The Income Tax Act of 1961 introduced Tax Collected at Source (TCS) on the sale of goods from October 1 2020. Such a provision influences the invoicing system under Goods and Services Tax. Keep reading to get the details regarding TCS under Finance Act, 2020!
The Finance Act, 2020, implemented Section 206C(1H) of the IT Act to update the provision related to TCS. According to this Section, a seller will have to deduct TCS on goods’ sale if the value of this sale goes beyond Rs. 50,00,000 in a particular fiscal year. While receiving such payment, TCS deduction will be applicable.
The following are the requirements under this provision:
Section 206C(1H) has been in force since October 1 2020. Under this, a seller needs to deduct TCS @0.1% on the payment whose value goes beyond Rs. 50 lakh during a fiscal year. Owing to the COVID-19 pandemic, the TCS rate was minimised to 0.075% until March 31 2021.
Suppose Manav (seller) receives Rs. 70 lakh during a fiscal year. In this case, he will deduct TCS on Rs. 20 lakh (Rs. 70 lakh – Rs. 50 lakh).
Furthermore, let’s say Ravi (supplier) charged Tax Collected at Source in an invoice:
Note that the limit of Rs. 50,00,000 is applicable for the entire fiscal year. Hence, if sellers get any payments from the buyers between April 1 2020 and September 30, 2020, the equivalent will be taken into account for computing the threshold of Rs. 50,00,000 for those buyers.
For instance, let’s say Jay (seller) gets a payment of Rs. 40 lakh from Manish (buyer) between April 2020 and September 2020. Again, he receives Rs. 15 lakh on October 10 2020. In this situation, a TCS deduction is applicable on Rs. 5,00,000 (Rs. 55 lakh – Rs. 50 lakh) at the rate of 0.075%.
The Government of India has introduced e-invoicing through a phased approach. E-invoicing mandates the reporting of any business-to-business invoice on the government website. The ultimate purpose is to mitigate tax evasion.
During the 3rd phase, the government covered all the organisations with turnover above Rs. 50 crore since April 1 2021. In the 4th phase, it included companies with a yearly turnover above Rs. 20 crore in any preceding years between FY 2017-18 and FY 2021-22.
As per the present e-invoicing mandate, no separate TCS provision exists under Section 206C(IH). When you generate your invoice reference number, you must include the TCS applicable in your invoice value under ‘other charges’. Furthermore, the GSTR-1 will automatically add the TCS amount included in your invoice value.
This recent TCS provision functions on a receipt basis. Thus, sellers need to collect this tax on advance payments received. Afterwards, it will be adjusted against the relevant invoice. If your invoice doesn’t cover the TCS, there’ll be no impact on the e-invoicing.
Section 206C(IH) needs a seller to collect taxes when his/her gross receipts or total sales during the previous fiscal year go above Rs. 10 crore. In this case, if you’re purchasing goods whose price exceeds Rs. 50 lakh, be prepared for a TCS deduction on the same.
Ans: As per CBDT’s Circular No. 17 (2020), there should be no Goods and Services Tax adjustments for computing Tax Collected at Source due to discounts or indirect taxes. The tax is subtracted on the receipt of consideration (not the actual sale).
Ans: Sales by SEZ (Special Economic Zone) units come under export. However, Tax Collected at Source will be applicable to them if payment from a purchaser goes above Rs. 50 lakh in a particular fiscal year.
Ans: Section 206C(IH) of the Income Tax Act, 1961 deals with TCS on the sale of goods. Hence, it doesn’t cover payments for the supply of services. That said, it considers the sale of services for computing the threshold of Rs. 1,00,00,000.
Ans: A supplier gets payment on the seventh day from the end of the month. All TCS collectors should file a TCS return (quarterly) by way of Form 27EQ. It contains details related to the tax collected during a specific quarter.
Ans: Yes, a buyer has to furnish his/her Aadhaar or PAN details as per TCS provisions. If he/she fails to do so, TCS @ 1% will be applicable on sale consideration. In this case, Section 206CC comes into force.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
Public Provident Fund (PPF) – Know PPF Details and Its Benefits
In 1968, the National Savings Institute introduced the PPF scheme. The Public Provident Fund (PPF) ... Read More »How to Withdraw PF Amount? – Step-by-Step Guide
EPF (Employees Provident Fund) is a popular savings scheme for employees in India. The Central Gove... Read More »Previous Year in Income Tax: Exceptions on Taxation
‘Previous Year’ in the Income Tax Act, 1961 is an important concept associated with the payment... Read More »What are Capital Receipts and What are its Types?
The concept of a receipt is easy to understand as it is described as a written record that a paymen... Read More »What is Anti-Dumping Duty (ADD) – Its Working, Examples and Calculation
Anti-dumping duty refers to a tax or other charges levied on a particular imported product. The con... Read More »Loan to Purchase Land – Types, Features, Eligibility and Documents Required
Loans for land purchase or plot loans are secured loans given for purchasing plots of land. Borrowe... Read More »List of 11 Tax-Free Income Sources in India (2023)
There are many sources through which a person can earn his/her income. It can be income from salary... Read More »New GST Rates in India (2023) – Latest Changes in GST Rates
GST or the Goods and Services Tax is one of the most significant tax reforms to be ushered in since... Read More »What is Input Tax Credit (ITC) in GST – Eligibility and Documents Required To Claim ITC
GST is consumption-based taxation levied at all stages in a value chain. Set-off of GST paid in the... Read More »What is Cess on Income Tax: Overview, Types and Calculation
Cess is a tax on taxes imposed by the Central Government or state governments for specific reasons.... Read More »Section 80EEB: Eligibility & Deduction Amount
Electric vehicles are better for the environment and an efficient alternative to fuel-run vehicles.... Read More »What is Section 80GGA: Deductions on Donations Made for Rural Development
Income Tax Act provides several opportunities for taxpayers to claim partial or full deductions. Se... Read More »Top 10 Chit Fund Schemes in India in 2023
Chit funds are one of the most popular return-generating saving schemes in India. It is a financial... Read More »10 Best Gold ETFs to Invest in India in February 2023
Gold ETFs or Gold Exchange Traded Funds are passively managed funds that track the price of physica... Read More »Top 10 Demat Accounts in India [Lowest Brokerage Charges]
A Demat account was created to eliminate the time-consuming and inconvenient procedure of purchasin... Read More »20 Best Index Funds in India to Invest in 2023 (Updated on 31st Jan)
What is an Index Fund? An index fund is a type of mutual fund or exchange-traded fund (ETF) that... Read More »Best Arbitrage Mutual Funds to Invest in India: Returns and Taxation
Arbitrage funds are hybrid mutual fund schemes that aim to make low-risk profits by buying and sell... Read More »Best SIP Mutual Funds To Invest In India (2023) – Its Types And Taxation
A Systematic Investment Plan (SIP) is a convenient way to invest a fixed sum in mutual funds. For i... Read More »10 Best Corporate Bond Funds in India 2023 – With Returns
Corporate bond funds are debt funds that invest at least 80% of the investment corpus in companies ... Read More »10 Best Banks for Savings Account in India (2023)
A savings account keeps your money safe, and lets you earn interest every quarter. There are many b... Read More »All information is subject to specific conditions | © 2023 Navi Technologies Ltd. All rights are reserved.
Start Small. Dream Big.
Start your Investment Journey with just ₹10