Compiled by:

CA Gautam Rajesh Mota

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C.V.O. CA'S NEWS & VIEWS

As per the data released by the Central Board of Direct Taxes (CBDT), few month back out of total population of appx. 130 crores only 1.5 crores person pay tax in India. The numbers are alarming and inspite of various efforts by the government to increase the tax base, same has not been fruitful.

In attempt to widen the scope of direct tax and bring more people in the tax bracket, over last few years the government has increased the reporting of the transaction under the Income tax Act by widening the scope of Tax Deduction at source (TDS), Tax Collection at Source (TCS), filing of Statement of Financial Transactions (SFT), etc. The main objective of government is collection of taxes at transaction level and gathering information so that no major transactions are left unreported to them.

In furtherance of the said objective, the Finance Act, 2020 has introduced a new Section 206C(1H) of the stIncome Tax Act, 1961 with regards to collection of TCS on sale of goods by Seller with effect from 1

October, 2020.

The intention to introduce the new levy of TCS was explained in Memorandum to Finance Bill, 2020 as follows:

“in order to widen and deepen the tax net, it is proposed to amend section 206C to levy TCS on sale of goods above specified limit”

This article discusses the applicability, procedural aspect and practical issues which would be faced while complying with the provisions.

A. Preconditions for Applicability of TCS:

1. Every person who is a seller whose total sales, gross receipts, turnover from business exceeds 10 crores during the preceding financial year.

2. There is receipt of any amount as consideration for sale of any goods

3. Receipt amount or aggregate receipt amount exceeds Rs 50Lakhs in any previous year

B. Tax Rate:

The seller shall at the time of receipt of such amount from, collect from buyer 0.1% of the sale consideration exceeding fifty lakh rupees.

In cases, where PAN/Aadhaar number of the buyer is not available, TCS @ 1% is applicable.

thHowever, on account of COVID pandemic vide press release dated 13 May, 2020, the TDS & TCS rates were th streduced by 25% for the period 14 May, 2020 to 31 March, 2021. Accordingly, the seller would be required to

stcollect TCS at 0.075%, till 31 March, 2021. �

TCS ON SALE OF GOODS [S. 206C(1H)] – ONE MORE ADDITION TO LIST OF COMPLIANCES

“Person” has been defined in S. 2(31) of the Income Tax Act

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C.V.O. CA'S NEWS & VIEWS

�C. Instances where TCS under section 206C(1H) is not applicable:

1. When seller's total sales, gross receipts, turnover from business does not exceed Rs. 10 crores during the

preceding financial year. Hence, the taxpayer at start of each financial year, assess whether he is liable to

collect TCS or not.

2. Export of goods (Deemed exports under GST law are not considered as Export of goods)

3. When seller is engaged in rendering / providing of service

4. Cases where buyer is liable to deduct TDS on purchase of goods or the transaction of purchase of goods is

liable to TCS under any other sub section

5. If person buying the goods is :

a. Central Government, State Government, etc.

b. Local authority as defined in S. 10(20)

c. Importing goods into India

D. Pictorial presentation of requirement

Sale of Goods by Seller 'A' to Buyer 'B'.

'A' will recover value of goods + TCS component from 'B' and deposit the same within prescribed time limit with authorities.

'A' will be required to submit TCS returns to authorities and furnish TCS Certificate to 'B' within specified time limits. Failing, which interest / penalty can be charged under Law.

Seller 'A' Buyer 'B'

E. Procedural Aspect:

1. Collect PAN/Aadhaar of buyer and mention the same on Invoiceth 2. TCS is to be paid on 7 of subsequent month in which the amount is collected

th st3. Quarterly TCS return in form 27EQ by 15 of next month (for Quarter ending on 31 March – due date is th15 May)

4. Seller to issue TCS certificate to Buyer

5. Amount collected by seller and paid to Government shall be deemed to be payment of tax on behalf of

buyer. The buyer would be entitle to claim the same as adjustment against this tax liability.

F. Issues:

The law is effective from 1.10.2020. The plain reading of section clarifies that the liability to collect TCS is on receipt of sale consideration. Though the law is enacted, there are many practical issues which arise while implementing it. The following are common issues:

1. Levy of TCS is on sale of 'Goods', however the term 'goods' is not defined

Income Tax Act does not provide a definition for “goods”. Various Acts provide varying definition of “goods” such as Central Goods & Service Tax Act, 2017, the Customs Act, 1962 and Sale of Goods Act, 1930.

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C.V.O. CA'S NEWS & VIEWS

The judicial authorities in the case of [Southern Petrochemical Industries Co. Ltd. v. Electricity Inspector, AIR 2007 SC 1984; Tata Consultancy Services v State of Andra Pradesh (2005] 271 ITR 401 (SC) have held that a particular item may be held as goods if it has following attributes.

A 'goods' may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to

(a) its utility;

(b) capable of being bought and sold; and

(c) capable of transmitted, transferred, delivered, stored and possessed

In absence of there being a common definition of “goods”, this could create concern and ambiguities amongst the taxpayer while implementing the provisions and deciding the scope for levy of TCS.

2. Amount on which TCS is to be collected should be inclusive of GST?

Currently, there is dilemma to state whether the amount on which TCS is to be collected should be inclusive or exclusive of GST.

There can be arguments on both sides for inclusion / exclusions of GST, while computing the GST, let us understand the same:

GST Should not be included

GST is statutory levy and does not include any profit / income element

Collecting GST on behalf of the Government

Circular No 23 of 2017 has clarified that no tax need to be deducted on GST under Chapter XVII-B if GST

is indicated separately

GST Should be included

Circular 585 dated 27 November 1990 dealing with TCS

Specific notification (No. 1/2014) in case of TDS for exclusion of GST, however no such notification issued

for TCS

3. How to compute threshold of Rs 50 Lakhs?

a) If goods are sold before October 1, 2020 but payment is received on/after that date

Whether goods sold during the period 1st April to 30th September, 2020 should be considered for purpose of computing the threshold of Rs. 50 Lakhs or only goods sold after October 1, 2020 should be considered for purpose of computing threshold.

b) If advance payment is received before October 1, 2020 but sale is completed on/after that date

In respect of consideration which is received in advance prior to October 1, 2020 and sale is completed after October 1, 2020 whether same should be considered for purpose of computing the limit.

st4. Sale of Goods after 1 October on which TCS is paid are subsequently returned (sales return), whether reversal would be allowed from overall liability?

Practical difficulties arise where advance is collected for sale of goods and TCS is remitted. Subsequently, if the contract is cancelled and the amount is refundable, it would be difficult for Seller to reverse the TCS liability which was already paid to government.

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5. Assessee engaged in business of share trading on stock exchange, whether would be required to comply with the provisions?

Shares and securities are considered as goods. In case of purchase and sale of shares through stock exchange identity of person is not known, hence practically it would be difficult to comply with provisions of TCS provisions.

6. Mismatch between Books of Account and Annual Information Statement (Form26AS) can lead to additional reconciliation

Taxpayers will have to maintain additional reconciliation / working papers to ensure that there is no mismatch in amount of TCS as per books of accounts and as per Form 26AS.This could result in additional compliance cost.

G. Examples to understand the scope of levy

Date of Invoice Date of Receipt

Amount Recd

TCS Collection on Amt

TCS Rate

Issue Ref No.

Before 01.10.2020

Before 01.10.2020

60 Lakhs Nil Nil

After 01.10.2020

Before 01.10.2020

60 Lakhs Nil Nil

Before 01.10.2020

After 01.10.2020

60 Lakhs 10 Lakhs 0.075% 3a

After 01.10.2020

Before 01.10.2020

35 Lakhs Nil Nil 3b

After 01.10.2020

60 Lakhs 10 Lakhs 0.075% 3b

After 01.10.2020

31.12.2020(Date of Sales Return)

60 Lakhs Nil(No reversal in TCS Liability)

Nil 4

H. Conclusion / Way Forward

It would be advisable for taxpayers to incorporate the above changes in their accounting system to ensure that there are no lapses while complying with the provisions of TCS provisions. Till the time Central Board of Direct Tax (CBDT) and Ministry of Finance clarify the open issues as highlighted above, it would be advisable to comply with provisions on conservative basis.

It would also be worthwhile to represent through various trade bodies / association, where you are part to ensure that during such difficult times no additional compliance is casted on the taxpayer and the applicability

stof the above provisions is deferred till 1 April, 2021.

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