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.
Also Read: Income Tax Changes In Union Budget 2022
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.
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