1. What is Tax Collected at Source on sales of goods (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: –
- 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
- TCS to be collected if the Value/Aggregate Value is more than ₹ 50 Lakh in a financial year;
- TCS to be collected on [ Total Sale Value – ₹ 50 Lakh];
- Rate of TCS is 0.075%, if PAN of buyer is available (1% if PAN not Available) [Till 31/03/2021]
2. TCS process flow
3. TCS process steps
- 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).
- 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.
- The PAN of the purchaser should be recorded in the system separately. This is easily possible as their GSTIN which contains PAN.
- 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.
- 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.
4. What if the TCS is not collected?
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
- 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.
- 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.
- 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.
5. The point of collection of tax
- As per the interpretation of TCS on sales of goods u/s 206C (1H), tax should be collected ‘at the time of receipt’.
- Payment is received by the seller.
6. Who is obliged to collect TCS?
- 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).
- Collecting the tax – Tax is required to be collected at the time of receipt of sale consideration.
- 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)
- 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).
- 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).
7. TCS on Advance receipt of payment:
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.
8. Due date for deposit of TCS to the credit of Central Government:
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:
- Where tax is paid without production of an income-tax challan, on the same day when tax is collected.
- 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.
- In case tax is collected by non-government persons, within one week from the last day of the month in which tax is collected.
9. Due date of filing of TCS statements
The due dates for filing quarterly TCS statements are as follows: –
|Quarter Ending on||Due date of submission of return||Due date for issuance of certificate of tax collected|
|30th June||15th July||30th July|
|30th September||15th October||30th October|
|31st December||15th January||30th January|
|31st March||15th May||30th May|
10. Mode of deposit TCS:
Taxes collected at source shall be deposited to the credit of the Central Government in following modes:
- E-Payment: E-Payment is mandatory for:
- All the corporate assesses;
- All assesses (other than company) to whom provisions of section 44ABof the Income Tax Act, 1961 are applicable.
- Physical Mode: By furnishing the Challan No. 281 in the authorized bank branch
11. Person liable to furnish TCS statement
Every person responsible for collection of tax at source shall be required to furnish quarterly statements in respect thereof.
12. Furnishing of TCS statement electronically
The quarterly TCS statement shall be furnished electronically in any of the following mode:
- Furnishing the statement electronically under digital signature; or
- Furnishing the statement electronically along with the verification of the statement in Form 27A or verified through an electronic process.
13. Form for filing TCS statements
Quarterly TCS statements shall be furnished in Form No. 27EQ
14. TCS Rates
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:
|Nature of Goods||Rate in(%)|
|Alcoholic liquor for human consumption||1|
|Timber obtained under a forest lease||2.5|
|Timber obtained by any mode other than a forest lease||2.5|
|Any other forest produce (not being timber/tendu leaves)||2.5|
|Minerals, being coal or lignite or iron ore||1|
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:
|Nature of contract or license or lease, etc||Rate in(%)|
|Mining and Quarrying||2|
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.
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:
- 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;
- 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.
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.
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.
15. Implementing SAP TCS notes
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: –
- Pre-implementation steps
- Various Configurations
- Master Data Configurations
- Company Code Configurations
- Pricing Configurations
- Tax Procedure Configurations
- Other tax Account Configurations
- Post implementation steps
16. Frequently asked questions
The term turnover has not been specifically defined in the sub-section. In the “Guidance Note on Terms used in Financial Statements” published by ICAI, “the expression “Sales Turnover” has been defined as: “The aggregate amount for which sales are affected or services rendered by an enterprise.
In the statement issued by ICAI on the CARO the word ‘turnover’ has been defined as under- “The term ‘turnover’ for the purposes of this clause may be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprises”.
while calculating the limit of section 44AB i.e. Tax Audit. Same interpretation should be followed while calculating the threshold limit under this section i.e. GST component should be included in sales. For example, if Mr. A has turnover of Rs. 9cr (exclusive of GST) in FY 2021-22 and collected GST of Rs. 1.08cr, in that case total turnover for the purpose of this section is Rs. 10.08cr. Same conclusion applicable for calculating Rs. 50 lakh threshold.
Some indicative illustrations are being given hereunder to make the issue a little easier to understand:
Illustration 1: Sales made to a buyer is less than ₹ 50 lakh up to 30-09-2020
|1.||Sales up to 30-09-2020||₹ 35 Lakh|
|2.||Amount received up to 30-09-2020||₹ 25 Lakh|
|3.||Invoices raised from 01-10-2020||₹ 30 Lakh|
As TCS shall be applicable beyond receipts of ₹ 50 lakh. Therefore, on the initial receipt of ₹ 25 lakh after 01-10-2020, TCS shall not be applicable. Consequently, TCS shall be applicable as and when ₹ 15 lakh [ ₹ 35 lakh + ₹ 30 lakh – ₹ 50 lakh] shall be received.
Illustration 2: Sales made to a buyer is more than ₹ 50 Lakh up to 30-09-2020:
|1.||Sales up to 30-09-2020||₹ 65 Lakh|
|2.||Amount received up to 30-09-2020||₹ 30 Lakh|
|3.||Invoices raised from 01-10-2020||₹ 20 Lakh|
As TCS shall be applicable beyond receipts of ₹ 50 Lakh. Therefore, on the initial receipt of ₹ 20Lakh after 01-10-2020, TCS shall not be applicable. Consequently, TCS shall be applicable as and when ₹ 35 Lakh [₹ 65 Lakh + ₹ 20 Lakh – ₹ 50 Lakh] shall be received.
Illustration 3: Amount received from a buyer is more than ₹ 50 Lakh up to 30-09-2020:
|1.||Sales up to 30-09-2020||₹ 65 Lakh|
|2.||Amount received up to 30-09-2020||₹ 55 Lakh|
|3.||Invoices raised from 01-10-2020||₹ 20 Lakh|
As TCS u/s 206C(1H) shall be effective from 01-10-2020, therefore TCS cannot be charged on collections made prior to 01-10-2020. Therefore, in this case, TCS shall be charged on the receipt of amount on or after 01-10-2020 i.e. on ₹ 30 Lakh [₹ 65 Lakh + ₹ 20 Lakh – ₹ 55 Lakh].
- Any person who purchases any Goods but does not include:
- the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State
- a local authority
- a person importing goods into India
provides that Total Sales, Turnover, Gross Receipts from the business shall be considered. As such, the receipts of sale of services shall also be considered.
consideration in case buyer of the goods fails to provide its PAN. Provisions of section 206CC have been specifically overruled by section 206C(1H).
Therefore, in line with the same rate of TCS u/s 206C(1H) shall also be reduced by 25% i.e. rate at which TCS to be collected shall be 0.075% up to 31-03-2021.
The above view was also affirmed by Madhya Pradesh HC in case of Vinod Rathore (278 ITR 122). Considering the above ruling, FAQs and no specific clarification in respect of section 206C(1H), TCS should be levied on the GST component as well to be on safer side.
In this case, both buyer and seller need to do accounting as receivable and payable for these amounts. It may be noted that if the payment is being made in next financial year, TCS obligation may not be applicable on seller (due to turnover threshold) or may not be applicable on buyer due to not making payments breaching ‘collection’ threshold in that financial year. In those case, one need to keep track and write off and reconcile it with the liability.
Alternative 2: The TCS can be collected by charging through debit note:
The logic for issuance of debit note may be that debit note to be issued at the time of payment so that it can be charged only on the eligible cases and no hassles of write off etc. (as mentioned in above points). But in that case, a specific series of debit note number may need to be used to make sure that these debit notes do not create issues in GST compliance.
Payment of TCS
TCS return filing
Pay tax online
E-payment of tax
NSDL e-Gov e-TDS/TCS Return Preparation Utility (RPU)
SAP TCS notes
Customizing SAP for Tax Collected at Source
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