TCS on Sale of Goods

Introduction to TCS

TCS (Tax Collected at Source) is an old concept already there in the Income Tax Act, 1961. Unlike the concept of TDS, under TCS, the supplier of goods will collect an additional amount from the buyer of goods over and above the agreed sales consideration in the form of TCS. The seller will deposit TCS amount collected with the government and file suitable returns vide Form 27EQ. The TCS so deposited will reflect as a credit to the buyer in Form 26AS.

Provisions under the Income Tax Act, 1961

Section 206C of the Income Tax Act, 1961 specifies the rates of TCS applicable in case of various goods. The Finance Act, 2020 introduced a new concept and extended the TCS provisions on sale of all goods via insertion of new subsection (1H). The new provision reads as under:

“(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,

“buyer” means a person who purchases any goods, but does not include.
- the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
- a local authority as defined in the Explanation to clause (20) of section 10; or
- 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;
“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.”

Brief analysis of new TCS provisions

With a view to widen the tax-base, the government has introduced TCS @0.10% on sale of all goods w.e.f. 1st October 2020. TCS shall be collected by the seller provided the following conditions are satisfied:

Turnover of the Seller in the immediately preceding Financial Year exceeds Rs. 10 Crore.
Receives aggregate of consideration of Rs 50 Lakhs or more in the current financial year.
TCS @0.10% shall be applicable when the aggregate amount of consideration exceeds Rs. 50 Lacs.
TCS liability on the seller shall arise at the time of receipt of consideration and not at the time of sale.

CBDT has also issued Circular No. 17 of 2020 on 29 September with a view to clarify on some controversial aspects related to the TCS provisions.

Various examples which will help in understanding the TCS provisions

The different scenarios for understanding the TCS provisions

Rate of TCS

Following rates of TCS shall be applicable on sale of goods from 1st October 2020

Certain Sale of goods exempted from TCS u/s 206C(1H)

No TCS shall be applicable on the receipt of following sales even if the consideration exceeds Rs. 50 Lakhs:

Goods exported out of India.
On the following sales, where TCS is already applicable under other provisions of the Income Tax Act, 1961:
1. Goods covered under section 206C(1), i.e., Scrap, Tendu leaves, Alcoholic Liquor for human consumption, Timber, Any other forest product etc.
2. Goods covered under section 206(1F), i.e., Motor Vehicles.
3. Goods covered under section 206(1G), i.e., Authorised dealer for remittance of money outside India under Liberalised Remittance Scheme (LRS) of RBI.

Buyers in whose cases TCS on sale of goods is not applicable

TCS will not be applicable if the goods are sold by the eligible seller to the following buyers:

The Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State;
A local authority as defined in the Explanation to clause (20) of section 10;
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;

Deposit of TCS and Return Filing

TCS shall be deposited to the credit of the Central Government by the 7th of the following month.

Further every seller should file his quarterly TCS return statement vide Form 27EQ by 15th of the month following the end of the quarter.

Penalty for late filing of TCS return

Late filing fees of Rs. 200 per day shall be applicable in case of delayed filing of TCS return.

Frequently Asked Questions (FAQs)

Who is liable to collect TCS?
Any seller whose aggregate turnover in the proceeding FY exceeds Rs. 10 crore and consideration received during the current FY from the buyer exceeds Rs. 50 Lakhs is liable to collect TCS from buyer @ 0.10%.
Whether TCS is applicable on sale of services?
No TCS is applicable on sale of services.
What is the due date for deposit of TCS?
TCS collected from the seller shall be deposited by the 7th of the following month.
What is the rate of TCS applicable for FY 2020-21?
In order to provide some relief to the taxpayers, the government has reduced the rate of TCS for the FY 2020-21 only.
Applicable rate - 0.075% upto 31st March 2021
Whether TCS is applicable on sale of goods or on receipt of sales considerations?
TCS shall be applicable at the time of receipt of sale proceeds.
Whether TCS is applicable on the GST component of the sale consideration?
TCS will be applicable on sale consideration which also includes GST component.
Whether TCS is applicable on the GST component of the sale consideration?
It is expected that TCS won’t be applicable in case of inter-branch transfer because of common PAN being shared by both the branches.
Whether TCS is applicable to advances received against sale from the buyer?
Since TCS is applicable on receipt of consideration, hence advances will also be covered for TCS provisions. The same has been also clarified under guidelines issued by the CBDT vide circular dated 29th September 2020.