TCS on Sale of Goods – New Rules

TCS New Rule

The provisions of Tax Collected at Source (TCS) were introduced to widen the base for the collection of tax. Here, the price of the prescribed goods and services is inflated by the seller by a certain percentage. The inflated amount is the Tax Collected at Source. Once proper disclosures are made and the tax amount collected is deposited with the government (by the seller), the TCS is available as a credit to the buyer. This credit can be utilised to pay income tax dues. It should be noted that exports and items covered by section 206C(1)-TCS on sale of alcohol, tendu leaves, forest fruit, and scrap-section 206C(1F)-TCS on sale of motor vehicles, and section 206C(1G)-TCS on foreign remittance do not qualify as goods.

Announcement: The Finance Act, 2020 has inserted a few provisions into Section 206C. These new provisions will be effective from 1 October 2020 on TCS on Sales.

Application of TCS on Sale of Goods Provisions

TCS applicability on sale of goods depends on the kind of goods sold, the turnover or gross receipts from sales, and the nature of the transaction. The following requirements must be met for the TCS on sale of goods provisions to be applicable:

1. The seller sells products other than those intended for export, such as motor vehicles, lumber, scrap, and foreign remittances.
2. The seller's total revenue, gross receipts, and turnover from the business must have exceeded INR 10 crores in the previous fiscal year
3. The total value of selling consideration for the goods the buyer has purchased must surpass INR 50 lakhs.

Amount Received For Sale Of Goods

TCS on sale of goods is collected from the buyer by the seller during the sale of goods whereas when the seller collects tax while selling goods to the buyer is referred to as TCS on the purchase of goods. 

Every seller whose total sales/gross receipts/turnover from business exceeded INR 10 crores in the previous financial year will have to comply with the new provisions of TCS in the current financial year. Here, the seller will have to collect tax as TCS at a rate of 0.1% from the buyer when the amount of sale consideration received for ANY goods sold (excluding exports) exceeds INR 50 lakhs. That means TCS is applicable on sale consideration that is more than INR 50,00,000.

If the buyer fails to provide his/her PAN/Aadhaar details, the tax shall be collected as TCS at the rate of 1%. Note: TCS shall be applicable only on the amount received on or after 1 October 2020. Illustration: The annual turnover of Company X (selling goods) in the previous financial year (2019-20) was INR 15 crores. Thus, the new TCS provisions will apply to company X in the financial year 2020-21. Based on the sale considerations received (from a single buyer) during the year, the tax will have to be collected.

Note: The threshold of INR 50 lakhs is based on the yearly receipt of consideration. In this FY, only for the calculation of TCS on sale of goods of threshold, the receipt from the beginning of the financial year (1 April 2020) will be considered. These provisions can be summarised as follows:

TCS on Sale of Goods Above 50 Lakhs With Examples

Section 206C(1H) has been in force since October 1, 2020. Any seller of goods who receives payment in exchange for goods valued at more than INR 50 lakhs is eligible for TCS on sale of goods. The government determines the TCS rate on sale of goods. Currently, the TCS rate on sale of goods is 0.1%.

Consider that Mr. X, the seller, gets Rs. 70 lakh in a fiscal year. He will deduct TCS in this instance on Rs. 20 lakh (Rs. 70 lakh - Rs. 50 lakh).
   
Moreover, suppose that on an invoice, Mr. Y (the supplier) charged TCS-

• The net value of the goods = Rs. 60,00,000
• GST of 18% = Rs. 10,80,000. 
• The total amount = Rs. (60,00,000 + 10,80,000) = Rs. 70,80,000 
• TCS on this amount = Rs. (0.1% x 70,80,000) = Rs. 7,080 
• Value of the final invoice = (70,80,000 + 7,080) = Rs. 7,087,080 

Other Pointers:

• The tax collected as TCS will be exclusive of GST.
• In case the buyer deducts tax as TDS on the goods, the TCS provisions will not be applicable. That means, no tax will have to be collected as TCS when tax is deducted at source.
• These new provisions will not apply to goods that are already under the purview of TCS.
• In case the buyer is importing goods into India, these provisions will not be applicable.
• If the Central/State Government or a local authority or similar is the buyer, no tax will be collected.
• The TCS on sales applicability of this section has to be reviewed every year.
• The tax collected by the seller has to be mentioned as TCS in the invoice.
• Since these provisions are effective from 1 October 2020, if sales of any business house have already exceeded INR 50,00,000 (when calculated up to 30 September 2020), when tcs is applicable on the all sale considerations received from 1 October 2020 (for financial 2020-21).
• If the TCS credit available is more than the tax liability, the buyer will be entitled to receive the excess amount as refund along with interest.

Amounts Remitted Under The Liberalised Remittance Scheme (LRS) Of The RBI 

The LRS under RBI allows for the remittance of up to USD 2,50,000 in a financial year for limited purposes such as travelling, medical treatment, studying, gifts, donations, maintenance of close relatives, etc. When a person wishes to make a payment under the Liberalised Remittance Scheme, the authorised dealer responsible for carrying out such a transaction is required to collect 5% of the amount payable by the buyer as TCS. This will be applicable only if the aggregate amounts exceed INR 7,00,000 in a financial year. Hence the TCS rate will apply on the amount above INR 7,00,000. However, the TCS rate will be reduced to 1.5 % if the amount being remitted is a loan obtained for higher education which is covered under section 80E. This provision can be summarised below:

Amount Received For Overseas Tour Program Package

Any person selling an overseas tour program package is required to collect tax at 5% from its customer. This will include amounts charged for travel, hotel or other such accommodation and related expenditures. The collection of tax is done irrespective of the amount involved with the TCS limit. This provision is summarised below:

This move will complement the disclosure of foreign travel expenditures in the income tax return. The new Income Tax Returns require filers to specify the expenditure incurred (above INR 2 lakhs) on foreign travel. The introduction of TCS on LRS remittances and foreign travel expenses will increase the transparency in such transactions and also encourage the payers to file their income tax returns to claim the applicable tax credit.

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