TCS on sale of Goods- Increased Compliance burden on taxpayers

TDS and TCS have been a reliable weapon for the Government over the years serving the varied objectives of preventing tax evasion, widening the tax base and ensuring steady revenue collection for the Government. Thus, over the years, the Government’s clear intention has been to bring as many transactions under the ambit of TDS/TCS as possible. With the same intention of widening and deepening the tax base the Finance Act 2020 has introduced Sec 206C (1H) which requires the seller to collect TCS from buyer.

 Provisions related to collection of TCS on sale of goods exceeding INR 50 lakhs is all set to be made applicable w.e.f. 1st October 2020.

 Tax Collected at Source (TCS) is the concept wherein the seller collects a percentage of tax from the buyer on the sales amount. The tax collected by the seller is then to be deposited with the government. The rate of TCS is different for goods specified under different categories. Section 206C of the Income Tax Act specifies the categories of goods on which seller has to collect tax from the purchasers. TCS provisions under Income tax Act are like indirect taxes.  Like indirect tax, TCS is mentioned on the invoice, collected from the buyer and is paid to Govt Account by the seller.

Provisions of section 206C (1H).

Sub section 1H has been inserted in Section 206C by Finance Act, 2020 for collection of TCS by the seller on sale of ANY GOODS.  Though collection of TCS on sale of certain goods is already covered under different sub sections of Section 206C, however all the remaining goods, which are not so covered under other provisions of section 206C, has now been brought under the ambit of TCS by inserting sub section 1H in Section 206C

Effective from 01.10.2020, sub section 1H imposes responsibility of collection of TCS on every person whose total sales, gross receipts or turnover during the preceding financial year is more than INR 10 Crore.  Such person is liable to collect TCS @ 0.1% on the amount exceeding INR 50 Lakh during the financial year in respect of sale of goods made to a buyer. However, in Non-PAN/Aadhaar cases the TCS rate shall be 1% as against 0.1% mentioned above.

 TCS Rate is reduced to 0.075% for the period from 01.10.2020 to 31.03.2021.

 It is important to note that for calculating the threshold of INR 10 Crore, the total turnover including gross receipts and sales is to be taken into consideration whereas for computing the threshold of INR 50 Lakhs, only sale of goods is to be considered.

Non-Applicability of section 206C(1H) in the following cases:

  1. If goods are exported from India to any country outside India.
  2. If buyer is liable to deduct TDS under Income Tax Act.
  3. If the goods sold are already covered under sub sections (1), (1C), (1F) and (1G)* of section 206C i.e. Alcoholic liquor for human consumption, Tendu leaves, Timber or any other forest produce, Scrap, Minerals, being coal, or lignite or iron ore, Motor Vehicle and Overseas tour package.
  4. TCS is not to be collected when the sale is made to the Central or State Government or Embassy/High-commission, Consulate or Trade Representative/Local Authority.

Compliances to be Done:

  • Seller should have valid TAN for collecting TCS.
  • After collecting TCS seller is required to deposit TCS within 7 days from the end of month.
  • Once the provisions are applicable on any seller, he is required to fill quarterly returns in Form 27EQ within below mentioned due dates.
  • The seller is required to Issue TCS certificate in Form 27D, within due dates specified.
  • The Seller is also required to file Annual Return in Form 27E by 30th June of the Following Year.
  • The TCS which is collected by seller is reflected in FORM-26AS of the respective Buyer.
  • Details of TCS collected will be required to be furnished under Clause 34 of Tax Audit Report.

Important points to be considered:

  • Company will start collecting TCS, at applicable rate, on all invoices raised towards sale of goods after it exceeds INR 50 Lakhs, irrespective of the actual turnover of the customer during FY 2020-21.
  • TCS will be collected on (gross value – discount + GST) i.e. on total invoice value (clarification awaited).
  • Post month end, no refund of the TCS can be made to a buyer. Even it is collected on higher amount, the same will be deposited with the Govt.
  • The buyer can claim credit for the TCS amount while depositing Advance Tax and/or determining the final tax liability.
  • Nil or lower tax collection certificate can be applied by buyer with income tax office and it should be addressed to seller.
  • The assessee needs to check the applicability on year on year as well as specific to each buyer basis on PAN India not GSTIN Basis.

Challenges for the industry

The extended scope of TCS was a part of the Union Budget 2020 presented in the Indian Parliament in February 2020 and was intended to be made applicable from 1 April 2020. On account of various re­pre­sen­tations received from the industry, the applicability of the provisions was deferred to 1 October 2020 in order to provide sufficient time to the industry to prepare for the necessary compliance. The government has also made necessary changes in the language of the new provision to clarify that import and export transactions are outside the purview of TCS provision.

Having said the above, there are still some open areas that require clarification. For instance,

  • The issue whether TCS is to be applied on total invoice value including or excluding GST;
  • The impact on TCS on partial recovery of invoice, i.e. whether TCS will be assumed to be included in the part amount received against any invoices.
  • Whether TCS will also apply on sales made on or before 30 September 2020, although sales consideration has been received on or after 1 October 2020 etc. would require deliberation.
  • The taxpayer will be required to make necessary changes in the invoice/receipt vouchers to facilitate the TCS collection.
  • It would be difficult to keep track of amount to be collected at the time of receipt of payment hence it can be advised to collect TCS at the time of sale.
  • There is a concern of mismatch between the books of accounts and Form 26AS on account of TCS being collectible on receipt and not sale and as such, TCS may be collected in a year in which only advance is received but sales is made and recorded in subsequent years.
  • Provision exclude Export sales from the ambit of TCS provisions, however deemed exports (Eg: supply to SEZ) would require TCS compliance.

In my view, the intent for this tax seems to be deepening and widening of tax base but any trader above INR 20 lakhs of turnover (above INR 40 lakhs in many states) is liable for GST registration and thus such information could have been easily availed from GSTN and a TCS provision for the same is completely unwarranted and would lead to unnecessary compliance burden.

It can be inferred from the above that a major compliance burden awaits the taxpayers and the professionals are going to have an equally hard time coping up with all the due dates and reporting the same transactions, multiple times to different authorities.

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