Section 206C (1H) – TCS on sale of Goods

Applicability – Section is applicable from 1st Oct 2020 only after satisfying both of the following conditions-

1. Turnover or gross receipts or total sales from the business carried on by the seller exceeds ten crore rupees during the financial year immediately preceding the financial year.
2. Seller receives sale consideration more than Rs 50 Lakh from the buyer during the previous year.

Kindly refer to the following example:-

A ltd sells goods of Rs 110 Lakh to B ltd & of Rs 70 lakh to C ltd. Amount received as below-

In FY 20-21 – Rs 45 Lakh from B ltd & Rs 70 Lakh from C ltd.

In FY 21-22 – Balance amount of B ltd i.e. Rs 65 Lakh

Non-applicability – This section is not applicable if the buyer is any one of the following –

1. Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate, and the trade representation of a foreign State.
2. a local authority as defined in the Explanation to clause (20) of section 10
3. a person importing goods into India
4. any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein
5. on following goods –
   • Goods exported out of India
   • Goods covered under sub-section (1) i.e. Alcoholic liquor for human consumption, Tendu leaves, Timber, Any other forest produce not being timber or tendu leaves, Scrap, Minerals being coal or lignite or iron ore.
   • Goods covered under subsection (1F) i.e. Motor vehicle whose value exceeds Ten Lakh Rupees or subsection (1G) i.e. overseas tour program, the amount remitted under LRS.
6. If the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount. This means that TCS is not applicable to the sale of services.

Rate of TCS u/s 206C(1H) for sale of goods (other than Alcohol, Tendu Leaves, Timber, Forest Produce, Scrap, Coal, Lignite, Iron, or a Motor Vehicle) TCS to be calculated on the gross amount i.e. including GST.

Some practical aspects –

Transitional period –

Whether TCS is applicable on amount received after 1.10.2020 against trade receivable as on 30.09.2020?

As per provision TCS is applicable if consideration is received more than 50 lakh in any previous year.

Eg: ABC ltd receives advance amount Rs 30 lakh before 1.10.2020 & Rs 40 lakh after 1.10.2020. However, ABC ltd supplies the goods on 15.12.2020. Whether TCS is applicable or not?

Consideration received prior to 1.10.2020 will not be subjected to TCS under section 206C (1H) of the Act. However, since threshold of Rs 50 lakh is with respect to the previous year. So for calculation of threshold, consideration received prior to 1.10.2020 should be included. Hence TCS is applicableon Rs 20 lakh (70 Lakh- 50 lakh).

Point of Taxation i.e. When to collect TCS on sale of goods u/s 206C(1H)

The trigger point to collect the TCS on sale of goods u/s 206C(1H) is the ‘receipt of consideration’ from the buyer and not at the time of issuing invoices to the buyer. Therefore, TCS under this section shall be required to be collected at the time of receipt of sales consideration from the buyer. It should be noted that even if the seller receives ‘advance money’ from the buyer for sale of goods, the seller is liable to collect TCS on the advance amount.

Every time the seller receives part of the sale consideration in advance, the seller is mandated to deduct TCS under Section 206C(1H). The difficulty arises in the calculation of the amount when TCS is deducted on multiple advance payment transactions and when payments transactions are adjusted against Invoice amount.

However, the situation is not the same in the case of credit sale where the seller issues invoices on sale of goods and receives the consideration at a later date. Since at the time of issue of invoices, he cannot charge TCS under this provision, how will he comply with the provisions of section 206C(1H) when he receives the consideration. It appears that he has to raise a separate ‘Debit note’ for TCS as and when the seller receives the payment from the buyer. It is also possible that the seller does not receive the payment of the whole invoice but on installments. In such a situation, it would lead to great trouble to keep a track on the threshold limit and issue of the debit note. Further, it would be a matter of great concern for the seller if the transaction with the buyer is not regular or if the buyer refuses to pay the TCS separately later on.

Alternatively, in order to remove complexities and to simplify the matter, the seller may charge the TCS amount on the invoice and after receipt of consideration from the buyer shall deposit the same to the credit of the central government within the prescribed time limit to be computed from the month in which consideration is actually received.

Since this requires identification of buyers with turnover of more than Rs. 50 Lakh, in order to simplify the identification procedure, the seller may start charging TCS to all the buyers irrespective of the amount of turnover with the buyer. However, please note this may be resisted by many buyers if their transactions with the seller is less than the threshold limit.

The liability to deposit the TCS shall arise only when the consideration is received from the buyer. This will save the seller from blocking his own working capital. Seller can deposit the TCS amount when the amount is actually realized.

Adjustment for Sales Return for TCS

In case of sales return, credit or debit note may be issued which will ultimately reduce the amount receivable by the seller from the buyer. Thus TCS shall be collected on the net amount collected from the buyer. However, if the sales return happens after the receipt of consideration and furnishing of TCS statement, the only option left to the seller is to file a correction statement and adjust the same with any subsequent TCS liability or claim refundof the TCS.