Frequently Asked Questions with respect to TCS on Purchases exceeding Rs. 50 Lakh
New levy in the form of Tax collection @ source is introduced in the Finance Act 2020.
Salient features of the said levy are as under:
- It is effective from 1st October, 2020
- Applicable to all the entities with turnover of Rs. 10.00 Crore or more in Financial Year 2019-20
- Collection attracted when customers from whom payment exceeding Rs. 50.00 Lakhs is received during the year
- Rate of TCS is 0.075%(reduced rate) of the amount exceeding Rs 50.00 Lakhs during the year
The provisions are covered in a capsule form through Frequently Asked Questions.
1.) What is the date from when these provisions would get attracted?
These provisions are set to come in force effective from October 1, 2020.
2.) Can you please explain the provisions and its rigor in brief?
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 certain already specified goods for TCS, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.075 per cent of the sale consideration
exceeding fifty lakh rupees
If the buyer does not provide PAN or Aadhaar number, a sum equal to one per cent of the sale consideration
exceeding fifty lakh rupees
as income-tax will have to be collected by the seller.
These provisions are dealt with in subsequent FAQs.
3.) Is this applicable to all the entities or any threshold prescribed for effecting these provisions?
4.) Who is liable to collect Tax at source (make TCS)?
- It may be noted that the levy is attracted at the time of receipt of payment by seller and not at the time of sale of goods. As stated earlier, it is applicable to entities whose sales, gross receipts, or turnover of last financial year has exceeded Rs. 10 Crore.
- This means the provisions would not be applicable in first year of the business.
- It may so happen that turnover in current financial year is less than Rs. 10 Crore, but in immediately preceding financial year it was more than Rs. 10 Crore, in such case the provisions for making TCS would be applicable.
- This apart, collection from a particular customer should exceed Rs 50.00 Lakhs during the year to attract the levy.
The provisions are designed to cover every kind of person (seller – who sales goods), viz. an Individual, a Hindu Undivided Family (HUF), a Firm, a Company, An Association of persons (AOP), a Body of Individuals (BOI), and Artificial Juridical Person, who make sale of goods whose turnover exceeds Rs. 10 Crore in last financial year.
5.) Does it mean that service contracts/ Job Work contracts / consultancy contracts are out of the rigor (applicability) of these provisions?
Yes. All above categories of sales would not be covered by the provisions of TCS.
6.) How does one reckon the turnover of Rs. 10 Crore? Should one include GST or other indirect taxes into turnover for the purpose of this provision?
GST / other indirect taxes are not to be included to calculate the limit of Rs. 10 Crore. In case one has any other charges connected with sale like transport charges, delivery charges, installation charges, etc., these will be treated as part of turnover or sale, or gross receipts, as the case may be. The turnover is to be calculated as per the normal method of accounting followed for sales shown in financial statements.
7.) In which cases there would not be application of TCS provisions?
Any sale made to the following category of customers would not attract TCS provisions:
- the Central / 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
- On Export of goods outside India.
A sale to Special Economic Zone (SEZ) is technically an export out of India. Yet there is no clarity on this, and clarification may be issued by the Government.
8.) What would happen to the composite contracts of goods and services (works contract)?
TCS provisions are not applicable, if the buyer is liable to deduct tax at source under any other provision of the Income-tax Act 1961 on the goods purchased by him from the seller and has deducted such amount.
Since Works contract is subjected to TDS on contract (section 194C), TCS provisions would not be applicable.
9.) On happening of which event would the provisions of TCS trigger?
The triggering event is receipt by a seller of any amount as consideration for sale of any goods (other than the goods being exported out of India or certain already specified goods for TCS)
of the value or aggregate of such value exceeding fifty lakh rupees in any previous year.
10.) Since the seller is liable to make payment of TCS at the time of realization of sale proceeds, does it mean that, seller cannot raise the amount of TCS in sale bill?
- This means, the liability to make TCS is differed till the date of realization of sale proceeds.
- The seller is under obligation at the time of receipt of such amount to collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax.
Essentially that is not the case. The seller may charge the TCS amount while raising the bill or otherwise by way of a separate debit note while making collection of sale consideration. More practical way to make TCS component on the value of consideration is at the time of raising sale bill.
11.) What does one do when sale to a customer during the year is likely to be more than Rs. 50 Lakh?
As stated above, even if collection during the year likely to be exceeding Rs. 50 Lakh, there is no need to make TCS on first Rs. 50 Lakhs.
However, it should be noted that liability is not on raising the invoices but on receipt of consideration. This is likely to cause some hardship in cases where one decides to charge TCS in the invoice raised. Practical view of the above scenario would be to collect the same in invoice without considering the basic exemption every year. Of course in cases where customer objects to the said levy when basic exemption limit is available, practical view will have to be taken and remove TCS collection from invoice.
12.) Would Goods and Service Tax (GST) be applicable on the component of TCS amount if charged in the sale bill itself?
GST being a tax on the event of “supply”, every supplier making taxable supplies needs to get registered. This means, GST applies on the consideration for supply of goods or services. TCS being a charge of income-tax
on the buyer towards purchase of goods on the value of consideration exceeding Rs. 50 Lakhs, GST would not be applicable on the component of TCS in total consideration.
This has been clarified by the CBIC with respect to TCS provisions already in force vide Corrigendum to Circular No. 76/50/2018-GST dated 31st December, 2018 issued vide F.No. CBEC- 20/16/04/2018-GST- Reg. dated March 7, 2019
stating that for the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.”
13.) Would there be TCS application on GST component of sale consideration?
CBDT vide Circular No. 23/2017 d
ated 19th July, 2017 has clarified that, the Central Board of Direct Taxes (the Board) had earlier issued Circular No. 1/2014 dated 13.01.2014
clarifying that wherever in terms of the agreement or contract between the payer and the payee, the Service Tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Income-tax Act, 1961 (the Act) on the amount paid or payable without including such Service Tax component.
In the light of the fact that even under the new GST regime, the rationale of excluding the tax component from the purview of TDS remains valid, the Board hereby clarifies that wherever in terms of the agreement or contract between the payer and the payee, the component of ‘GST on services’ comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid or payable without including such ‘GST on services’ component.
14.) Please explain the charge of TCS in the year of transition (October 1, 2020 to March 31, 2021) with the help of examples.
a.) Turnover of Financial Year 2019-20 Rs. 9 Crore
Sale of goods to XYZ Limited on October 1, 2020 Rs. 75 Lakh
Amount realized on November 1, 2020 Rs. 75 Lakh.
b.) Turnover of Financial Year 2019-20 Rs. 20 Crore
15.) What would happen to the realization on or after October 1, 2020 of sale effected in financial year 2019-20 or earlier years?
Sale of goods to XYZ Limited from April 1, 2020 to September 30, 2020 Rs. 60 Lakh
Further Sale of goods XYZ Limited on October 1, 2020 Rs. 75 Lakh
Amount realized on November 1, 2020 Rs. 135 Lakh (60 Lakh + 75 Lakh)
c.) Will your answer be different if consideration for sale of goods made during April 1, 2020 to September 30, 2020 was already realized on or before September 30, 2020?
(d) Turnover of Financial Year 2019-20 Rs. 20 Crore
Sale of goods to XYZ Limited on October 1, 2020 Rs. 35 Lakh
Amount realized on October 30, 2020 Rs. 35 Lakh
Further Sale of goods XYZ Limited on November 1, 2020 Rs. 20 Lakh
Amount realized on November 30, 2020 Rs. 20 Lakh
Since sale was affected in the year 2019-20 in which TCS provisions were not applicable, the seller is not under obligation to make TCS even if the payment for such sale is realized on or after October 1, 2020.
16.) Would basic exemption of Rs. 50 Lakh available each year?
As the collection is mandated on amount exceeding Rs. 50 Lakhs, basic exemption would be perpetual for each year so long as aggregate consideration does not exceed the threshold amount. Once threshold is crossed, TCS would be applied on the entire sum (which was not subjected to TCS earlier taking benefit of threshold).
17.) How would one deal with advance received for supply of goods? Let us say that total value of sale contract is Rs. 275 Lakh to be executed on November 20, 2020. Advance received Rs. 60 Lakh on October 11, 2020.
As per the scheme of this section, “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 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.
This denotes that, the liability to make TCS is shifted on the event of realization of sale consideration. Therefore the seller is under obligation to make TCS and pay the same on advance component subject to basic exemption of Rs. 50 Lakh.
Effectively, the seller will have to make TCS on Rs. 10 Lakh (60 Lakh – 50 Lakh).
18.) What if after receiving advance, sale does not materialize or there are goods return subsequent to sale, and the seller has already paid TCS on advance component or realization component?
The buyer has to live with this situation, and claim such TCS while filing his Return of Income even if effective purchase has not been made by him.
19.) How does one appropriate part payments on different components of sale for application of TCS provisions, especially when there is no mandate from the payer for appropriation of part payments?
|Basic Sale price of goods on December 1, 2020
|Transportation / delivery
|GST @ 18% on Rs. 7,600,000
|TCS @ 0.075% on Rs. 7,600,000
|Amount realized on January 1, 2021
|Amount realized on February 1, 2021
|Amount realized on March 1, 2021
|Amount realized on May 1, 2021
In the law of debtor & creditor,appropriation of payments is the application of a particular payment for the purpose of paying a particular debt. When a creditor has two debts due to him from the same debtor on distinct accounts, the general law as to the appropriation of payments made by the debtor is that the debtor is entitled to apply the payments to such account as he thinks fit; solvitur in modum solventis. In default of appropriation by the debtor the creditor is entitled to determine the application of the sums paid, and may appropriate them even to the discharge of debts barred by the Statute of Limitations. In default of appropriation by either debtor or creditor, the law implies an appropriation of the earlier payments to the earlier debts.
If this principle is followed, the seller is entitled to appropriate initial payment of Rs.100,000 and Rs. 1,368,000 towards Delivery charges and GST respectively, and pay no TCS. He may pay part TCS on the payment realized on March 1, 2021 (either direct 0.075% on Rs.2,500,000 or considering Rs. 2,500,000 as inclusive of TCS and making proportionate payment effecting reverse calculation). Balance TCS will be payable when the seller receives final payment on May 1, 2021.
Safer and advisable view would be to apply TCS on the entire amount of invoice and discharge the liability while receiving first payment, considering the smallness of amount of TCS.
20.) When TCS provisions are otherwise not applicable even if sale consideration exceeds Rs. 50 Lakh?
21.) What are the due Date of making payment of TCS to Government and filing quarterly TCS statements?
The TCS made by the seller shall be paid to the account of the Government by the 7th
of the next month in which the realization of sale proceeds have happened.
(Example: – For the month of October, Due Date of the deposit is 7th November.)
For the Month of March, by April 30.
Due Date of Filing of Return by the seller
The Seller has to file a return in Form 27EQ on a Quarterly basis.
Due Dates of filing of Form 27EQ are:-
||Due Date (Normally)
|April – June
|July – September
|October – December
|January – March