Be prepared for Tax Collected at Source from 1 Oct 2020

Any seller of any goods whose turnover in the preceding financial year exceeds Rs 10 crore is liable to collect TCS at 0.1% of the sale value (0.075% for Oct 2020 to Mar 2021 period) from the buyer if the buyer purchase goods for the value exceeding Rs 50 lakhs.
Be prepared for Tax Collected at Source from 1 Oct 2020
Mumbai

From October 1, 2020, as per the new provision of Tax Collected at Source (TCS), any seller of any goods - whose turnover in the preceding financial year (ie 2019-20) exceeds Rs 10 crore - is liable to collect TCS at 0.1% of the sale value from the buyer if the buyer purchase goods for the value exceeding Rs 50 lakhs. Taking COVID 19 pandemic into consideration, for the current financial year (ie, for October 2020 to March 2021 period), TCS rate has been reduced to 0.075%. Calculation will be on gross amount including taxes, since it is based on consideration received.

TCS is a tax that is collected by the seller from the buyer and deposited to the account of the government on behalf of the buyer. The seller of goods has to deduct TCS at the rate of 0.1% before making payments in excess of Rs 50 lakh, and in case the buyer doesn’t have a Permanent Account Number (PAN) or Aadhaar, then rate will be 1%. The amendment is applicable to every merchant or trader whether dealing in textiles, engineering, trading, bullion, or in job works. TCS is deducted when specified goods/items are sold (not used for manufacturing/production).

TCS provision was proposed in this year’s budget but was deferred for implementation from April 1, 2020 to October 1, 2020. The budget introduced TCS on overseas remittances through the liberalised remittance scheme (LRS) and even overseas tour packages. TCS is also collected on sale of specified goods like tendu leaves, timber wood, scrap, minerals, etc. TCS provisions, which were introduced to widen the tax net, are now being gradually expanded to include more entities and businesses.

TCS will not be applicable: 
  • On the goods that are exported out of India. (In case of exports, since overseas buyers of Indian goods would not have PAN or Aadhaar, the tax rate would have been 1%. Hence, it was withdrawn later)
  • Where any TDS provision is applicable to such goods.
  • When the buyer is the Central Government, State Government, Embassy, High Commission, legation, or trade representation of a foreign state.
  • When the buyer is a local authority as per explanation to Section 10(20)

According to Mehul Gupta, Chartered Accountant and a visiting faculty in the Faridabad Branch of ICAI, “TCS will be applicable where the seller receives any amount as consideration of more than Rs 50 lakhs from a single buyer for the sale of ‘any goods’. Seller may be any person ie individual, firm, AOP/BOI, company, or any other form. The TCS has to be collected at the time of receipt of such amount, ie TCS will be collected on receipt basis.”

TCS collected by the seller will have to be paid to the account of the Government by the 7th of the next month in which the TCS is collected. For example, for the month of October, due date of the deposit will be 7th November. The seller has to file a return in Form 27EQ on a quarterly basis.

Practical issues
Already traders in some part of the country have raised objection to TCS. Ramesh Khandelwal, President of the Ahilya Chamber of Commerce and Industry (ACCI), said, “Demonetisation, flawed GST and then a long lockdown has broken the backbone of traders, and this new provision will be the proverbial last straw on the camel's back and demanded its withdrawal. The chamber has written to the Union Finance Minister in this regard.”

Traders says that they have to maintain a lot of paperwork and the new TCS provision will only add to it. “It is also against the spirit of Ease of Doing Business. The GDP is at its lowest in 50 years and such provisions will only add to lowering of GDP further,” warned Khandelwal.

While TCS provision will surely bring the buyer also under the income tax net, there are also some practical issues. “Liability to deposit TCS with the government arises on the receipt basis and it is going to be a burdensome task, as every time seller received the payment from the buyer, he has to remit the TCS to the government. This provision should also be drafted on the same footprints of other sections related to TDS/TCS deposit ie liability of TCS deposit u/s 206C(IH) should also be on the basis of Due or Receipt whichever is earlier. However, for the sake of simplicity and compliance with the provision the seller can follow the practice of deposit of the TCS on the due basis i.e. on the invoice basis,” said Nishant Singla, CA, N G R & Associates.

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