TCS (Tax Collected at Source) on sale of Goods

All About TCS on Sale of Goods – Section 206C(1H)

Introduction to TCS (Tax Collection at Source)

Tax Collected at Source (TCS) is a tax levied by the seller, collected from the buyer at the time of sale, and deposited with the Government Treasury upon receiving payment. The rate of TCS varies depending on the nature of the goods, as specified under Section 206C of the Income Tax Act. Similar to indirect taxes, TCS is added to the invoice, collected from the buyer, and subsequently deposited by the seller.

TCS is not a new concept; it has been applied to specific goods such as timber, tendu leaves, forest produce, scrap, and minerals. However, the Finance Act, 2020 introduced a broader provision under Section 206C(1H), expanding TCS applicability to all goods, subject to certain conditions, effective 01.10.2020.

Key Provisions of Section 206C(1H)

1. Applicability:

   • Sub-section 1H requires sellers with total sales, turnover, or gross receipts exceeding ₹10 crore in the previous financial year (2019-20) to collect 0.1% TCS on amounts exceeding ₹50 lakh per buyer during the financial year.
   • If the buyer does not provide PAN or Aadhaar, the TCS rate increases to 1%. (Note: TCS was temporarily reduced to 0.075% from 01.10.2020 to 31.03.2021 due to the COVID-19 pandemic.)

2. Calculation of Thresholds:

   • For the ₹10 crore threshold, total turnover, including sales and services, is considered.
   • For the ₹50 lakh threshold, only the sale of goods is taken into account.

Exemptions from Section 206C(1H)

• Exports: Sales of goods exported outside India are exempt.
• TDS Deduction: If the buyer deducts TDS on the payment, TCS is not applicable.
• Pre-existing TCS Provisions: Goods already covered under Sections 206C(1), (1C), (1F), and (1G) are excluded from this provision.

Time of Collection

• TCS is collected at the time of receipt of payment, including advance payments. Even if goods are delivered at a later date, TCS must be collected upon receiving the payment.
• The TCS rate applies to the total sales value exceeding ₹50 lakh.

Definition of a Buyer

A buyer is anyone purchasing goods, except:

• Government Bodies: Central or State Governments, embassies, high commissions, consulates, etc.
• Local Authorities as defined under Section 10(20) of the Income Tax Act.
• Notified Persons: Any other exempt entities notified by the Central Government.

Steps for Compliance

1. Check Applicability:

   • Confirm whether the seller’s previous year turnover exceeds ₹10 crore to determine if TCS applies.

2. Identify Buyers:

   • Track customers whose payments exceed ₹50 lakh during the financial year to apply TCS.

3. Invoice Adjustment:

   • Add a TCS line item in invoices or raise a debit note. Ensure invoices remain GST-compliant.

4. Buyer Communication:

   • Inform buyers in advance about their TCS obligations.

5. Separate Ledger Accounts:

   • Maintain dedicated ledger accounts for TCS receivable from customers and TCS payable to the Government to ensure accurate reporting and reconciliation.

6. Set Compliance Procedures:

   • Implement a checklist for depositing TCS, filing returns, and issuing certificates to buyers.