Practical Cases on TCS on Sale of Goods Section 206C(1H)

In this earlier article, the issues with the new provisions of TCS on Sale of Goods under section 206C(1H) as introduced by the Finance Act, 2020 is discussed. The provisions of section 206C(1H) have come into effect from 01-10-2020.

This provision of TCS on Sale of Goods under section 206C(1H) has wide ramification because till now TCS was applicable only on certain items. But covering all the goods within the purview of TCS, almost all the business entities are under the umbrella of TCS. Going forward, the compliance of the provisions of this section is going to be tough. It requires an understanding of both the buyers and the sellers for the proper execution and implementation of the provision.

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Section 206C(1H) prescribing collection of Tax on the sale of goods in certain circumstances reads as follows-

Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:

On a plain reading of the above provision, the first-hand impression that comes out is that this provision shall apply when both the value of sales and collection from sale of goods is more than Rs. 50 Lakh in a previous year.

Also Read other articles on TCS on sale of goods under section 206C(1H)

 

Understanding Key Issues of TCS on Sale of Goods-Section 206C(1H)

 

CBDT issues Clarification on doubts on new TCS on Sale of Goods under section 206C(1H)

 

CBDT issues Guidelines for Section 194-O and Section 206C(1H) on TCS on Sale of Goods to include GST and Others

In the first para of the words in red colour assumes significance. It has three limbs.

First, it says that there is a seller.

Then it says the seller receives any amount as consideration.

Thereafter it says the consideration is received for the sale of any goods having the value of more than Rs. 50 Lakh. This states that the value of the sale (or aggregate value of the sale) in a previous year must exceed Rs. 50 Lakh.

The ‘value’ refers to ‘sale’ only. Consideration cannot have any ‘value’. There, it appears that the provisions of this section shall apply when the value of the sale to a person exceeds Rs. 50 Lakh in aggregate in a previous year.

However, the liability to collect the tax shall arise when the sale consideration is received. It is also not clear whether the receipt of consideration shall also exceed Rs. 50 Lakh in a previous year or TCS shall be applicable on receipt of any consideration if the value of the sale exceeds Rs. 50 Lakh in a previous year.

Fortunately, CBDT has clarified the position. It is clarified by the CBDT in Circular No. 17/20 dated 29.09.2020 that this provision would apply on all sale considerations received on or after 1st October 2020. Otherwise, it is a classic example of poorly drafted legislation.

It should be noted that Circular No. 17/2020 is issued in exercise of the powers conferred to the CBDT under section 206C(1-I). This section empowers the CBDT to issue guidelines to remove any difficulty for giving effect to the provisions of section 206C(1-H). Hence, this Circular has a legal force and is binding on the assessee as well.

A seller receiving an amount as consideration for the sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year to collect tax from the buyer a sum equal to 0.1 per cent (subject to the provisions of proposed sub-section (10A) of the section 206C of the Act) of the sale consideration exceeding fifty lakh rupees as income-tax.

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The collection is required to be made at the time of receipt of the amount of sales consideration.

The rate of TCS is reduced to 0.075% from 14-05-2020 to 31-03-2021. Since this provision has come into effect from 01-10-2020, the reduced rate of TCS shall apply from the 1st day of its applicability till the end of the current financial year.

Earlier, the reduction of the rate was announced by the Finance Minister on 13.05.2020 as a relief measure owing to the outbreak of COVID-19 pandemic in order to provide more liquidity followed by a Press Release by the CBDT on the same day. This has now been codified in the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 which has amended section 206C and inserted section 206C(10A) in the Income Tax Act, 1961.

Section 206C(10A) reads as follows-

In case the provisions of sub-sections (1) [except the goods referred at serial number (i) in the TABLE], (1C), (1F) or (1H) require collection of tax at source during the period commencing from the 14th day of May, 2020 to the 31st day of March, 2021, then, notwithstanding anything contained in these sub-sections the collection of tax shall be made at the rate being the three-fourth of the rate specified in these sub-sections.

It should be noted that this sub-section (10A) has only reduced the rate specified in section 206C(1H) and not section 206CC which provides for a higher rate of collection of tax in case the buyer fails to provide his valid PAN or Aadhaar number.

Further once the threshold of Rs. 50 Lakh is crossed, then tax shall be collected on the amount received in excess of Rs. 50 Lakh and not on the entire amount of consideration. For example, if the consideration received is Rs. 60 Lakh then tax is required to be collected on Rs. 10 Lakh only (Rs. 60 Lakh - Rs. 50 Lakh) and not on the entire amount of Rs. 60 Lakh.

The first proviso to section 206C(1H) reads as follows-

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words "five per cent", the words "one per cent" had been substituted:

According to this proviso, tax shall be collected at a higher rate of 1% instead of 5% under section 206CC in case the buyer fails to provide his valid PAN or Aadhaar number. In this case a higher rate of 1 % shall apply instead of 0.1% (or 0.075% for the period from 14-04-2020 to 31-03-2021). The benefit of the reduced rate as per section 206(10A) shall not apply in this case.

Provided further that the provisions of this sub-section shall not apply, 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.

The second proviso to section 206C(1H) simply states that both the provisions of TDS and TCS shall not apply to the transaction. Normally in the case of sale of goods, there is no applicability of TDS. It is important to note that in order to make this proviso applicable, the buyer must be liable to deduct tax at source and has actually deducted tax at source on the transaction. Both conditions have to be satisfied.

Explanation.—For the purposes of this sub-section,—

(a)  "buyer" means a person who purchases any goods, but does not include,—

(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B) a local authority as defined in the Explanation to clause (20) of section 10; or

(C) a person importing goods into India or 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;

(b) "seller" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a 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.

The explanation only defines the term ‘buyer’ and the ‘seller’. 

The term seller is defined to mean any person which means it covers an individual, a firm, a company, etc. The quantum of total sales or turnover or gross receipts of Rs. 10 crore is linked to the ‘business of the person’ and is not restricted to the value of sale of goods only. Thus, in computing the limit of Rs. 10 crore, all the segments of the seller has to be considered - be it sale of goods or provisions of services, though tax is required to be collected only in the case of sale of goods to the buyer.

Further, for the current year in which the seller needs to collect the tax, reference is made to the ‘sale of goods’. This gives the impression that the TCS shall be collected if the value of the sale of goods exceeds Rs. 50 Lakh, which is not the case. This is a classic example of poorly drafted provision where the intention and the wordings are totally different. As stated earlier and clarified by the Circular No. 17/2020, the threshold of Rs. 50 Lakh is not linked to the sale of goods but receipt of consideration for sale of goods. 

For detailed discussion on the term ‘buyer’ and ‘seller’, kindly refer to this article.

Every seller at first checks his turnover of the immediately preceding financial year. For example, for the current financial year 2020-21, turnover for the FY 2019-20 needs to be checked.

If the turnover in the immediately preceding financial year exceeds Rs. 10 crore then he is liable to collect tax on the sale of any goods.

If the turnover in the immediately preceding financial year does not exceed Rs. 10 crore then he is not liable to collect tax on the sale of any goods, though he may do so voluntarily if he wishes.

This is an annual exercise which needs to be checked every year. Suppose if in the FY 2019-20 the turnover exceeds Rs. 10 crore, he is liable to collect TCS on sale of goods if he receives consideration for such sale of goods from any buyer in excess of Rs. 50 Lakh in the FY 2020-21.

In the FY 2020-21 if the turnover does not exceed Rs. 10 crore, say the turnover is Rs. 9 crore, he is not liable to collect TCS on sale of goods even if he receives consideration for such sale of goods from any buyer in excess of Rs. 50 Lakh in the FY 2021-22.

There is an apprehension in the market that if a seller collects TCS it means he is a seller with more than Rs. 10 crore turnover. If he does not collect TCS it means he is not a big seller. In any case, the transaction with the buyer must exceed Rs. 50 Lakh in a previous year else the buyer will be reluctant to pay the TCS.

The second step is to identify the buyers with whom the seller has transactions of more than Rs. 50 Lakh in a previous year. A seller having more than Rs. 10 crore turnover in the previous year shall only collect TCS from those buyers if he sells goods/collects more than Rs. 50 Lakh from them. If such a seller has no buyer with more than Rs. 50 lakh transaction, then even if the seller is eligible to collect TCS is not required to collect TCS from any buyer. Further, the limit of Rs. 50 Lakh per financial year is linked to the collection of consideration for sale of goods and not linked to the value of sale of goods.

For example, if a seller whose turnover is Rs. 12 crore in the preceding financial year 2021-22 gives the following data in respect of sale to a particular buyer-

Year 1: Sale made in FY 2020-21	Rs. 40 Lakh	Amount Received Rs. Nil
Year 2: Sale made in FY 2021-22	Rs. 20 Lakh	Amount Received Rs. Nil
Year 3: Sale made in FY 2022-23	Rs. Nil	Amount Received Rs. 60 Lakh

In the year 1 and year 2, the seller is not required to collect any amount of tax. In year 3, since the amount received is more than Rs. 50 Lakh thus the seller is required to collect TCS under section 206C(1H) from the buyer on Rs. 10 Lakh (Rs. 60 Lakh - Rs. 50 Lakh) @ 0.1% or Rs. 1,000.

The position will remain the same if the Year 1 and Year 2 data is for FY 2017-18 and FY 2018-19 respectively ( or any other earlier period) and the amount is collected in FY 2020-21 after 01-10-2020, assuming the turnover of the seller exceeds Rs. 10 crore in the preceding financial year 2019-20.

In the nutshell, computation of threshold limit and the turnover limit under this provision is summarized below-

For determining the eligibility of the seller to collect TCS on sale of any goods, his turnover in the immediately preceding financial year needs to be checked whether it exceeds Rs. 10 crore or not.

Next, for collecting the tax, check the receipt of consideration for the sale of any goods with the buyer in excess of Rs. 50 Lakh in the current financial year needs to be checked.

Now we are discussing some of the practical cases where a seller may find it difficult to implement the provisions of section 206C(1H).

Turnover limit of seller-including or excluding GST

In case of computing the turnover limit of the seller, whether it should be inclusive of GST or exclusive of GST. The CBDT Circular did not clarify it but by virtue of the specific provisions of section 145A, in computing the total sales/turnover/gross receipts, the amount of GST shall be included. 

Receipt of Consideration from buyer-including or excluding GST

The receipt of sale consideration from a buyer towards sale of goods shall include the GST amount also. This has been clarified by the CBDT in the guidelines issued by Circular No. 17/2020.

For example, if the buyer pays Rs. 56 Lakh inclusive of GST for Rs. 8 Lakh, then even though the basic amount of consideration for the sale of goods is less than Rs. 50 Lakh (Rs. 48 lakh in this case), TCS shall apply since after including GST, total consideration exceeds Rs. 50 Lakh.

Receipt of Consideration from the buyer towards sale of goods only

In case a buyer pays the seller both for services and sale of goods, only the consideration paid towards the sale of goods shall be liable for TCS if it exceeds Rs. 50 Lakh.

For example, a buyer pays for the following to his seller during FY 2020-21-

Consideration paid for Sale of Goods	Rs. 40 Lakh
Consideration paid for services	Rs. 20 Lakh
Total Consideration paid to the seller	Rs. 60 Lakh

In this case, the buyer is not liable to pay TCS to the seller since the consideration paid to the seller does not exceed Rs. 50 Lakh though total consideration exceeds Rs. 50 Lakh. This is because the consideration paid other than towards sale of goods are out of the scope of TCS provisions.

In another example, a buyer pays for the following to his seller during FY 2020-21-

Consideration paid for Sale of Goods	Rs. 55 Lakh
Consideration paid for services	Rs. 15 Lakh
Total Consideration paid to the seller	Rs. 70 Lakh

In this case, the buyer is liable to pay TCS to the seller since the consideration paid to the seller towards the sale of goods exceeds Rs. 50 Lakh. However, the buyer should pay TCS only on Rs. 5 Lakh (Rs. 55 Lakh - Rs. 50 Lakh) which is paid as consideration towards the  sale of goods since any consideration paid other than towards the sale of goods are out of the scope of TCS provisions.

How the buyer will know whether the seller is liable for TCS

There is no way to determine whether the seller’s turnover in the previous year is more than Rs. 10 crore or not. In the case of companies, one may get the annual reports from the public domain but for other persons one has to depend on the seller’s action.

However, the buyer can check whether he has paid consideration for sale of goods for more than Rs. 50 Lakh or not. In case, such consideration does not exceed Rs. 50 Lakh in a year, there is no obligation to pay the TCS to the seller.

TCS on Inter-Branch transfer of Goods

Inter-branch transfers, stock transfers are not ‘sale of goods’, hence not liable for TCS.

TCS on Job work or Works Contracts 

A contract for job-work or a works contract comes under the purview of TDS provisions under section 194C. Hence, TCS provisions under section 206C(1H) shall not apply on Job-works/works contracts.

TCS on Sale of Land, Building, Flats

Land, buildings, flats, are immovable properties and are not ‘goods’. TCS provisions under section 206C(1H) do not apply to sale of immovable properties. It only applies to ‘goods’. Kindly refer this article for more discussion on ‘goods’.

This holds true even if the land or building or flats are held as stock in trade or inventory by the seller.

TCS on Sale of Jewellery

Jewellery are goods and hence comes within the purview of section 206C(1H). Prior to 01.04.2017, sale of jewellery was covered under TCS under section 206C(1D). This section is now omitted.

TCS on Sale of goods on approval basis

Provisions of TCS under section 206C(1H) shall also apply to goods sold on approval basis. However, the TCS liability shall arise only when the buyer pays the consideration. Obviously, the buyer will pay the consideration only after he approves the goods. If the goods are returned unapproved, there will be no payment of consideration and thus section 206C(1H) cannot apply.

TCS on Export of Goods

The provisions of section 206C(1H) does not apply to export of goods out of India. Remember this exclusion is given only when goods are exported out of India. If the goods are not exported out of India, TCS may apply. If the goods are sold to SEZ units or EOU units, since in these cases goods are not exported out of India, TCS provisions shall apply.

TCS on TDR, Lease

Development rights, leaseholds rights or any other rights related to immovable properties are also held as immovable properties. Thus, TCS provisions shall not apply to transfer of TDRs and leasehold rights.

TCS on Sale of goods with installation charges

In case of sale of goods with installation charges it amounts to sale of goods even if the value of goods and installation charges are indicated separately on the invoice. Section 206C(1H) shall apply if the conditions specified in section 206(1H) are satisfied in this case. The position will remain the same if there is no bifurcation of value of goods and installation charges and the invoice is raised for a consolidated amount.

If the sale of goods and installation charges are independent activity, then the provisions of section 206C(1H) shall apply only on the sale of goods. The receipt from installation charges will amount to sale of services.

In cases where the installation charges are subject to TDS provisions and the buyer has deducted tax thereon, then provisions of section 206C(1H) shall not apply on installation charges.

TCS on delayed payment interest

If the buyer makes a delay in payment of invoice, seller charges interest for delay in the payment of the invoice. If the invoice is raised for sale of goods and the buyer makes delay payment and if the seller charges interest for such a delay, it is subject to GST under the GST laws. This is because in this case the interest actually represents the price of goods rather than interest for money borrowed. 

The definition of interest under section 2(28A) only includes interest on money borrowed. Thus interest paid on delayed payment of invoices or consideration is not with respect to money borrowed but for non-payment of the value of goods/consideration within the stipulated period. Since such an interest represents the value of goods, TCS shall be applicable on the interest of delay in payment of invoices.

It can be understood with the following example. If a seller sells the goods on the condition that if payment is made within 7 days then the price of the goods is Rs. 100 and for payments made after 7 days, the price is Rs. 110. This Rs. 10 or 10% is nothing but part of the price of the goods.

Consider it in another way. A seller sells the goods for Rs. 100 with the condition that payment is required to be made within 7 days. On failure, interest @ 10% will be charged. A buyer fails to pay the same within 7 days and paid Rs. 110 to the seller. Will this be regarded as interest? The definition of interest says ‘No’. This is because the seller has not advanced any money to the buyer. The interest of Rs. 10 actually represents the price of the goods. Hence, interest for delay in payment of consideration will be subject to TCS u/s 206C(1H). This shall have severe implications in case of interest paid to MSMEs on delay in payment of consideration.

TCS on both sale and purchase transactions between the buyer and the seller

In certain cases, the seller may have purchase transactions with the buyer. For example, Mr A. is a seller who sells the goods to Mr. B. In turn Mr A. also purchases from Mr. B. Suppose in FY 2020-21, Mr A has sold goods with Rs. 70 Lakh to Mr B and bought Rs. 40 Lakh worth of goods from Mr. B. Mr. B has paid net of Rs. 30 Lakh to Mr A in FY 2020-21.

Now in this case the actual consideration received is less than Rs. 50 Lakh which is Rs. 30 Lakh only. However, please note that the term ‘consideration’ used in section 206C(1H) does not refer to money only. Adjustment of receivables with book entry also amounts to payment of consideration. In this case the consideration is paid in ‘kinds’. Hence, in my opinion, TCS shall be collected on Rs. 20 Lakh (Rs. 70 Lakh - Rs. 50 Lakh) by Mr A.

However, a contrary view is also possible in this case. Hence, till a clarification is issued by the CBDT, one should collect TCS on consideration adjusted through journal entry in the books.

TCS on debts written-off

In this case there is no receipt of consideration from the buyer, hence the same does not attract the provisions of section 206C(1H).

TCS on sale of listed shares

Shares are defined as ‘goods’ under the Sale of Goods Act, 1930.  Hence, TCs provisions shall apply to the sale of goods, being shares and securities, if the conditions specified in section 206(1H) are satisfied.

However, CBDT has clarified that provisions of section 206C(1H) shall not be applicable in relation to transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre.

If the listed shares are transferred through off-market transactions then the provisions of TCS under section 206C(1H) shall apply subject to threshold limit.

TCS on sale of unlisted shares

The provisions of section 206C(1H) shall apply to ‘any goods’. Since shares are ‘goods’ for the purpose of section 206C(1H), it does not make any difference whether the shares are listed or unlisted and held in physical form or demat form.

Hence, provisions of section 206C(1H) shall be applicable on the sale of unlisted shares.

This is why the provisions of section 206C(1H) have wider ramifications. Even a service provider whose turnover/gross receipts in the preceding financial year exceeds Rs. 10 crore from sale of service and if he transfers any unlisted shares of more than Rs. 50 Lakh to any person and receives the consideration in the current financial year, he shall be liable to collect TCS on sale of unlisted shares from the buyer. Though he is not otherwise liable for TCS in respect of his service business.

It is immaterial whether the shares are held as stock-in-trade or capital assets and are taxed under the head business income or capital gains. CBDT has already clarified that unlisted shares are always capital assets.

TCS on sale of unlisted shares by investor/shareholder

The provision talks about receipt of consideration for 'sale of any goods'. Further the definition of seller states that financial year in which the' sale of goods' is carried out. Nowhere it talks about ‘sale of goods’ in the course of business. Hence if unlisted shares are held as capital assets then also the provisions of section 206C(1H) will apply if the conditions of section 206C(1H) are satisfied.

However, it must be remembered that the ‘seller’ must be in business of any goods. If the seller is not in business, then the provisions of section 206C(1H) will not apply. This is because the definition of seller states that total sales, gross receipts or turnover from the business carried on must exceed Rs. 10 crore. It is not necessary that the seller of unlisted shares must be in the business of shares. He can be in the business of any goods. If a business person sells any goods including unlisted shares even though held as capital assets, provisions of section 206C(1H) shall apply if the conditions of section 206C(1H) are satisfied.

If the unlisted shares or any other capital asset is sold by a person who is not in any business then there will be no TCS under section 206C(1H). The seller must be engaged in any business.

TCS on buyback of unlisted shares

In case of buy-back of unlisted shares, the company has to pay additional income tax under section 115QA. This does not absolve the company from the applicability of the provisions of section 206C(1H). Hence, provisions of section 206C(1H) shall be applicable even in case of buy-back of unlisted shares.

TCS on Sale of Goods to exempt entities or persons

The explanation to section 206C(1H) defined the term ‘buyer’ to mean "buyer" means a person who purchases any goods. Hence, all the persons are covered including exempt persons, unless the buyer is excluded from the definition of buyer.

The explanation has itself excluded certain persons as buyer. These person are-

(i) Central government, state government, embassy, etc.

(ii) a local authority

(iii) a person importing goods into India

(iv) any other person as may be notified.

The government has the power to exclude the exempt persons i.e. whose income are fully exempt under the Income Tax Act from the meaning of buyer. Till the exclusion is notified, TCS shall be required to be collected from the exempt persons also. A similar circular is issued by CBDT in respect of exemption from TDS provisions vide Circular No. 18/2017 dated 29.05.2017.

TCS on Cash Sales of Goods

It is immaterial whether the goods are sold on cash or on credit. In case of cash sales, it would be difficult to identify whether the sale to a particular buyer has been made in excess of Rs. 50 lakh or not.

TCS on sale of motor cars

TCS on sale of motor cars are already covered under section 206C(1F). However, where the provisions of section 206C(1F) does not apply, provisions of section 206C(1H) shall apply on sale of motor cars.

Section 206C(1F) is applicable where the value of the motor car sold exceeds Rs. 10 Lakh. In case, the value of the motor car does not exceed Rs. 10 Lakh then section 206C(1F) will not apply.

In this case, if the seller sells 8 motor cars of Rs. 8 Lakh each to a single buyer, then TCS u/s 206C(1H) shall apply to such transactions.

Further, section 206C(1F) applies only to B2C transactions and does not apply to B2B transactions. Hence, section 206C(1H) may apply in B2B transactions if the conditions of section 206C(1H) are satisfied.

This has also been clarified in the Circular issued by the CBDT.

TCS on Slump Sale

Slump sale is the transfer of a business undertaking or some division of a company or entity to another entity as a going concern basis on an as-is-where-is basis for a lump sum amount as consideration. A going concern basis basically means that an entity will remain in business in the near future. This basically means that when a slump sale happens, all the moveable and immovable assets, debtors, creditors, stock-in-trade, investments, liabilities, contracts, licenses, obligations, rights, intellectual properties, employees, etc concerned with the business undertaking will be transferred to the purchaser.

Thus, it is a transfer of ‘business’ and not ‘goods’ per se. Since slum sale is not a sale of goods there cannot be any TCS under this provision.

TCS on Bill discounting

As we know, TCS shall be collected from the buyer of goods if the conditions specified in section 206(1H) are satisfied. A seller may realize the outstanding invoices from a bank or any other financial institution by ‘Bills Discounting’ method. In the case of  Bills Discounting, though the seller receives the consideration but it is not the realisation of consideration per se. Actually, it is in the nature of loans. The ultimate responsibility of collection of receivables from the buyer rests with the seller. Hence, bills discounting cannot be regarded as receipt of consideration. The buyer pays the amount of consideration to the seller.

TCS on Sale of Gas

In Kric County Natural Gas and Fuel Co. v. Samul S. Carrol 1911 AC 10 at P 117- 119 it was held that gas is goods. Hence, TCS on sale of gas shall apply.

TCS on Water

TCS on sale of water through pipeline supply or otherwise by any person including Water Supply Board is subject to collection of tax (TCS) under this provision.

TCS on factoring of bills

The position is different in the case of factoring of bills. In this case, the seller gets the money from any bank or financial institution. The responsibility to collect the money from the buyer shifts to the bank or financial institution.

This surfaces a situation where the seller is getting the consideration from a person who is not a buyer. The buyer is paying to a person who is not a seller.

The law is not clear under these circumstances who shall collect the TCS from the ultimate buyer and when.

Adjustment for sale return, discount or indirect taxes 

CBDT guidelines issued by Circular No. 17/2020 state that no adjustment on account of sale return or discount or indirect taxes including GST is required to be made for the 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.

The first impression one would get from the plain reading of the words is that sales return or discount is not required to be adjusted from the amount of consideration received for sale of goods from the buyer.

However, this is not the case. It actually means that the amount of consideration received is already adjusted with the amount of sales return or discount and thus no further adjustment for the same is required. It should have been written in better English.

When and How to collect the TCS on Sale of Goods

It is clear that provisions of section 206C(1H) shall apply on receipt of consideration in excess of Rs. 50 Lakh in a financial year. Therefore, the seller should collect the TCS on receipt of consideration for sale of goods from the buyer.

For Trade Receivables prior to 01.10.2020

In case of collection of consideration for trade receivables as on 30.09.2020 (prior to 01.10.2020), the seller has to raise debit notes immediately on receipt of consideration of more than Rs. 50 Lakh. In this case, if the seller receives the consideration, say on 30.10.2020, he has to deposit the amount of TCS by 7th November, 2020 even if the buyer does not pay the amount of TCS to the seller.

For sales on or after 01.10.2020

In this case, a seller has three options. 

Option 1 - Charge the amount of TCS on the invoice itself.

This though seems simple mechanism to collect the amount of TCS from a buyer (from whom more than Rs. 50 Lakh consideration already received) but this will become more complex in reconciling the accounts when there are multiple invoices are raised on the buyer and the buyer makes lump sum payments without any reference to the invoices. 

Further, if the buyer does not make the payment, it will appear in the ledger pending reconciliation.

Option 2 - Do not charge the amount of TCS on the invoice. Instead, indicate the amount of TCS as a Note on the invoice and raise a debit note on the receipt of the consideration and the amount of TCS from the buyer.

This does not require any reconciliation of ledgers for TCS but in the absence of any debit note, buyers may be reluctant to pay the amount of TCS.

Option 3- Raise debit note on receipt of consideration

Instead of charging or indicating the amount of TCS on the invoice, the seller may raise a debit note for the same after the consideration is received from the buyer.

This is the most simple form of collection of TCS from the buyer. The drawback is that the seller may have to deposit the TCS from his own pocket pending receipt of the TCS from the buyer, especially when the buyer makes the payment of consideration for sale of goods towards the end of the month.

This option is more viable with regular buyers. Irregular buyers may refuse to pay the same after the receipt of the amount of TCS.

Therefore, one has to opt the option based on his own business model and the nature of buyers with whom the seller deals with.

Legally speaking, it is not proper to charge the amount of TCS on the invoice, though not restricted.

Accounting Entry System for TCS on Sale of Goods

One should record the liability of TCS immediately on the receipt of consideration from the buyer whether the buyer pays the TCS or not. Only then it will become a part of trade receivables to be recovered from the buyer. TCS liability does not arise on the event of sale of goods.

Update: 06.11.2020

Which option in Challan 281 is required to be selected for payment of TCS on Sale of Goods u/s 206C(1H)

The amount of TCS collected in the month of October 2020 is required to be deposited by 7th November 2020. The prescribed challan for payment of TCS is Challan No. ITNS 281. 

In the Challan No. 281, the collector has to mention the ‘Nature of Payment’ along with the section code. For example, for depositing tax collected on sale of scrap, the relevant section code is ‘6CE-Scrap’ which needs to be mentioned in the ‘Nature of Payment’ column.

However, at the time of writing this article on 6th Nov., 2020, there is no section code listed for depositing TCS on sale of goods u/s 206C(1H).

Update:

As on 07.11.2020, the Challan 281 is updated with section code ‘6CR-TCS on Sale of Goods’.

In this context, it is advised that the challan should be deposited with any section code else if paid after the due date. Hence, one should not wait for updation of the challan.

Readers are aware that in 2014, TDSCPC has advised that “Section quoted in Challan, at the time of depositing Tax deducted/ collected is irrelevant for the purpose of consumption in TDS Statement.”. In other words, if TCS is deposited by mentioning any nature of payment/section code is irrelevant for the purpose of TDS statements. Though the communication only refers to TDS statements, in my view, it applies to TCS statements too.

The TDSCPC portal in their FAQs section also clarifies the following-

(Q7.) Can I make TDS payment for different nature of payments (section code) through a single challan?

Yes, you can make the payment through a single challan for different nature of payments / section code.

Further, CPC(TDS) vide its advisory Communication dated 12-09-2014 to all deductors who have used multiple challans in a month for payment of TDS already clarified that single challan can be used for making payment of TDS of varied nature, In the communication, CPC(TDS) has discussed on the following three issues:

Payment of Tax Deducted under different sections of the Income Tax Act, 1961

Payment of Tax Deducted for different Assessment Years

Different challans used for the purpose of reporting multiple Deductees associated with different branches with same TAN

Based on these clarifications, deductors can use a single challan towards TDS payment in a month. This in my view equally applies to TCS too.

The said communication is reproduced below-

Dear Deductor,

As per the records of the Centralized Processing Cell (TDS), it has been observed that you have used multiple challans in a month, for payment of Tax Deducted.

For Deductor's convenience, CPC(TDS) has established processing logic in the system that can accept a Single Challan for reporting of Tax Deposited in following circumstances :

Payment of Tax Deducted under different sections of the Income Tax Act, 1961:

The CPC(TDS) system gives credit of TDS against different sections of the Act, even though a specific section has been quoted in the challan.

Example: The challan used for payment of TDS relevant to Section 192 of the Act can also be used for the purpose of reporting tax deposited under Section 194 of the Act also.

Situation prior to Financial Year 2012-13	Consumption of Challan in TDS Statement on the basis of Section quoted in the Challan details
Situation after Financial Year 2012-13	Section quoted in Challan, at the time of depositing Tax deducted/ collected is irrelevant for the purpose of consumption in TDS Statement.

Payment of Tax Deducted for different Assessment Years:

In case tax has been deposited more than the required tax deducted at source for a particular Assessment Year, the excess amount of tax can be claimed in the following quarters of the relevant year. The balance amount if any, can be carried forward to the next year for claim in the TDS statement.

Example: If excess payment of Tax has been made in Quarter 1 of financial year 2013-14, the same can be used for Quarter 2,3&4 of F.Y. 2013-14 as well as for Q1 to Q4 of F.Y.2014-15. The excess amount of tax paid in Q1 of F.Y.2013-14 can also be used for payment of tax default of Q1 to Q4 of F.Y.2012-13.

Different challans used for the purpose of reporting multiple Deductees associated with different branches with same TAN:

The deductor may have used multiple challans for reporting multiple deductees associated with different branches, in the TDS Statement.

A single challan can be used for the purpose of reporting Tax Deducted for such deductees.

Example: If a Bank has multiple branches with same TAN, payment of Tax Deducted can be made by a single challan and all the deductees can be tagged using the same.

Based on the above information, you may use a single challan in a month towards payment of Tax Deposited. For any assistance, you can also write to ContactUs@tdscpc.gov.in or call our toll-free number 1800 103 0344.

CPC (TDS) is committed to provide best possible services to you.

CPC (TDS) TEAM

Many other issues may come to our notice which will be updated in this post.

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