Tax Collected at Source (TCS) is not new and has been in the statute book since decades. Recently, the Finance Act, 2020, with a view to deepen and widen the existing provisions of TCS and in order to have audit trial of transactions, has expanded the provisions to include the following transactions within the purview of TCS:
- Remittances under Liberalized Remittance Scheme (LRS);
- Sale of overseas tour program packages;
- Sale of goods.
The said provisions were initially made applicable with effect from 1 April 2020. However, due to the subsequent pandemic, the applicability was deferred to be effective from 1 October 2020.
Applicability on Sale of Goods
Provisions of TCS on sale of goods applies when any seller receives consideration for the sale of goods from a buyer of an amount exceeding INR 50 lakh in a single financial year and turnover of such seller in the preceding financial year exceeds INR 10 crore.
However, TCS does not apply in the case where:
- Goods are exported outside India or imported in India;
- Buyer is liable to deduct tax at source (TDS) on such goods;
- Buyer is Central Government, State Government, Embassy, High Commission, Legation, or trade representation of a foreign state;
- Buyer is a local authority as per section 10(20) of the Act;
- The goods are already covered under the existing provisions of TCS (e.g. alcoholic liquor, tendu leaves, scrap, motor vehicles, etc.)
Rates and Administration
TCS is required to be collected on receipt of sale consideration in excess of INR 50 lakh at the rate of 0.1% (0.075% for the period between 1 October 2020 to 31 March 2021). However, in case the buyer does not furnish PAN/Aadhar, the rate shall be 1% (will this not be 0.75%).
The TCS so collected by the seller is required to be deposited with the government by the 7th day of every month following the month in which TCS is collected.
Further, the seller is also required to furnish the particulars of TCS collected and deposited with the government treasury in the form of a statement and also issue certificates to the customers on a periodic basis. The due date for filing the TCS statements are provided in the table below:
|Quarter||Due date of filing TCS returns (Form 27EQ)||Due date for issuing Form 27D|
|30 June||15 July||30 July|
|30 September||15 October||30 October|
|31 December||15 January||30 January|
|31 March||15 May of the FY immediately following the year in which collection is made||30 May|
Certain Clarifications relating to applicability of the provisions
Though the provisions for collection of TCS on sale of goods were introduced by the Hon'ble Finance Minister at the time of presenting the fiscal budget 2020, as the date of applicability of provisions came close, various representations were made before the Central Board of Direct Taxes (CBDT) with regard to practical challenges and implications of the provisions.
In order to address the issues sought by taxpayers, the CBDT issued a circular/guidelines1 which provides clarity on the following aspects.
Some of the clarifications provided are as under:
Applicability of provisions
It is clarified that TCS is not applicable in relation to below-mentioned transactions:
- in securities and commodities listed on recognized stock exchanges or cleared and settled by recognized clearing corporation;
- in case of transactions in electricity;
- in renewable energy certificates and energy-saving certificates traded through registered power exchanges.
It is clarified that TCS provisions would be applicable to all sale considerations (including advance) received on or after 1 October 2020 irrespective of the period in which sale is made. Accordingly, it would not apply on any sale consideration received before 1 October 2020.
However, since the threshold of INR 50 lakh is with respect to the previous year, calculation of receipt of sale consideration shall trigger from 1 April 2020.
Applicability to the sale of motor vehicles
It is clarified that the existing TCS provisions on the sale of a motor vehicle are applicable to the sale of a single car whereas the newly inserted section of TCS on sale of goods would apply to the sale of a motor vehicle as well when the sale is made to a dealer or to a corporate where the receipts from sale during the year exceeds the INR 50 lakh threshold.
Adjustment for sale return, discount or indirect taxes
- It is clarified that no adjustment on account of sales returns, discounts or indirect taxes is required to be made since the collection of TCS is made on receipt of sale consideration.
- This would mean that TCS is to be collected on GST and will not have to be applicable to the discount, rebates, sales returns, etc. since the same will not be collected.
Fuel supplied to non-resident airlines
TCS shall not apply in case of sale consideration received for fuel supplied to non-resident airlines at airports in India.
The CBDT has introduced the new TCS provisions on the sale of goods not as an additional tax but in the nature of advance income-tax for which the buyer would get the credit against its income tax liability. This would definitely bring in transparency in transactions and at the same time would not add the cash outflow burden on the seller since the liability to pay is only when the consideration is received.
However, the taxpayers may have to face initial challenges to streamline their accounting system and appropriately factor in the new TCS provisions to be seamlessly compliant on collection and payment to government authorities.
Although the CBDT has provided clarifications on several confusing aspects, several issues still need more clarity such as –
- The entities that would not be covered under export of goods;
- The entities that would not be covered under the central/state government;
- Whether shares/securities of unlisted companies would get covered under the sale of goods;
- Whether TCS would apply in case of sale to SEZ/EOU units;
- The TCS implications in case of barter sale;
- The TCS implications in case of composite sale invoices for the sale of goods as well as services.
It is expected that CBDT would provide clarifications on the above issues in due course to remove the existing anomalies in the TCS provisions.
1. CBDT Circular No. 17 of 2020 dated 29th September 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.