Overview of Tax Collection at Source

[Chandani Nawalkha]

OVERVIEW OF TAX COLLECTED AT SOURCE UNDER SECTION 206C

There are close to 32 items of income/payments on which tax is deductible at source (TDS) and 11 items on which tax has to be collected at source (TCS). However this position has now been changed after introduction of new sub section (1H) in Section 206C of the Income Tax Act vide Finance Act, 2020 which have come into effect from 01.10.2020.

The new provision stipulates that all goods which were not covered by any clause of erstwhile Section 206 shall now be subject to tax collection at source and accordingly prescribed sellers has to collect tax from the purchasers on all goods w.e.f 01.10.2020 as per applicability. The position of Section 206 after the amendment can be summarized as below:-

 Section 206 C  

Category- A (Sale Transactions)	Category – B (Grant of Lease/ License)	Category –C (Sale of following where amount exceed a specified limit)
Alchoholic Liquor for Human Consumption	Parking Lot	Motor Vehicle (Value exceeding ₹ 10 Lacs)
Indian made foreign liquor	Toll plaza	Others *(Value exceeding ₹ 50 Lacs)
Tendu leaves	Mining & quarrying other than petroleum/mineral oil/natural gas
Timber obtained under foreign lease
Any other forest produce
Scrap
Minerals being coal/lignite/iron ore

*Sub section 1(h) of Section 206C is reproduced hereunder for better understanding:-

“ 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 goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent (0.075% upto 31.03.2021) of the sale consideration exceeding fifty lakh rupees as income-tax:

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent”, the words “one per cent” had been substituted: 

Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.”

Explanation - For the purposes of this sub-section -

(a) "buyer" means a person who purchases any goods, but does not include,-

(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B) a local authority as defined in the Explanation to clause (20) of section 10; or

(C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;

(b) "seller" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.”

The key issues and questions pertaining to newly inserted clause (1H) of Section 206C of the Income Tax Act have been addressed by the CBDT by way of Circular 17 of 2020 dated 29.09.2020 and Press Release dated 30.09.2020 which provides as below :-

Circular 17 of 2020 dated 29.09.2020

1. This section won’t apply on transaction on securities and commodities which are traded through recognized stock exchange or cleared and settled by recognized clearing corporations including recognized stock exchanges or recognized clearing coropration located in International Financial Service centre.

2. Transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with regulation 21 of the CERC.

3. Since section 206C(1H) of the Act applies on receipt of sale consideration the provision of this sub-section shall not apply on any sale consideration received before  01.10.2020. Consequently it would apply on all sale consideration (including advance received for sale) received on or after 01.10.2020 even if sale was carried out before 01.10.2020

4. Threshold of ₹ 50 Lacs is with respect to previous year, calculation of receipt of sale consideration for triggering TCS shall be computed from 01.04.2020. Hence if seller already received ₹ 50 Lacs or more upto 30.09.2020 from buyer, TCS shall apply on all receipt of sale consideration during the previous year on or after 01.10.2020 from such buyer.

5. In case of motor vehicle, the applicability of clause(1H) is subject to clause (1F) i.e. (i) Receipt of sale consideration from a dealer (not consumer) would be subject to TCS under section 206C(1H) (ii) In case of consumer receipt of sale consideration of motor vehicle of ₹ 10 Lac or less would be covered under clause (1H) of Section 206C, if such receipt exceeds the threshold limit of ₹ 50 Lacs during the previous Year.

6. No adjustment on account of sale return, discount or indirect taxes including GST is required to be made for collection of tax under sub section (1H) of section 206C of the Act since collection is made with respect to receipt of amount of sale consideration.

  Press Release dated 30.09.2020

1. TCS shall be applicable only on the amount received on or after 01.10.2020. For ex. If total receipt from a person till 30.09.2020 is ₹ 1 Crore and after 01.10.2020 amount received is ₹ 5 lacs from the same person then TCS is to be collected only on ₹ 5 lacs received after 01.10.2020 and not on ₹ 55 Lacs (i.e ₹ 1.05 Crore – ₹ 50 Lacs (threshold) by including amount received before 01.10.2020.

2. Only for the purpose of calculation of threshold of ₹ 50 Lacs the receipt from the beginning of previous year i.e. 01.04.2020 shall be taken into account. For ex. In above example seller is collecting tax on ₹ 5 Lacs after 01.10.2020 because receipts from 01.04.2020 i.e. ₹ 1.05 crores exceeded threshold of ₹ 50 Lacs

3. Taking into account the fact that running account of buyers is kept without one to one correlation of receipt with particular sale invoice. The TCS shall be applicable on amount of all sale consideration received on or after 01.10.2020 without making any adjustment of sales made before 01.10.2020

4. TCS is not an additional tax but it is nature of advance income tax/TDS for which buyer would get credit against its actual income tax liability.

5. TCS shall be applicable only on receipt exceeding ₹ 50 Lacs by a seller from a particular buyer. For ex. On payment of ₹ 1 Crore made by buyer to seller TCS will be only ₹ 5000 i.e. 0.1% of (₹ 1 Crore minus ₹ 50 Lacs)

6. TCS is applicable only to those sellers whose business turnover exceed ₹ 10 Crores during the immediate preceding financial year who are mostly those assesse already complying with TDS/TCS requirement.

The author is chartered accountant offering tax advisory & consultancy and can be reached on email : [email protected]

Discussions to this article

[Ishant Bansal]

Great explanation, Thank You!!

Just a small doubt - let us take a small situation :-

1. Material is dispatched with Invoice, thereby adding TCS @ 0.075%

2. Material short received by the buyer, thereby, gives rise to Credit Note to be issued by Seller.

In the current case, since credit note is to be issued prior to receipt, going by the spirit of provision which demands TCS to be calculated and collected on the amount of receipt, TCS should form part of Credit Note as well, right?

When "Circular 17 of 2020 dated 29.09.2020" says

"6. No adjustment on account of sale return, discount or indirect taxes including GST is required to be made for collection of tax under sub section (1H) of section 206C of the Act since collection is made with respect to receipt of amount of sale consideration."

they mean no adjustment on account of credit note / debit note done after the receipt of fudns against supply, as TCS is to be calculated on the amount received and if Credit Note is issued after the amount is received, then TCS should not be included in Credit Note and if Credit Note is issued prior to the receipt of funds, then TCS should be included in Credit Note, without which the amount to be received shall contain greater amount of TCS than as laid in provision.

Your valuable opinion is welcome.

[Chandani Nawalkha]

Ishant Ji,

Thank you for the appreciation. As per my understanding TCS being an advance tax will not be adjusted after receipt of sale consideration and credit note shall not have its effect on TCS.

[Ishant Bansal]

Chandani Ji,

What about the situation when Credit Note is issued before Sale Consideration? Now in that case, will the credit note have TCS as the amount to be received as sale consideration in invoice is inclusive of TCS (as charged in Invoice) which shall be reduced by the amount of Credit Note, in which case if TCS in not charged in credit note then the amount of TCS will be more the desired rate on sale consideration.

If need be, I can explain with arbitrary example.

[Chandani Nawalkha]

As my opinion the same can be treated in line with the TDS. That is you can either revise the return or adjust in subsequent transactions with the party.

Or we can also get away with no adjustment and buyer can claim excess TCS in his return of income