Section 206C of the Income Tax Act, 1961 (Act) deals with the collection of tax at source (TCS) on various goods mentioned under various sub sections as amended from time to time. TCS is the amount of tax which is to be collected by the seller from the buyer on sale of goods as covered under the respective provisions of the Act.
Further, a new sub section has been introduced to Section 206C of the Act vide The Finance Act, 2020. It has been made applicable from October 1st, 2020.
The provisions of the sub section (1H) of Section 206C are as under:
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:
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:
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.
Explanation.––For the purposes of this sub-section,––
(a) “buyer” means a person who purchases any goods, but does not include,––
i. the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
ii. a local authority as defined in the Explanation to clause (20) of section 10; or
iii. 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;
Further, Circular No. 17 of 2020 dated September 29th, 2020 and a press release dated September 30th, 2020 have been issued clarifying the applicable provisions of this sub section.
- The obligation of collection of TCS is on the seller of the goods whose annual sales, gross receipts or turnover exceeds Rs. 10 crores during the previous financial year.
- The TCS needs to be collected if the seller receives the consideration for sale of goods in excess of Rs. 50 Lakhs during the current Financial Year.
- From seller’s point, the turnover of the financial year preceding the current financial year is to be taken, whereas from buyer’s point, the receipts of current financial year have to be taken.
- For ascertaining the threshold of Rs. 10 crores, the sales value of both goods and services needs to be considered.
- For ascertaining the threshold of Rs. 50 Lakhs, the receipts from the beginning of the current financial year i.e. April 1st, 2020 shall be considered.
- TCS shall be collected at the rate of 0.1% (reduced to 0.075% till March 31st, 2021 vide Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020) of the sales consideration received on or after October 01st, 2020. However, in case the buyer does not provide PAN or Aadhar number to the seller, TCS shall be collected at the rate of 1% of the sales consideration.
- These provisions come into effect as and when the sales consideration exceeds Rs. 50 lakhs during the financial year.
- The words used “at the time of receipt of such amount” means it applies on receipt basis, which has been clarified by the CBDT through a press release. For example, if the sales made till September 30th, 2020 is for Rs. 60 lakhs, against which the consideration of Rs. 50 lakhs has been received before October 1st 2020, then TCS shall be collected on the balance amount i.e., Rs. 10 lakhs which will be received after October 1st
- These provisions would apply on all sales consideration (including advance received for sale) received on or after October 1st, 2020 even if the sales was carried out before that date.
- TCS is to be charged on total consideration including GST. Also, no adjustment is required to be made on account of sales returns or discount or any other indirect taxes.
- These provisions do not apply to export of goods outside India and import of goods into India. Also, it doe not apply where sale of goods is made to Central Government, State Government and related agencies as mentioned in the proviso.
- These provisions shall be applicable to all goods except those mentioned in other sub sections of Section 206C excluding the sale of motor vehicle, i.e. sub section (1H) of section 206C of the Act shall be applicable to sale of motor vehicle, in case sub section (1F) of section 206C of the Act does not apply on such sale.