As you see, Finance Act 2020 Section 206C has added a sub-section (1H) to collect TC 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 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.
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%|
|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%|
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.
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.
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%
If the 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 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 the 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, 2020||Rs. 35 Lakh|
|Amount of sale received before Sept 30, 2020||Rs. 25 Lakh|
|Invoices w.e.f. Oct 1, 2020||Rs. 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, 2020||Rs. 65 Lakh|
|Amount received before Sept 30, 2020||Rs. 30 Lakh|
|Invoices from Oct 1, 2020||Rs. 20 Lakh|
TCS is applied when the sale is beyond Rs. 50 Lakhs. When 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, 2020||Rs. 65 Lakh|
|Amount received before September 30, 2020||Rs. 55 Lakh|
|Raising invoices from October 1, 2020||Rs. 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).
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
No, TCS is applicable only on sale of goods.
It would rely on as per the terms of the contract. The consideration will add freight and insurance if it is based on CIF.
No, TCS is not applicable to export of goods outside India.
According to Section 206C (1H), 1% of TCS will be collected for sale consideration if the buyer doesn’t show Aadhaar or PAN.
Will 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.