New TCS Rules as applicable from 01-October-2020

Income Tax department has introduced a new Tax Collection at Source (TCS) rule by insertion of New Section 206C(1H). As per this new section, Sellers having turnover above Rs. 10 crores in previous year (FY 2019-2020) are required to collect 0.1% (which is Rs. 100 per lakh) as Income Tax from their buyers and deposit the same to Income Tax department every month. They will also require to file a TCS return in every three months informing the Income tax department details and amount of transactions with their buyers. This may seem a complex task but is actually very easy if understood patiently. Let us discuss the whole provision in detail.

What is the new Provision (Bare Act Text)

The raw bare text of the entire section could be read here at the website of the income tax department, India. Click here to read the text.

The bare act states :-

(1H) 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,—

(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.

What is the section in simple words?

In simple words, the government wants to track down transactions both at the buyer and seller levels. In case your turnover in the financial year 2019-20 was more than Rs. 10 Crore then you are required to obtain a TAN number and collect TCS from all your customers (buyers) whose turnover with you is more than 50 lakhs. The rate of this tax would be 0.1% of the total sales consideration received. This would be applicable only if your buyer has purchased goods worth more then 50 lacs from you in the current financial year. Also, the threshold decided for this section is Rs. 50 lacs. If your turnover with the buyer is above Rs. 50 lacs then you are required to collect TCS on the excess amount and not the basic 50 lacs too. No TCS shall be collected from buyers in case their sales transaction is below or equal to Rs. 50 lacs.

What if the customer refuses to provide the PAN details?

In case the buyer refuses to provide you with his pan details, in such case you a seller needs to collect TCS at increased rate of 1% and deposit the same to governement.

Tip:- In case the PAN is not provided, you can find the PAN in the GST number provided.

What does it mean if you are the seller?

if you sell goods and your turnover is above Rs. 10 crores in FY 2019-2020 then You need to be more vigilant to whom you buy and sell.

As a seller you to undertake the following actions :-

1. Get a TAN number if you don’t a TAN number. TAN number is a number which an assessee uses to deposit TDS/TCS.
2. Track details of your customers to whom you sell any goods worth more than Rs. 50 lacs in the Year. These 50 lacs would be inclusive of GST. For example, if you have sold goods of Rs. 45,00,000/- lacs to your customer and you have charged him Rs. 8,10,000/- GST and total amount recoverable is Rs. 53,10,000/- then you are required to collect TCS from that seller.
3. Collect TCS from your customer @ of 0.10% (Rs. 100 for every 1 lac) which is over and above 50 lacs of consideration. That means, if your sale consideration is Rs. 53,10,000/- then you need to collect 53,10,000 – 50,00,000 = 3,10,000 x .1% = Rs. 310/- from your buyer.
4. The buyer will pay you Rs. 53,10,310/- for purchase of goods. Out of this amount, Rs. 310/- would be deposited to the Government in form of TCS.
5. A return has to be filed every 3 months for this amount and it would be reflected in the customers 26AS.

What does it mean if you are the buyer from a company whose turnover is more then 10 crores?

if you are dealing with a company whose turnover is above Rs. 10 crores then your seller company shall collect TCS from you on your purchases. In simple terms, if you have purchased goods of Rs. 80,00,000/- from a company in the entire year, they will collect Rs. 3000/- as TCS from you. The 3000 can be calculated as under :-

Total Goods purchased = Rs. 80,00,000/-

Threshold limit = Rs. 50,00,000/-

Amount excess of threshold = Rs. 80 lacs – 50 lacs = Rs. 30 lacs

TCS on this 30 lacs is 0.1% on 30 Lacs = 3,000/-.

Total amount that can be asked by your seller to pay is Rs. 80,03,000/-. Out of this, Rs. 3000 would be deposited as income tax against your pan which can be adjusted at the time of filing of your returns.

Time of collection of TCS :-

TCS shall be collected at the time of receipt of consideration from buyer. The provision clearly states that it should be collected at the time of receipt of the sale consideration. Thus, the billing date shall not impact the tax collection but the payment receipt from the customer shall impact the TCS.

It would however be recommended to raise the amount at the time of issuance of the bill itself to avoid future confusion with the customer.

Is there any Relief for Corona Pandemic?

Yes, Like many other TDS/TCS provisions, even for this Section, a reduction of 25% on the applicable rate has been provided. Thus , the TCS is required to be collect at rate of 0.075% (Rs. 75 of TCS for 1 lacs) on the consideration received. This reduced rate is applicable only till 31st March, 2021.

TDS is already being deducted on transactions. Do I still need to collect TCS?

No, In this case, you need not collect the TCS on the given amount. The law clearly specifies that such transactions shall be excluded from TCS as TDS is already being deducted for the transaction.

Examples:-

Your comments are welcome for better understanding and revisions of article.