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TCS on Sale of Goods – New Rules

The provisions of Tax Collected at Source (TCS) were introduced to widen the base for collection of tax. Here, the price of the prescribed goods and services are inflated by the seller by a certain percentage. The inflated amount is the Tax Collected at Source. Once proper disclosures are made and the tax amount collected is deposited with the government (by the seller), the TCS is available as a credit to the buyer. This credit can be utilised to pay the income tax dues.

Section 206C of the Income Tax Act already mandates the collection of tax on the sale of alcoholic liquor for human consumption, tendu leaves, timber, forest produce, scrap, minerals and motor vehicles.

Announcement: The Finance Act, 2020 has inserted a few provisions into Section 206C. These new provisions will be effective from 1 October 2020. 

The new provisions are explained below:

Due date for deposit of TCS

Tax Collected at Source shall be deposited to the credit of Central Government within one week from the last day of the month in which tax is collected, i.e. 7th of the relevant month.

Amount Received For Sale Of Goods

Every seller whose total sales/gross receipts/turnover from business exceed INR 10 crores in the previous financial year will have to comply with the new provisions of TCS in the current financial year. Here, the seller will have to collect tax as TCS at a rate of 0.1% from the buyer when the amount of sale consideration received for ANY goods sold (excluding exports) exceeds INR 50 lakhs. That means TCS will be applicable only on the sale consideration that is more than INR 50,00,000.

If the buyer fails to provide his/her PAN/Aadhar details, the tax shall be collected as TCS at the rate of 1%.

Note: TCS shall be applicable only on the amount received on or after 1 October 2020.

Illustration:

The annual turnover of Company X (selling goods) in the previous financial year (2019-20) was INR 15 crores. Thus, the new TCS provisions will apply to company X in the financial year 2020-21. Based on the sale considerations received (from a single buyer) during the year, the tax will have to be collected.

Invoice number Sale consideration received Date of receipt Cumulative sales in the year TCS applicability
1 INR 2,00,000 4 April 2020 INR 2,00,000 Not Applicable
2 INR 12,00,000 25 May 2020 INR 14,00,000 Not Applicable
3 INR 19,00,000 15 September 2020 INR 33,00,000 Not Applicable
4 INR 25,00,000 16 September 2020 INR 58,00,000 Not Applicable
5 INR 13,00,000 15 October 2020 INR 71,00,000 Applicable – Tax will have to be collected as TCS on INR 13,00,000 (Amount received on or after 1 October 2020 – Sale consideration received from buyer is more than INR 50,00,000 lakhs in the FY).

Note: The threshold of INR 50 lakhs is based on the yearly receipt of consideration. In this FY, only for the calculation of threshold, the receipt from the beginning of the financial year (1 April 2020) will be considered.

These provisions can be summarised as follows:

Collector of TCS Payer of TCS Rate of TCS Threshold Limit
Seller whose turnover from business in previous F.Y. > INR 10 crore Buyer of goods 0.1% of sale consideration Value of goods > INR 50,00,000

Important

The TCS rates mentioned above, i.e. 0.1% and 1% has been reduced to 0.075% and 0.75% respectively for the period up to 31 March 2021.

Other Pointers:

  • The tax collected as TCS will be exclusive of GST.
  • In case the buyer deducts tax as TDS on the goods, the TCS provisions will not be applicable. That means, no tax will have to be collected as TCS when tax is deducted at source.
  • These new provisions will not apply to goods which are already under the purview of TCS.
  • In case the buyer is importing goods into India, these provisions will not be applicable.
  • If the Central/State Government or a local authority or similar is the buyer, no tax will be collected.
  • The applicability of this section has to be reviewed every year.
  • The tax collected by the seller has to be mentioned as TCS in the invoice.
  • Since these provisions are effective from 1 October 2020, if sales of any business house have already exceeded INR 50,00,000 (when calculated up to 30 September 2020), TCS will be applicable on the all sale considerations received from 1 October 2020 (for financial 2020-21).
  • If the TCS credit available is more than the tax liability, the buyer will be entitled to receive the excess amount as refund along with interest.

Amounts Remitted Under The Liberalised Remittance Scheme (LRS) Of The RBI

The LRS under RBI allows for the remittance of up to USD 2,50,000 in a financial year for limited purposes such as travelling, medical treatment, studying, gifts, donations, maintenance of close relatives, etc. When a person wishes to make a payment under the Liberalised Remittance Scheme, the authorised dealer responsible for carrying out such a transaction is required to collect 5% of the amount payable by the buyer as TCS. This will be applicable only if the aggregate of amounts exceed INR 7,00,000 in a financial year. Hence the TCS rate will apply on the amount above INR 7,00,000. However, the TCS rate will be reduced to 1.5 % if the amount being remitted is a loan obtained for higher education which is covered under section 80E. This provision can be summarised below:

Collector of TCS Payer of TCS Rate of TCS Threshold Limit
Authorised dealer in foreign exchange Person making remittance under LRS ● 1.5% – Loan taken for higher education

● 5% – Others

(on the amount exceeding INR 7,00,000

Aggregate amount > INR 7,00,000 in the F.Y.

Amount Received For Overseas Tour Program Package

Any person selling an overseas tour program package is required to collect tax at 5% from its customer. This will include amounts charged for travel, hotel or other such accommodation and related expenditures. The collection of tax is done irrespective of the amount involved. This provision is summarised below:

Collector of TCS Payer of TCS Rate of TCS Threshold Limit
Seller of an overseas tour program package Person buying an overseas tour program package 5% Not applicable

This move will complement the disclosure of foreign travel expenditure in the income tax return. The new Income Tax Returns require filers to specify the expenditure incurred (above INR 2 lakhs) on foreign travel.

The introduction of TCS on LRS remittances and foreign travel expenses will increase the transparency in such transactions and also encourage the payers to file their income tax returns to claim the applicable tax credit.

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