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Section 206c Tax Collected at Source(TCS)

To expand the TCS rules to the seller of products, the government has included a new section 206C (1H) through Finance Act 2020.

According to this clause, a vendor whose annual revenue exceeds Rs 10 crore is liable to collect tax when he earns more than Rs 50 lakh from a single customer. It should be remembered that the TCS must be paid when the money is received.

What does section 206C 1H of Income Tax Act’s new TCS clause imply?

The 206c provision applies only to a seller whose gross turnover exceeds Rs.10 crore during the financial year preceding the FY in which such a sale is carried out.

The term “goods” does not include exports or items covered by section 206C(1)- TCS on the sale of alcohol, tendu leaves, forest produce, and scrap; 206C(1F)- TCS on the sale of motor vehicles; and 206C(1G)- TCS on foreign remittance.

If the buyer is a Central/State Government, Embassy, High Commission, Legation, Consulate, Trade Representation of a Foreign State, or any local authority, TCS is not subtracted. This rule does not cover imports of products into India.

How to calculate the TCS on sale of goods and the effective dates

Starting on October 1, 2020, this clause is in effect. When a seller receives payment from a buyer for consideration that is worth more than Rs. 50 lakh in a fiscal year, they are obligated to deduct tax at source at a rate of 0.1%. (The TCS rate on sale of goods was 0.075% until March 31, 2021, as a result of COVID-19.)

Additionally, the Rs. 50 lakh limitation applies to the entire fiscal year. To determine the buyer’s limit of Rs. 50 lakh, any selling consideration received by the buyer between April 1, 2020, and September 30, 2020, shall be considered.

TCS Example

Suppose that from April 2020 to September 2020, seller ‘ABC’ receives Rs. 48 lakh from buyer ‘XYZ.’ However, if the recipient receives more than Rs. 10 lakh on October 10th, 2020, TCS will apply, and it must be paid on Rs. 8 lakh (58 lakh – 50 lakh) at a rate of 0.075%.

Turnover details in 2020-21 Amount received from a buyer in 2021–2022 TCS to be collected
Rs 7 cr Rs 60 lakh Nil
Rs 12 cr Rs 75 lakh (75 lakh -50 lakh)*0.1% = 2,500
Rs 11 cr Rs 45 lakh Nil

TCS Invoice Format

Let’s say a vendor decides to include TCS in the invoice; he will include the following details:

Cost of goods  Rs.1,00,00,000
GST at 18% Rs. 18,000,000
Total Rs. 1,18,00,000
TCS on sale of goods Rs. 8,850
The final invoice amount  Rs. 1,18,08,850

Due date for TCS deposit

TCS must be collected from the buyer and paid to the government by the supplier of the products. By the 7th day of the subsequent month, the TCS is expected to be paid.

For instance, if you received Rs. 70 lakh from a buyer on December 28, 2021, and you collected TCS of Rs (1h). Then, by January 7, 2022, you must deposit the debt.

What effect does the new TCS clause have on e-invoicing?

In India, e-Invoicing is being introduced gradually. Every B2B invoice must be disclosed on the government site as part of the government’s effort to prevent tax evasion.

Implement E-invoicing in India

E-invoicing was made mandatory for all businesses with a revenue of more than Rs. 50 crore starting on April 1st, 2021, as part of the third phase.

Additionally, from 2017–2018 through 2021–2022, enterprises with annual revenue of more than Rs. 20 crores are now required to use electronic invoicing.

According to the most recent update, starting on October 1, 2022, companies with a turnover of more than Rs. 10 crore must produce electronic invoices. There is no specific provision for TCS under section 206C(1H)  of the existing e-invoicing mandate.

TCS should be listed under “other charges” when creating the invoice reference number so that it will be reported as part of the total invoice value. Therefore, this amount will also automatically be included in the invoice value on GSTR-1.

This new TCS clause only applies to receipt-based transactions, not sales. Therefore, the seller of goods is obligated to collect TCS on advances that were later subtracted from the invoice.

As a result, it is advised to collect TCS upon receipt rather than at the time the invoice is issued. Additionally, there will be no impact on e-invoicing if TCS is excluded from the invoice.

FAQs on section 206c tax collected at source

Does TCS have any effect on e-invoicing under GST?

TCS won't impact E-invoicing in any way.

Should the GST amount be taken into account while determining TCS?

According to CBDT Circular No. 17 of 2020, tax is deducted on the receipt of consideration rather than the sale; hence there should be no GST adjustments made while computing TCS due to indirect taxes or discounts.

How is TCS determined following section 206C (1H)?

A buyer-based formula must be used to calculate the TCS. 50 lakh per financial year is the threshold level under Section 206C(1H). Therefore, you must collect 0.1% of all money exceeding Rs. 50 lakh.

What is the deadline for the TCS deposit that was received from buyers?

On the seventh day following the end of the month, the provider receives payment.

What is the deadline for submitting a TCS return?

Each tax collector must submit a quarterly TCS return in Form 27EQ by the 15th of every month following the quarter. However, TCS returns for the January through March quarter may be submitted by May 15 of the succeeding year.

What is the TCS on sales of goods turnover limit?

The seller is required to collect TCS upon receiving consideration from the buyer on any amount over and above Rs. 50 lakhs when the total turnover exceeds Rs. 10 crores in the previous financial year under Section 206C(1H).

Who is accountable for deducting TCS on the sale of goods?

According to Section 206C(1H), a seller must collect TCS from a buyer on the sale of any products if the amount received from the buyer exceeds Rs. 50 lacs, and the seller had a turnover of more than Rs. 10 crores in the previous financial year.

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