One of the most prolific changes brought by the Government will be the addition of Section 206C (1H) through the Financial Bill, 2020. Amidst the pandemic, it would settle unaccounted money and insolvency in accounts. The details obtained by a seller by issuing an account or receipt will build a data table for the Government to keep an eye on unusual high transactions and generate audit track of buyers getting goods without disclosing it in their record of accounts.
What is Section 206 C [1(H)] of the Income Tax Act?
TCS collection on certain goods was introduced via Financial Act, 2020. The effect was brought by introducing a sub-section to the Section 206 C which is applicable from October 1st, 2020. It provided for sellers of goods to collect tax at 0.1% (0.075% up to 31.03.2021), only when the receipt of sale consideration from a buyer exceeds Rs. 50 Lakhs in the financial year. To avoid confusion, the sellers need to only collect TCS when they had a turnover exceeding Rs. 10 crore in the last financial year.
TCS will be applicable only on amounts received on and after 1st October, 2020.
The collector of TCS will be required to identify and exclude amounts received on sales upto 30th September, 2020 from the amounts received on or after 1st October 2020.
Initiation of the Section
The Sub-Section was notified and is applicable from 1st October 2020, under the ambit of the Financial Bill of 2020.
Applicability under the Section
Any seller with a turnover of Rs.10 Crores in the previous year making a profit on sale of goods amounting to a consideration exceeding the mark of Rs. 50 lakhs would collect TCS at 0.1%.
All the sellers are not subjected to collect TCS. Reportedly in the Financial Year of 2018-2019 only 3.5 lakh people have registered for a business turnover of Rs. 10 crore. Approximately 18 lakh people are already dealing with TDS/TCS. The people who are already complying with the other provisions of TDS/TCS will be directly falling under the ambit of the new provision.
All goods would come under the purview of the Section except those mentioned in Sub-Section 1, 1F and 1G under the Section 206C.
TCS is applicable on the amounts collected on/after 1st October 2020 even if the invoices where generated before 30th September 2020.
Failure of any buyer to produce their PAN or Aadhaar Card to the seller, would directly burden them with TCS levied by 1% on the sale price. On any updates in PAN, GST and email ID, the customers should update the changes. The customers are advised to make sure that their GST Number and PAN Number is printed on the face of the purchase.
The added provision is applicable from 1st Oct 2020.
Non- Applicability under the Section
- Export goods and goods covered under Chapter XVII-BB of the Income Tax Act, 1961.
- Consideration of Sale is below or equal to Rs 50 lakhs during the financial year.
- Not applicable for a buyer who is either a Central Government, State Government, Local Authority, Embassy or representatives of foreign states.
- Not applicable to buyers importing goods.
- Goods falling under Section 206C(1) OR 206C(1F)
- Any buyer was liable for TDS deduction under any other sections of the Income Tax Act, 1961.
Every customer with a email id registered with the buyers will receive a TCS Certificate generated from The Income Tax Department’s website (TRACES). The customers can also verify their TCS credit from their 26AS- TRACES site.
Difference between TDS (Tax Deducted at Source) and TCS (Tax Collected at Source)
Tax Collected at Source (TCS) comes under the ambit of Chapter XVII BB of the Income Tax Act, 1961. An amount is deducted at a percentage by a seller from his buyer on grounds of basic applicability mentioned above. TCS is a form of paying income tax and is deductible from total income tax liability of purchaser during income tax filing.
Tax Deducted at Source (TDS) is an amount deducted from the amount of consideration payed by a buyer. It is governed under Chapter XVII-B under Income Tax Act, 1961.
TDS, the deduction is applicable only on certain kinds of goods. Goods not used for manufacturing purpose come under the ambit of TDS. TCS is collected at source by the seller who sells specified goods as per the Income Tax Act, 1961.
TDS Rate and TCS Rate –
TDS- Tax Deduction at Source wherein the amount is deducted from the payment being made to the seller according to the existing rate as per the various sections under the Income Tax Act, 1961.
TCS- Tax Collected at Source is to be charged additional to the invoices being issues to the buyer.
To explain the above points, some illustrations are given below-
- Mr. Ahuja entered into a Contract with Mr. Singh in exchange of certain services. A TDS Rate of 2% was to be applied.
Mr. Singh is liable pay Rs. 15,00,000 to Mr. Ahuja.
Calculating TDS Rate-
15,00,000 ( deduction of 2% = Rs.30,000)
Amount payable to Mr. Singh = Rs15,00,000- Rs.30,000= Rs14,70,000
- Mr. Singh plans to sell scrap for Rs 7,00,000 to Mr. Ahuja.
TCS charges levied was 1%.
Calculating TCS Rate-
7,00,000+1%= Rs. 7,14,000 (Expected amt. from the Mr. Ahuja [Buyer])
Collecting TCS and decrement in its Rate
TCS collected by a seller is required to be submitted to the Govt. within 7 days of the next tax period. The tax submission by a seller should be done via FORM-26AS. Taking the pandemic situation into consideration, the Government has decided to reduce the TCS Rate by 25%. This Reduction in Rate is applicable till 31st march 2021. After the specific date the regular rates shall prevail/apply.
Reduction in Rates–
- From 0.1% to 0.075% till 31.03.2021.
- From 1% to 0.75% till 31.03.2021.
The tax is charged for any consideration ranging above Rs. 50 lakhs from one particular buyer. The consideration may be derived from individual or aggregate on sales during a financial year.
Due date for depositing TCS
The tax collected should be deposited to the Central Government on or before the 7th of the next month.
Filing of TCS can be done on quarterly basis on or before 15th of a month.
Form 27D will issue TCS certificate to the buyer within 15 days of filing for return via Form 27EQ.
Consequences for failing to Pay Tax or filing a Return
The seller failing to collect tax and submit the same to the government will be liable to pay an interest at rate of 1% per month. The fine is to be paid from date of collection to date of payment.
Under Form 27EQ, the seller failing to provide the quarterly return shall be subjected to a fine to pay late fees of Rs.200 per day till the date the tax due amount is collected .
TCS is not an extra liability on the buyers or a form of additional Tax. It is a form of Advance Income Tax. Buyers would receive credit against their actual Income Tax liability. A buyer will be entitled to refund in case of exceeding amount along with interest. Even when the Tax liability is less than Rs. 50,000 a refund will be generated against excess TCS with interest. Therefore, TCS is not another Tax liability. The TCS Section was brought into light by the Government to catch the people who make high amount of purchases but fails to file a return for the same. This would bring them under the ambit of Income Tax charges.