All you need to know about Tax Collected at Source (TCS)

This document covers the functionality of Tax Collected at Source (TCS) applicable on sale of goods.  It describes how to do basic setup for TCS on sale of goods, check applicability of TCS, calculate monthly TCS for a customer or by a group of customers. Also covered are TCS on transactions where customers do not have PAN number, and with various applicable TCS rates.
As per section 206C (1H), TCS should be collected at the time of receipt of payment from customer.  To cater to this, interim G/L accounting is normally introduced in ERP. New Accounts viz. TCS on Sale and TCS Payable should ideally be opened in Books of Accounts.  Separate ledger accounts will help in reporting and reconciliation. TCS amount is posted to the interim account and added to invoice value at the time of issuance of invoice. The liability of TCS is recorded in the books at the time of receipt of payment.

When multiple customers share the same PAN number, then the accumulated transaction amount needs to be compared with the threshold limit to determine the applicability of TCS for the transaction.

Tax Collected at Source (TCS) is the tax payable to the Govt by a seller (on behalf of the buyer, who is the taxpayer). The seller thus needs to collect the TCS as due from the buyer. The rate of TCS is different for goods specified for different categories. Section 206C of the Income Tax Act,1961 specifies the categories of goods for which seller has to collect tax from the purchasers.

Sub-section (1H) was inserted in Section 206C by Finance Act, 2020 for collection of TCS by the seller on sale of any goods.  Through these additional goods were brought under the ambit of TCS by inserting sub-section (1H) in Section 206C Sub-section (1H) of section 206C. These changes have become effective from 1st October 2020. The applicability of TCS is summarized below: –

1. Seller of Goods is liable to collect TCS from Buyer on Sale of specified goods provided the turnover of the seller exceeded INR 10 Crores in the previous financial year
2. TCS to be collected if the Value/Aggregate Value is more than ₹ 50 Lakh in a financial year;
3. TCS to be collected on [ Total Sale Value – ₹ 50 Lakh];
4. Rate of TCS is 0.075%, if PAN of buyer is available (1% if PAN not Available) [Till 31/03/2021]

1.  To begin with, the seller must check whether the provisions are applicable for TCS to apply for a transaction. For this, the sales /gross receipts/turnover of immediately preceding financial year (i.e. sales of FY 2019-20 to be checked for applicability in FY 2020-21).
2.  Then the identification of the customers from whom receipts for consideration for sale of goods is more than ₹ 50 lakh during the year must be done. Here, identifying the customers where the threshold has already been reached or is on the verge of being reached should be identified.
3. The PAN of the purchaser should be recorded in the system separately. This is easily possible as their GSTIN which contains PAN.
4. The TCS must preferably be charged in the bill itself. It should ideally be the last Item on the Invoice alternatively TCS can be charged through debit note. Further, it has to be made sure that invoice or debit note format remains GST compliant.
5.  Although, all the parties who are likely to have the potential for application of TCS provisions, must themselves be already aware of this provision, however, it would be beneficial if we intimate them in advance regarding levy of TCS provisions and obligation on them to pay for TCS.

If the  Seller/Collector  fails  to collect  the  tax at specified  rates  or fails  to pay  the  tax collected  to the Government, he shall be liable for interest at the rate of 1% per month (or part thereof) from the date of collection to date of payment

If the seller fails to furnish the quarterly return in form 27EQ on or before the due date, he shall be liable to pay late fees of Rs. 200 per day till the default continues subject to maximum of tax collected during the quarter

1. Levy of interest: If the person responsible for collecting tax at source does not collect it or after collecting fails to pay it to the Government, he shall be liable to pay simple interest at the rate of 1% per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid and such interest shall be paid before furnishing the quarterly statement for each quarter.
2. Levy of Penalty: If any person fails to collect the whole or any part of the tax, then such person shall be liable to pay by way of penalty under Section 271CA, a sum equal to the amount of tax which such person failed to collect.
3. Prosecution: If a person fails to pay to the credit of the Central Government the tax collected by him he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.

1. As per the interpretation of TCS on sales of goods u/s 206C (1H), tax should be collected ‘at the time of receipt’.
2. Payment is received by the seller.

1. TAN – Seller needs to have Tax Deduction and Collection Account Number (“TAN”). No need to obtain a new number if the seller entity has already obtained TAN for tax deduction at sources (TDS).
2. Collecting the tax – Tax is required to be collected at the time of receipt of sale consideration.
3.  Due Date for TCS Deposit – The TCS collected during the month needs to be deposited within seven days of next month. It is important to note that for this purpose there is no extended time limit for depositing TCS collected in March unlike in case of TDS. (Challan to be used is 281)
4. Filing of statement (Form no. 27EQ) – A quarterly statement of all the tax collected at source during the quarter needs to be submitted within 15 days from the close of quarter (Refer Table hereunder).
5. Issuance of certificate (Form no 27D) – Certificate for tax collection need to be issued to the buyer by seller within specified Due dates (Refer Table hereunder).

Every time the seller receives part of the sale consideration in advance, the seller is mandated to deduct TCS under Section 206C(1H). The difficulty arises in the calculation of the amount when TCS is deducted on multiple advance payment transaction and when payments transactions are adjusted against Invoice amount. Currently in the system, the user must manually adjust the TCS amount computed on invoice transaction to ensure that TCS amount on invoice is equal to TCS amount on the payment challan.

Tax collected at source shall be deposited to the credit of Central Government in accordance with the following provisions:

In case tax is collected by an office of the Government:

1. Where tax is paid without production of an income-tax challan, on the same day when tax is collected.
2. Where payment of tax is accompanied by an income-tax challan, on or before 7 days from the end of the month in which tax is collected.
3. In case tax is collected by non-government persons, within one week from the last day of the month in which tax is collected.

The due dates for filing quarterly TCS statements are as follows: –

Category-1
Every person, being a seller, shall at the time of debiting the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer, whichever is earlier, collect from the buyer of any goods of the nature specified in column (1) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (2) of the said Table, of such amount as income-tax:

Category-2
Every person, who grants a lease or a license or enters into a contract or otherwise transfers any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry, to another person, other than a public sector company (hereafter in this section referred to as “licensee or lessee” ) for the use of such parking lot or toll plaza or mine or quarry for the purpose of business shall, at the time of debiting the amount payable by the licensee or lessee to the account of the licensee or lessee or at the time of receipt of such amount from the licensee or lessee, whichever is earlier, collect from the licensee or lessee of any such license, contract or lease of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax:

Category-3
Every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding Rs. 10,00,000, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 1% of the sale consideration as income-tax.

Category-4

Every person, being a authorised dealer, shall collect tax at the following rates from the remittance made out of India under the Liberalized Remittance Scheme of the RBI:

1. At the rate of 0.5%, where the amount being remitted is towards repayment of loan, which is obtained from a banking company (including any bank or banking institution) or any other financial institution notified by the Central Government under section 80E, for the purpose of pursuing any education. If the buyer does not furnish his PAN, the tax shall be collected at the rate of 5% in accordance with Section 206CC;
2. Where the amount is remitted for any other purpose, the tax shall be collected at the rate of 5% if the buyer has furnished his PAN, otherwise tax shall be collected at the rate of 10% in accordance with Section 206CC.

Category-5

Every person, being a seller of an overseas tour program package, shall collect tax at the rate of 5% if the buyer has furnished his PAN, otherwise tax shall be collected at the rate of 10% in accordance with Section 206CC.

Category-6

Every person, being a seller who receives any amount as consideration for sale of any goods, shall collect tax at the rate of 0.1% if the aggregate value of such sale in any previous year exceeds Rs. 50 lakh.

SAP has released TCS notes for compliance with various TCS & e-invoicing regulations in India. The scope of the implementation of the notes involves following activities: –

1. Pre-implementation steps
2. Various Configurations
3. Master Data Configurations
4. Company Code Configurations
5. Pricing Configurations
6. Tax Procedure Configurations
7. Other tax Account Configurations
8. Post implementation steps

  Contact info@ivlsp.com for implementation support for TCS and OptiE-invoice