TCS: Section 206C (1H) Introduced by Finance Act, 2020

 The new section 206C (1H) of the Income Tax Act, 1961 has been introduced by The Finance Act, 2020 for Tax Collected at Source (TCS) on sale of goods. The provisions of this section have been notified & applicable w.e.f. 01.10.2020.

Meaning of TCS: TCS means collecting tax at source for certain transactions which are governed by Chapter-XVII-BB under the Income Tax Act, 1961. Under the specified transactions under the said provisions, at the time of debiting the amount payable to the counter party (Buyer) or at the time of receipt of specified amount from the counter party (Buyer); whichever is earlier, seller is required to collect the requisite percentage of the amount payable to buyer as income-tax.

When does this section come into effect?

 The Finance Bill 2020 had intended to make this section effective from 1st April 2020 but the Finance Act 2020 has delayed the applicability to 1st October 2020. Hence, receipts up to 30th Sep 2020 are out of the purview of this section.

 Who is supposed to collect this TCS?

 As is the case with all TCS transactions, the seller of goods has been entrusted with the responsibility to collect TCS. However, only those sellers, whose gross turnover or receipts from the business for the immediately preceding Financial Year exceeds Rs. 10 Crores

shall be liable for the collection of TCS. Such limit shall have to be checked on yearly basis.

From whom such TCS is to be collected?

 TCS is to be collected only from those buyers from whom, sale consideration received during the FY exceeds Rs. 50 lakhs. This condition needs to be evaluated separately for each buyer and the amount needs to be evaluated separately every year.

 It is important to note here that the trigger point for collection of TCS is receipts and not sales. Hence, in case consideration is received for sales, made over a number of years, TCS shall still be applicable even if the annual sale does not exceed Rs.50 lakhs.

 When is this section not applicable?

 The Section shall not be applicable in the following cases:

•   If Gross Turnover/Sales/Receipts of the assessee, during immediately preceding FY is less than Rs.10 Crores.
•         If the sale consideration received from the buyer is less than Rs. 50 lakhs.
•            In case of any Import into India or Export from India.
•      In case the sale is made to the Central Government, a State Government, an Embassy, a High Commission, legation, commission, consulate or any trade representation of a foreign State OR a local authority or such other person as may be specified.
•    In case the transaction is covered by TDS under any other section.
•          In case of goods being sold are covered by

-          Sec 206C (1) which covers – alcoholic liquor, tendu leaves, timber, forest produce other than timber and tendu leaves, scrap, mineral, coal or iron ore OR

-          Sec 206C(1F) which covers – motor vehicles exceeding Rs. 10 lakhs in value OR

-          Sec 206(1G) wherein remittance is being made outside India and TCS is being collected by Authorised Dealer for the same.

What is the rate at which TCS is to be collected?

 

PAN/AADHAAR submitted	Up to 31st March 2021	After 1st April 2021
YES	0.075%	0.1%
NO	0.75%	1%

 Compliance to be done

 The general compliance to be undertaken for all TDS/TCS like

 -      payment of tax by 7th of every month,

-    filing of quarterly return within 15 days of the end of the quarter and          

-  subsequent issue of TCS Form shall apply to these transactions as well.

If the seller fails to collect the tax at specified rates or fails to pay the tax collected to the Government, he shall be liable for interest at the rate of 1% per month (or part thereof) from the date of collection to date of payment.

If the seller fails to furnish the quarterly return in form 27EQ on or before the due date, he shall be liable to pay late fees of Rs. 200 per day till the default continues subject to maximum of tax collected during the quarter.

 Practical Issues in implementation

Inconsistency of 26AS – Due to TCS being deducted on receipt and not sale, there may be a possibility that TCS is collected in a year in which there is no sale-purchase transaction between the parties and hence assessing officers may make enquiries as to why such transaction is not reflected in books.

Examples for the above may be where advance is paid in one year and sale is made in subsequent years or payments are made for the sales in a year subsequent to the sale being made.