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Are you the one who is affected by the new provision inserted by the government for Tax collected at Source (TCS)? Do you need to follow something separately to keep a track record of TCS?

If you are looking for answers to above questions then you have landed up at the right place. We will discuss about the topic Tax Collected at source in the article in detail here

So what is Tax Collected at source (TCS)?

Tax Collected at source is the tax payable by the seller which he collects from the buyer at the time of sale. TCS is governed by the section 206C of Income Tax Act 1949. However TCS is entirely different from Tax deducted at source (TDS). Whereas TDS is amount deducted by the buyer while paying to seller, TCS involves collection of tax while selling the goods to the buyer

History of Tax Collected at Source (TCS)

It’s not that TCS is a new concept in Income tax. Earlier too, Tax Collected at Source was existing in Income tax Act under 206C of the Act. While a lot of new things is happening with the income tax act like Faceless assessment, TCS (1H) and bringing e-commerce operators under tax net. You can check my article on Faceless Assessment posted earlier

The following goods if used for manufacturing or processing were exempted from TCS. However if the same below goods are used for trading then TCS is applicable

Type of GoodsRate
Liquor of alcoholic nature, made for consumption by humans1%
Timber wood under a forest leased2.5%
Tendu leaves5%
Timber wood by any other mode than forest leased2.5%
A forest produce other than Tendu leaves and timber2.5%
Scrap1%
Minerals like lignite, coal and iron ore1%
Bullion that exceeds over Rs. 2 lakhs/ Jewellery that exceeds over Rs. 5 lakhs1%
Purchase of Motor vehicle exceeding Rs. 10 Lakhs1%
Parking lot, Toll Plaza and Mining and Quarrying2%

New Provisions under the act for Tax Collected at Source

The government has inserted sub-section (1C) under 206C of the act which now covers all the goods sold apart from the existing list above. With this sub-section government has widened the TCS provision for the sale of goods.

Criteria for collection of TCS from Buyer
  1. TCS is to be collected for sale of any goods by seller from the buyer. Please note that it is only collected for sale of goods and not on the sale of services. Sale of services is out of the scope of TCS.
  2. To be eligible for TCS, the turnover of the seller should be more than 10 crores in the preceding financial year. E.g Fy 20-21, the turnover of seller should exceed 10 crores in the previous FY 19-20.
  3. TCS should be collected by the seller if the Aggregate receipt from sale of goods exceeds 50 lakhs.
  4. TCS rate is 0.1% of the sale amount received.
  5. TCS is to be collected only if receipts exceed 50 lakhs and it is calculated only on the amount less 50 lakhs(actual receipts – 50 lakhs). In case the receipt don’t exceed 50 lakhs then no TCS is collectable.
  6. In case the buyer does not have a PAN and is liable for TCS, then the seller needs to charge flat 1% on sale of goods.

Few Examples for Tax collected at source criteria

Example no 1.

Example 1

Seller has sold goods for Rs. 70 lakhs. But received only 65 lakhs. Will theTCS be chargeable by Seller
Answer
Yes, TCS will be chargeable by the seller as the receipt amount exceeds 50 lakhs. TCS amount would be 1500((65 lakhs- 15 lakhs)*0.1%)

How to calculate turnover for TCS provision

As you know, TCS is only levied by the seller only if its turnover exceeds Rs. 10 crores in the previous FY. Now to calculate turnover following items are included

  1. Sale of goods
  2. Gross receipts
  3. Advances
  4. Sale of Services
  5. Amount of GST levied

Though the sale of services is not included in 50 lakhs criteria of TCS, the same is included while calculating 10 crore turnover criteria.

Example 2
M/s Bentec is into selling of high-speed scanners to the customer. Along with selling scanners, they also provide maintenance and software services to the customer. The total turnover for PY 19-20 was 6 crores from the sale and 3.5 crores from services and maintenance. Will M/s Bentec will be eligible to collect TCS if GST applicable is 18% on their services

Answer

ParticularsAmt in Crs
Sale of Scanners6.00
Maintenance and Software Services3.50
Add GST @18%1.71
Total Turnover11.21


As the turnover exceeds 10 crores, M/s Bentec will be eligible to collect TCS from its customers.

Whether 50 lakhs applicability for TCS is to be calculated from 1st October 2020 or for the whole FY 20-21?

The provision was supposed to be rolled out from FY 20-21 April but due to COVID 19, this is been made applicable from Oct 2020. However while calculating 50 lakhs receipts criteria, the amount received is to considered from April 2020.

Few examples

Example no 1
Amount collected till Sept 202045 lakhs
Invoices made till Sept 202050 lakhs
Invoices made from 1st Oct 202010 lakhs

In the above example TCS will not be collected by the seller as the amount collected. TCS will be only collected when the seller collects the balance Rs. 5 lakhs ( 45lks + 10lks-50lks)

Example no 2
Amount collected till Sept 202060 lakhs
Invoices made till Sept 202053 lakhs
Invoices made from 1st Oct 202020 lakhs

In the above case, the amount of Rs. 50 lakhs is already collected by the seller but before 1st Oct 2020. So seller cannot charge TCS on previous receipt. TCS would be applicable only when seller collects the next amount after 1st Oct 2020 on the balance 23 lakhs (53 lks+20lks-50lks)

What happens when TCS is collected on Advance amount and the deal is cancelled/called off?

It is known now that TCS is collected as soon as the receipt crosses the 50 lakhs criteria. This receipt includes advance receipts as well. But there is a probability that you might accept an advance from the party and later the deals get canceled. However, during this time you have collected TCS and deposited it in the government repository.

In the above case, the amount of advance received by the seller needs to be refunded back to the buyer. The refund amount will be excluding the TCS amount collected by the seller. The amount paid as TCS by the buyer will be allowed to set off against the advance payments or year end tax liability. The TCS will also be reflecting in the buyer’s 26AS form.

Will Tax Collected at source applicable on sale of Motor vehicles covered under sub section (1F)of section 206c of the Act.

Sub Section 206c(1F) deals with the sale of Motor Vehicles where sale value exceeds Rs. 10 lakhs. TCS u/s (1H) would not be applicable to the sale where TCS u/s(1F) is applicable. To summarise.

Tax Collected at Source

How to charge buyer TCS and when?

Once TCS is applicable, you can charge TCS in two ways

  1. Raising a debit note– You can raise a debit note to the buyer for the TCS amount at the time of receipt. But then you might need a separate series/tracking of such debit notes so as to not include GST in it.
  2. Charging TCS at the time of raising invoice– This will be done by most of the sellers. But make sure that the amount from buyer to be received within same FY. In case the payment is received in next year, then 10 crore criteria for TCS needs to be checked again and if not applicable then such amount needs to be written off.

Timelines and Forms for TCS return

  • Due Date for payment of TCS-7th of next month for the previous
  • Frequency of return – Quarterly
  • Deposit form- Challan no 281
  • Form for Filing- Form no 27EQ
  • Form for TCS certificate – Form no 27D

Time Table

Quarter Ending onDue date of submission of returnDue date for issuance of Tax certificate
30th June15th July30th July
30th September15th October30th October
31st December15th January30th January
31st March15th May30th May

So this is all about Tax collected at Source. Hope you find this article an informative one.

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