods and/or services through e-commerce platforms will get paid after the deduction of TCS @ 1%.

To pay any amount collected as TCS, it shall be credited in the electronic liability register accordingly after debiting the e-cash ledger.

Total sales or turnover for collecting TCS should be above Rs. 10 crores. It includes computing all the segments of the seller– sale of goods, provisions of services.

No. TCS doesn’t apply to the supply of services.

TCS shall be charge from the buyer at the time of billing, by charging through invoice or debit note.

It may also be noted that this TCS shall be applicable only on the receipt exceeding Rs. 50 lakhs by a seller from a particular buyer, not the cumulative buyer.

TCS applies only in cases where receipt of sale consideration exceeds Rs. 50 Lakh in a financial year.

Want to Know the Difference Between TDS & TCS?
Click on the link below
TDS vs TCS

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