(This Article is written by CA Ketan Vajani)
Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) are the most convenient mode of tax collections by the government. The scope of TDS and TCS keeps on expanding year after year. The Finance Act, 2020 has also made certain further amendments to the
Income-tax Act which has expanded the scope of TDS and TCS provisions. In this article, we will understand one such provision related to TCS by seller of any goods, which has generated lot of discussion, disturbance and confusion amongst the tax payers and also professionals.
Tax Collection by seller of any goods
1. With effect from 1-10-2020, a seller whose total sales, gross receipts or turnover of business in the immediately preceding financial year exceeds Rs. 10 Crores is required to collect TCS @ 0.1% of the sale consideration exceeding Rs. 50 Lakhs from a buyer during the financial year. If the buyer does not furnish his PAN or Aadhar number, the TCS will be @ 1% instead of 0.1%. These rates are however proposed to be reduced to 0.075% and 0.75% respectively for the period up to 31st March, 2021.
2. No TCS is required to be collected in a case where the buyer of goods is liable to deduct TDS under any provisions of the Act from the seller and has deducted such TDS. No TCS is required where the buyer is either (a) Central Government / State Government / Embassy / High Commission etc.; (b) a local authority or (c) a person importing goods into India. The Central Government has the power to exempt any buyer from the applicability of this sub-section by way of notification in the Official Gazette.
3. The CBDT has issued a Circular No. 17/2020 dated 29-9-2020 and also a press release dated 30-9-2020 clarifying certain doubts on the subject. As per the circular it has been clarified that TCS will not be required to be collected in respect of transactions in
securities and commodities if the same are either traded through recognized stock exchanges or are cleared and settled by the recognized clearing corporation. It will also not apply for transactions in electricity, renewable energy certificates and energy saving
certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC.
4. TCS is to be collected at the time of receipt of the sale consideration from the buyer and not at the time of entering into sale transaction. The trigger point of time is the receipt of sale consideration. If in a particular financial year, the seller receives
consideration for sale of goods from a buyer in excess of Rs. 50 Lakhs, he will have to collect TCS from the buyer. It will be irrelevant as to whether the amount of Rs. 50 lakhs pertain to sales made in the current financial year or earlier financial years.
Though this is not apparently the purpose of the section, the CBDT vide Circular No. 17/2020 dated 29-9-2020 has clarified this position.
5. The transactions of Exports are out of the purview of this section and hence the Indian seller will not need to collect TCS from his overseas buyer. However, there is no specific exclusion in respect of Sales to SEZ units, which are deemed to be an export under SEZ Rules. Import transactions are also not covered by the section. Therefore, an overseas seller is not obliged to obtain TCS number and carry out procedures of collection of tax from Indian buyers and file Returns etc. However, in the transactions of High Seas Sales, the Indian seller will have to collect TCS from High Seas Buyer.
6. An issue which will be relevant for the F.Y. 2020-21 only is that whether the receipt of Rs. 50 Lakhs is to be seen after 1-10-20 or even the receipts prior to 1-10-20 are to be included for deciding the applicability of the section. Here it is relevant to note that sub
section talks about the receipts during the previous year and accordingly, once the total amount crosses Rs. 50 Lakhs (including amount received prior to 1-10-20), the section will become applicable. This position has also been clarified by the CDBT Circular No
17 dated 29-9-20.
7. As regards the Advance received for sale of goods, the CBDT Circular has given a clarification that the TCS will need to be collected on such Advance also once the amount of collection is crossing Rs. 50 Lakhs. This view of CBDT seems to be legally incorrect though. One needs to appreciate that though the amount is received in advance, it is not as consideration for sale of goods. Such advance will change its color when goods are actually sold.
8. Practical difficulties are also likely to arise since the trigger point is linked to receipt of money and not the sale / purchase. It is possible that in the year in which tax is collected, there might not be any trading transactions between the two parties. However, the TCS will be applicable and on the basis of the TCS details, there might be inquiries from the assessing officer as to why the transactions are not reflected by both the buyer and also the seller?
9. A serious confusion is also prevalent due to the language of the sub-section. As stated above the TCS is to be collected at the time of receipt of the amount. However, the TCS is to be collected at the prescribed rate of sale consideration. As such, the point of collection is the receipt date but the collection is calculated on sale consideration. Here, the doubt comes up as to whether GST which is collected alongwith sale amount will also be subjected to TCS. As per strict language of the section, GST is a statutory levy and cannot be said to be part of sale consideration. Accordingly, TCS should not apply on GST portion. However, the CBDT Circular has clarified that it will apply on the GST portion of the total invoice also. As a matter of fact, the amounts received are always a composite amount which has GST embedded into it. In such a situation, it will be a practical difficulty to carve out the GST portion and then collect TCS only on sale
consideration. Accordingly, it is better to collect TCS on the entire amount including GST for avoiding practical difficulties also.