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New TCS Provision under Income Tax and its Implications

Oct 07, 2020


TCS i.e. Tax Collection at Source has been there in Income Tax Acts for Decades. However, the government is trying to increase the scope of TCS gradually to plug the revenue leakage.

Through Finance Act 2020, Section 206C was amended to include certain items on which TCS becomes applicable effective October 01, 2020. In this analysis, we are not discussing the TCS provisions which existed before the current amendment. We will be only focussing on New TCS Provisions effective October 01, 2020.

Sub-sections (1G), (1H), (1-I) and (1J) were inserted in Section 206C of the Income Tax Act w.e.f. 1-10-2020.

We have summarized all changes and its clarifications at one place as below:

S.NoDetailsTCS Percentage TCS Percentage for FY 2020-21
1TCS on remittance out of India other than Tour Package. TCS on remittance out of India under the Liberalised Remittance Scheme of the Reserve Bank of India for other than Tour package purchase5% on payment more than Rs. 7 lakhs3.75%
2TCS on remittance out of India for Tour package purchase5%3.75%
3TCS on repayment of Education loan (remittance out of India)0.5% on payment more than Rs. 7 lakhs0.375% on payment more than Rs. 7 lakhs
4TCS on Sale of Goods. Every Seller (having previous year turnover more than Rs. 10 crore) shall collect TCS on sale of goods other than the goods being exported out of India (Exempted). Further on below goods which are covered in sub-section (1) or sub-section (1F), TCS shall be collected as per special rate defined : 1. Alcoholic Liquor for human consumption (1%). 2. Tendu leaves (5%). 3. Timber obtained under a forest lease (2.5%). 4. Timber obtained by any mode other (2.5%). 5. Any other forest produces (2.5%). 6. Scrap (1%). 7. Minerals, being coal or lignite or iron ore (1%). 8. Motor Vehicle in excess of Rs. 10 Lakh (1%). (No TCS on Motor Vehicle less than Rs. 10 Lakh).0.1% on collection amount more than Rs. 50 Lakh. If PAN/Aadhaar is not provided the TCS rate becomes 1%0.075% If PAN/Aadhaar is not provided the TCS rate becomes 1%

The above person is expected to Collect TCS as per above New TCS provisions and remit to the account of government as per applicable rules. If the buyer/remitter of money doesn’t furnish the PAN Number, then the Rate shall be as per section 206CC of the Act.

Clarifications on FAQ on New TCS Provision

1) TCS Shall be collected only if the Collection from sales to individual Buyer exceeds Rs. 50 lakhs in respective financial Year.

2) For the current financial year 2020-21, the TCS shall be collected only on amount collected on or after October 01, 2020. However, the amount of collection shall be calculated from April 01, 2020.

3) Even If the collection amount exceeds Rs. 50 lakhs, the TCS shall be collected only on the amount above Rs. 50 lakhs unlike TDS where TDS to be deducted from all amount once the limit is crossed. This is a welcome move from compliance angle of the sellers.

4) TCS shall be collected on collection amount. This amount is net of all discounts, schemes etc and inclusive of GST and other charges.

5) TCS shall be Collected based on collection amount and not billed amount. The Seller will face practical difficulty here as he will not know if the collection will happen in current financial year or next financial year. As a normal practice, the seller would like to add this amount in the Sales invoice itself (similar to GST) so that buyer can make the payment accordingly. If the buyer pays in the next financial year where the amount is not expected to exceed Rs. 50 lakhs, he may want seller to revise the invoice raised last year. This may raise practical challenges on seller side.

6) No TCS to be collected if Goods are being exported. However, the export turnover to be included in calculation of Rs. 10 crore turnover limit.

7) TCS to be collected by Seller only if there previous year turnover exceeds Rs. 10 crores

8) TCS is not applicable on Sale of Services

9) The Buyer will get TCS credit as advance tax in their account. If the Buyer doesn’t have taxable income, they can file for the refund.

10) TCS is not required to be collected if Buyer is required to deduct TDS on the sale of subject goods and buyer deducts TDS.

You can reach out to author at vm@tya.co.in if you shall have any specific queries on New TCS Provision.

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Vikas Mandawewala

Vikas Mandawewala is a Rank Holder Chartered Accountant and Rank Holder Company Secretary.
He has done his CPA (US-NY and US-CO), CIA (US), and CISA (US). He is also a Registered Valuer (India). He has been providing Virtual CFO services to various startups and mid-sized companies in India.