TCS on Sale of Goods

The provisions of sub-section (1H) of section 206C has been made effective from 1st October 2020 and state that:

A Seller of Goods is liable to collect TCS from Buyer on Sale of any goods
Turnover of seller is more than Rs 10 Crores in preceding financial year
TCS to be collected if the Value/Aggregate Value received for Goods from a buyer is more than Rs 50 Lakhs in a financial year
TCS to be collected on [ Total Sale Value received – Rs 50 Lakhs]
Rate of TCS is 0.1%, [0.075% upto 31st March 2021]

Note: TCS will be applicable at the rate of 1% (0.75% upto 31st March 2021) if PAN/ Aadhar has not been provided to the seller.

Compliance requirements

FAQs

Q. Whether sales consideration includes GST component?

A. Clarification provided by CBDT on 29th September 2020 states that “it is hereby clarified that no adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax under sub section (1H) of section 206C of the Act since the collection is made with reference to receipt of amount of sale consideration.” Thus, the intent is to have the TCS on sales consideration collected including GST.

Q. Whether GST to be charged by the seller on the amount of sale including TCS?

It is clarified that for the purpose of determination of value of supply under GST, TCS under the provisions of Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.

Q. Whether TCS shall be collected on any kind of sales including sale of services? A. TCS shall be collected on sale of goods only.

Q. For calculating the limit of ₹ 10 crore in the preceding financial year, whether sale of services to be included?

A. For calculating the threshold limit of ₹ 10 crore in the preceding financial year, section 206C(1H) provides that Total Sales, Turnover, Gross Receipts from the business shall be considered. As such, the receipts of sale of services shall also be considered.

Q. How and when to charge TCS from buyer?

Alternative 1: The TCS can be collected by charging through invoice:

In this case, both buyer and seller need to do accounting as receivable and payable for these amounts. It may be noted that if the payment is being made in next financial year, TCS obligation may not be applicable on seller (due to turnover threshold) or may not be applicable on buyer due to not making payments breaching ‘collection’ threshold in that financial year. In those case, one need to keep track and write off and reconcile it with the liability.

Alternative 2: The TCS can be collected by charging through debit note:

The logic for issuance of debit note may be that debit note to be issued at the time of payment so that it can be charged only on the eligible cases and no hassles of write off etc. (as mentioned in above points). But in that case, a specific series of debit note number may need to be used to make sure that these debit notes do not create issues in GST compliance.