A new provision under Section 206C(1H) of the Income-tax Act, 1961 has come into effect from October 1, 2020. According to the new rule in the preceding financial year if the total sales, gross receipts, or turnover of a seller exceeds Rs. 10 crores, then the collection of the tax would be deposited with the Government. Before October 1, 2020 tax collected at source (TCS) would not be collected on any sale consideration.
Rules to be Followed
- TCS will be applied on the amount that will be received as consideration by the seller by selling the goods, over Rs. 50 Lakh and credit can be claimed at the time of filing the income tax return.
- In the previous year if the sale consideration received by the seller exceeds Rs. 50 Lakh then tax should be collected from the consumer at the time of acceptance/receipt of the amount.
- From or after October 1, 2020, all sale considerations received (as well as the advance received for sale), this new provision would be applicable even if the sale has happened before October 1, 2020.
Computation of the Threshold Limit
From April 1, 2020, the threshold of Rs. 50 Lakh will be applicable. If the seller has received Rs. 50 Lakh or more from the consumer before September 30, 2020, the tax shall be collected on all the amount received on or after October 1, 2020. Due to the COVID-19 Pandemic, a 25% discount has been issued on 0.1% tax rate till March 31, 2021, and 0.075 is the effective tax rate. Aadhaar card or PAN card has to be submitted by the consumer or the tax would be collected at the rate of 1%.
- On the consideration for “sale of any goods” TCS shall be collected. And in the Income-tax Act, the term ‘goods’ is not defined; it is considered as a wide import.
- There are various commodities in the market and every other commodity is treated as goods. Therefore, TCS is not collected for the sale of services.
- TCS can be collected only on the sale of goods. According to Section 2(7) of the Sales of Goods Act, 1930- Any kind of moveable property is ‘goods’ and due to this reason immovable property would not fall into the definition of goods, and for the sale of immovable properties, TCS shall not be collected.
- Under this provision, TCS is collected on the GST amount as the sale consideration is inclusive of GST.
- The Central Board of Direct Taxes (CBDT) has explained that the collection of TCS is done in accordance with the receipt of the amount of sale consideration. For the collection of tax, there is no requirement to adjust the indirect taxes (including GST).
- The TCS shall be collected on the advance received from the consumer but if the receipt of sale consideration has happened before October 1, 2020, there will be no liability to collect the tax.
The requirement to Collect TCS
- There can be instances when the sale between the parties has occurred before October 1, 2020, but the amount of sale consideration is received after the said date, then on that amount, TCS shall be collected. Even if the sale happened before September 30, 2020; on all sale considerations including advance received after September 30, 2020 tax shall be collected.
- If a seller is receiving consideration for the sale of goods then TCS is to be collected by them. Therefore, to interpret a transaction as a sale it is essential to have a ‘buyer’ and a ‘seller’ as two distinctive parties
- There is no need to collect TCS in the context of branch transfers. The new provision under the abovementioned section shall not apply to branch transfers.
- The TCS collected during the month shall be deposited in the next month and it could be done on or before the seventh day of that month. For example, in the month of November if the TCS is collected then it shall be deposited by December 7, 2020.
- If the TCS collected by the seller is not deposited to the Government, then he is liable to pay a 1% rate of interest for every month or part thereof on the amount for which he failed to furnish the statement of tax collected at source.
- The calculation of the interest to be paid would be starting from the date on which the tax had to be collected and, till the date it is required to be deposited. Before filing the TCS return, the interest should be paid.
The government has implemented this provision even after being aware of the fact that there is a shortage of working capital. Sellers whose business turnover is more than Rs. 10 crores, have to deposit TCS with the Central government. Whereas sellers who are having a turnover of less than Rs. 10 crores would not be required to collect or pay TCS.
In the financial year 2018-19, there have been only around 3.5 lakh people out of 18 Lakh who have stepped up to disclose their business turnover which is more than Rs. 10 Crores. The rest of the 18 lakh entities deal with TDS/TCS. The new provision will be applied to all the distributors to dealers, manufacturer to distributors, and dealers to sub-dealers. The automobile sector out of all the other sectors will be badly affected by this new provision.