Amidst various changes brought about in the Finance Bill, 2020, introduction of Section 206C(1H) is a welcome step to curb and track usage of unaccounted money. The Section requires the seller to collect tax at source on sale of certain goods, details of which shall act as data center for the Government to track high value transactions and create audit trail of buyers procuring goods without disclosure in their books of accounts. Kindly note provision of Section Section 206C(1H) are applicable from 01.10.2020 as provided in Finance Act, 2020.
2. Provision of the Act:
New sub-section (1H) under Section 206C is duplicated below:
Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lac rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F)or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent. of the sale consideration exceeding fifty lac rupees as income-tax:
The sub-section prescribes that if a seller (being a person, whose turnover in the previous financial year exceeds 10 Crores) makes sale of “goods” whose value, either individually or in aggregate exceeds 50 Lacs, the seller shall collect tax at source at 0.1% on the value of sale consideration exceeding 50 Lacs from the buyer.
Levy shall be on “all” goods except those explicitly prescribed under sub section 1, 1F & 1G (on which separate rates have been prescribed) under Section 206C. In case the buyer does not furnish their PAN/AADHAR number to the seller, TCS shall be levied at 1% on the sale consideration.
Goods covered under relevant sections for tax collection at source are given below:
Items covered under TCS
a. Alcoholic Liquor for human consumption
c. Timber obtained under a forest lease
d.Timber obtained by any mode other than under a forest lease
e. Any other forest produce not being timber or tendu leaves
g. Minerals, being coal or lignite or iron ore
a. Motor vehicle (if value exceeds 10 Lakhs)
206C (1G) *
a. Sum of money (above 7 Lakhs) for remittance out of India
b. Seller of an overseas tour program package
* Inserted vide Finance Bill 2020
How shall tax collected be discharged?
The person responsible for collecting tax shall deposit the TCS amount within 7 days from the last day of the month in which the tax was collected.
How will the TCS remitted reflect to the buyer’s account?
Every tax collector shall submit quarterly TCS return i.e., Form 27EQ in respect of the tax collected by him in a particular quarter.
3. Threshold limit for levy:
The section states that tax shall be collected on the consideration value exceeding 50 Lakhs only, which means that there is an exemption limit of up to 50 Lakhs (individually or in aggregate on sales during any financial year). Export of goods is not covered under TCS on sale of goods
4. Relevant definitions to the sub-section:
Seller – means a person whose total sales, gross receipts or turnover from the business carried on by him exceeds ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
Buyer – means a person who purchases any goods, but does not include,––
a. Central Government, a State Government, an embassy, a High Commission, legation,
commission, consulate and the trade representation of a foreign State; or
b. A local authority as defined in the Explanation to clause (20) of section 10; or
c. Any other person as the Central Government may, by notification in the Official Gazette,
specify for this purpose, subject to such conditions as may be specified therein.
Goods has not been defined in the Income tax act and hence reference is made to Section 2(7) of the Sale of Goods Act, 1930 which defines goods to “mean every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale”.
Export of goods is not covered under TCS on sale of goods.
5. Exception to the sub-section:
Proviso to the sub-section states that the provisions shall not be applicable “if the buyer is liable to deduct tax at source under any other provision of this Act and has deducted such amount”.
6. On what value shall TCS be levied?
Section 206C (1) of Income Tax Act stated that tax shall be collected on the “value being debited as payable by the buyer to the seller.
CA Tarun Kumar Gupta
FCA, B.com, LL.b, DISA