TCS UNDER INCOME TAX ACT

It Was Only For The Good Of His Subjects That He Collected Taxes From Them, Just As The Sun Draws Moisture From The Earth To Give It Back A Thousand Fold”

 –Kalidas In Raghuvansh Eulogizing KING DALIP.

 [A] INTRODUCTION:

 

The Exigibility Of Tax As A Concept Invites Many Critics. The Purpose Of Taxing People On Their Hard Earned Income Seems To Be Somewhat Cruel But A Necessary Exercise. The Antagonist Of Taxation Try To Show It As An Exercise Of Taking Away Soul Out Of Body. On The Other Hand The Protagonists Of This Idea See It As A Platform To Make The State As A Welfare State By Equal Distribution Of Resource.

 With Many Tales And Controversies The System Of Taxation Still Finds It’s Legs Grounded Deep. Like Many Controversies The Truth May Lie Somewhere In Between. This Is True That Even The Coin Gets Defaced And Its Engraving Gets Erased After It Has Been A Long Time In Circulation. Tax Has Its Own Fair Share Of Critics But It Has Left An Indelible Mark In The Socio-Economic History Of Any Nation.

 

[B] EXIGIBILITY OF TAXES:

 The Tax Is Exigible On Person Earning Income And Tax Is Charged As Per The Income Tax Act, 1961 (The Act). Section 4 Of The Act, Is The Basic Charging Section Under Which Income-Tax Is Chargeable On The Total Income Of Every Person. The Classic Tax Doctrine States That The Person Who Is Earning Income Shall Be Taxed. The Grunt Of Paying Tax Is Fastened With The Person Who Is Earning It. The Doctrine Is Pristine And Flawless And Is Founded On The Principle Of “Earner-Payer” I.E. One Who Earns Will Pay. But There Arises A Contradiction In The Theory Of “Earner-Payer”. All Principles Have Their Dark Nooks. This Theory In Particular Is Also Having Its Exception Too. The Concept Of Tax Deducted At Source And Tax Collected At Source, Inter-Alia, Are Exception To This Theory Of “Earner-Payer”.

 

 [C] REASON BEHIND TAX COLLECTED AS SOURCE AND TAX DEDUCTED AT SOURCE:

 

As Already Stated, The Exigibility Of Tax Is Based On The “Earner-Payer” Principle I.E. One Who Will Earn Will Pay. But What If The Taxes Are Collected From The Person Who Is Paying To Others. In Simple Terms, The Liability Here Is Fastened On The Person Who Is Supposed To Make Payments To Other Person. This Doctrine Is Known As “Tax Deducted At Source” (TDS).

 A Person Who Is Liable To Deduct TDS Is Called “Deductor” And The Person From Whose Income Tax Is Deducted Is Called “Deductee”. The Deductee From Whose Income Tax Has Been Deducted At Source Would Be Entitled To Get Credit Of The Amount So Deducted.Any Such Law Which Fastens Any Liability On The Person Who Is Supposed To Pay For The Services Or Goods Then It Seems To Be More Of An Administrative Step Than To A Legal Step. It Does Not Satisfy The Legal Requirement Of Taxing The Person Who Earns Income. Perhaps, It Is Other Way Round I.E. Charging To Person Who Is Making Payment. TDS Deducted By Employer While Making Payment To Employee. Here, Government Gets Administrative Benefit As Government Has To Only Take Into Consideration The Payment Made By The Employer Who Is Paying In Bulk And Not Individual Employee.

 Tax Collected At Source (TCS) Is A Concept Where Tax Is Collected By The Person Who Is Receiving Money For Goods Or Services, Or Both. A Small Collection At A Marginal Rate Helps In Keeping In Check The Persons Who Is Earning. This Concept Is Brought With An Intent To Increase The Net Tax. There Is A Stark Difference Between TDS And TCS. TDS Is A Deduction Made At The Time When A Payment Is Made By The Company To An Individual In Cases Where Amount Exceeds Certain Level. Whereas, TCS Is A Percentage Of Tax Collected By Sellers While Selling Something To Buyers.

 

[D] LEGISLATIVE HISTORY OF TCS:

In 1988 For The Maiden Time The Sub Chapter “BB. The Collection At Source” Was Introduced In The Income Tax Act. Sec 206C Was Inserted By The Finance Act, 1988. This Is The Sole Section Dealing With Entire Law Of TCS With Effect From 1 June 1988. With Introduction Of Sec 206C, Sec 44AC Was Also Introduced. Sec 44AC Provides For A Special Provision For Computation Of Income From The Business Of Trading Of Certain Specified Goods. The Constitutional Validity Of Enactment Of Sec 44AC And 206C Was Held To Be Within The Legislative Competence Of Parliament And Also Serving The Purpose Which Legislature Had In The Mind. (Refer To Union Of India V. Sanyasi Rao (A) (1996) 219 ITR 330 (SC); Sat Pal & Co. V. Excise & Taxation Commissioner [1990] 185 ITR 375 (Punj. &Har.).

 It Is Seen That The TCS Provisions Were Already Present In The Legislative Book Then Why All Of A Sudden The Topic Of TCS Became A Burning Topic. The Answer Is Simple, The TCS Is Applicable On The Items Listed In The Table Below Along With The Rate Of TCS. With The Latest Amendment Under Sec 206C Brought By Finance Act, 2020, Instead Of The Restriction Of Applicability Of TCS To Certain Goods Only It Has Widen To All Goods With Certain Limit As To The Transaction Amount.

 

Sr. No.	Nature of Goods	Percentage
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 than under a forest lease	2.5%
5	Any other forest produce not being timber or tendu leaves	2.5%
6	Scrap	1%
7	Minerals, being coal or lignite or iron ore	1%
8	Parking lot	2%
9	Toll plaza	2%
10	Mining and quarrying	2%

 

 

[E] AMENDMENT:

At Present, Chapter XVIIB Of The Act Relates To Deduction Of Tax At Source. The Provisions Of This Chapter Provide For TDS On Various Payments At Rates Contained Therein. With A View To Expand The Net Collection, The Govt. Of India Introduced A New Amendment In Sec. 206C Vide Finance Act, 2020.

 Memorandum Of Objects On Finance Bill 2020 In The Clause 84 Provides That For In Order To Widen And Deepen The Tax Net, It Is Proposed To Amend Section 206C To Levy TCS On Foreign Remittance Through Liberalised Remittance Scheme (LRS) And On Selling Of Overseas Tour Package As Well As TCS On Sale Of Goods Above Specified Limit.

 With The Introduction Of Amendment, TCS Is To Be Collected On Foreign Remittances Under The Liberalized Remittance Scheme, Sale Of Overseas Tour Package And On Sale Of Goods By Specified Seller (Exceeding A Specified Limit). The Amendment Brought In Sec 206C Is Applicable From 1 October 2020.

 

Amendment Brought In Sec 206(C) In Particular (1G) Is Provided Below For Kind Reference:-

 

(1G) Every Person,—

(A) Being An Authorised Dealer, Who Receives An Amount, For Remittance Out Of India From A Buyer, Being A Person Remitting Such Amount Out Of India Under The Liberalised Remittance Scheme Of The Reserve Bank Of India;

(B) Being A Seller Of An Overseas Tour Program Package, Who Receives Any Amount From A Buyer, Being The Person Who Purchases Such Package,Shall, At The Time Of Debiting The Amount Payable By The Buyer Or At The Time Of Receipt Of Such Amount From The Said Buyer, By Any Mode, Whichever Is Earlier, Collect From The Buyer, A Sum Equal To Five Per Cent Of Such Amount As Income-Tax:

Provided That The Authorised Dealer Shall Not Collect The Sum, If The Amount Or Aggregate Of The Amounts Being Remitted By A Buyer Is Less Than Seven Lakh Rupees In A Financial Year And Is For A Purpose Other Than Purchase Of Overseas Tour Program Package:

Provided Further That The Sum To Be Collected By An Authorised Dealer From The Buyer Shall Be Equal To Five Per Cent Of The Amount Or Aggregate Of The Amounts In Excess Of Seven Lakh Rupees Remitted By The Buyer In A Financial Year, Where The Amount Being Remitted Is For A Purpose Other Than Purchase Of Overseas Tour Program Package:

Provided Also That The Authorised Dealer Shall Collect A Sum Equal To One Half Per Cent Of The Amount Or Aggregate Of The Amounts In Excess Of Seven Lakh Rupees Remitted By The Buyer In A Financial Year, If The Amount Being Remitted Out Is A Loan Obtained From Any Financial Institution As Defined In Section 80E, For The Purpose Of Pursuing Any Education:

Provided Also That The Authorised Dealer Shall Not Collect The Sum On An Amount In Respect Of Which The Sum Has Been Collected By The Seller:

Provided Also That The Provisions Of This Sub-Section Shall Not Apply, If The Buyer Is,—

           (I)  Liable To Deduct Tax At Source Under Any Other Provision Of This Act And Has Deducted Such Amount;

          (Ii)  The Central Government, A State Government, An Embassy, A High Commission, A Legation, A Commission, A Consulate, The Trade Representation Of A Foreign State, A Local Authority As Defined In The Explanation To Clause (20) Of Section 10 Or 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.

Explanation.—For The Purposes Of This Sub-Section,—

           (I)  “Authorised Dealer” Means A Person Authorised By The Reserve Bank Of India Under Sub-Section (1) Of Section 10 Of The Foreign Exchange Management Act, 1999 (42 Of 1999) To Deal In Foreign Exchange Or Foreign Security;

          (Ii)  “Overseas Tour Programme Package” Means Any Tour Package Which Offers Visit To A Country Or Countries Or Territory Or Territories Outside India And Includes Expenses For Travel Or Hotel Stay Or Boarding Or Lodging Or Any Other Expenditure Of Similar Nature Or In Relation Thereto.

 

A Particular Aspect Of The Amendment Which Is Bone Of This Article Is Insertion Of Sub. Sec. (1H) To Sec 206C. It States As Follows:-

 

(1H) 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 Lakh 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 Lakh Rupees As Income-Tax:

 

Provided That If The Buyer Has Not Provided The Permanent Account Number Or The Aadhaar Number To The Seller, Then The Provisions Of Clause (Ii) Of Sub-Section (1) Of Section 206CC Shall Be Read As If For The Words “Five Per Cent.”, The Words “One Per Cent.” Had Been Substituted:

 

 Provided Further That The Provisions Of This Sub-Section Shall Not Apply, If The Buyer Is Liable To Deduct Tax At Source Under Any Other Provision Of This Act On The Goods Purchased By Him From The Seller And Has Deducted Such Amount.

 

Explanation.––For The Purposes Of This Sub-Section,––

 

(A) “Buyer” Means A Person Who Purchases Any Goods, But Does Not Include,––

 

 (A) The 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) A Person Importing Goods Into India Or 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;

 

(B) “Seller” Means A Person Whose Total Sales, Gross Receipts Or Turnover From The Business Carried On By Him Exceed 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.’;

 Now, With Effect From 1 October, 2020, Every Seller Is Required To Collect A Sum As Income Tax Whose Total Sales, Gross Receipts Or Turnover In The Preceding Financial Year Exceeds Rs. 10 Crores. It Is Important To Mention Here That The TCS Is To Be Collected On The Sale Of Goods Only. If There Is Any Sale Of Services Then TCS Provision Will Not Get Attracted. The Term ‘Goods’ Is Not Defined In The Income-Tax Act. The Sales Of Goods Act, 1930, Defines “Goods” As Per Section 2 (7) Of The ‘Act’ As “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.”

 Sec 206C Was Already Regulating Collection Of TCS On Certain Goods But With Introduction Of Sub-Sec (1H) The Gamut Of Goods Increased As It Now Includes Any Goods. So, (1H) Brought Under Its Shadow All Remaining Goods Which Were Not So Covered Under The Provision Of 206C.

 

[F] DEFINITION OF VARIOUS TERMS USED UNDER SEC 206C(1H):

 

To Understand The Concept Of TCS In Entirety It Is Important To Understand The Terminology Used Under Sec 206C(1H) Of The Act. The Two Primary Words Which Is Of Sentinel Of Applicability Of Sec 206C(1H) Is As “Seller” And “Buyer”. The Explanation To Sec 206C(1H) Provides For The Definition Of Buyer And Seller And These Are As Follows:-

 

1. The term “buyer” means any person who purchases any goods but does not includethe Central Government, State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; ora local authority as defined in the Explanation to clause (20) of section 10; ora person importing goods into India or any other person as the Central Government may specify.

 

‘Buyer’ For Purposes Of Section 206C Means Buyer Of Goods And Not Merely A Person Who Acquires A Licence To Carry On Business – Union Of India V. Om Prakash S.S. & Co. [2001] 115 Taxman 325 (SC).

 

2. The term “seller” means any person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out.

 

The Definition Of Buyer Is An Open End Definition Meaning Thereby That There Is No Specific List Of People Who Will Called As Buyer But The Legislature Has Provided Exceptions To The Definition Of Buyer Which Includes Govt. Instrumentalities As Provided Under Explanation To Sec 206C(1H). Whereas, The Definition Of “Seller” Means Person Whose Total Sales, Gross Receipts Or Turnover Is More Than 10 Crores.

 The Section Is Applicable To Every Person Being A Seller And ‘Person’ As Defined Under Section 2(31) Of The Act Includes Individual, HUF, Company, Firm, AOP, BOI, Coop Societies, Local Authority And Artificial Judicial Person.

 The Seller Of The Goods Meeting The Above Laid Criterion Is Liable To Collect Tax At Source.

 

[G] VARIOUS COMPLIANCE AND PROCEDURAL PART UNDER TCS:

 

There Are Myriad Of Compliances Which Need To Be Done In Order To Satisfy The Compliance Of The TCS Provisions. These Are As Follows:-

 

[G.1] TIMING OF COLLECTION OF TCS:

 Collection Of Tax Shall Be Done At The Time Of Receipt Of Amount From The Buyer. The Burden Is On The Seller To Collect The Tax. This Will Only Be Applicable Once The Value/Aggregate Value Received For Goods From The Buyer Is More Than Rs. 50 Lacs In A Financial Year.

 However, The Press Release Dated 30/09/2020 Issued By CBDT Contains “It May Be Noted That This TCS Applies Only In Cases Where Receipt Of Sale Consideration Exceeds Rs. 50 Lakh In A Financial Year.

 

[G.2] THRESHOLD LIMIT:

 

It Is Pertinent To Mention Here That To Be Termed As A “Seller” Any Person Shall Meet Two Conditions I.E. He Shall Have A Turnover Of Rs. 10 Crores In Previous Year And Shall Also Meet Threshold Limit Of Rs. 50 Lacs.This Threshold Of Rs. 10 Crores Is Aggregate Turnover. Whereas For Deduction Of TCS The Threshold Of Rs. 50 Lacs Is With An Individual Buyer.Wherever The Amount Collected From The Buyers Is An Ad Hoc Amount, The Seller Need To Gross It Up And Remit The TCS Accordingly.

 

For E.G.: If A Total Sale To A Buyer Is Made Of Rs. 80 Lacs In The Previous Year And The Amount Received In The Previous Year Shows It To Be In Ad-Hoc Style I.E. In Pieces Of 2-3 Lacs Each Then Under Such Condition An Aggregate Amount Need To Be Considered I.E. All The Amount Shall Be Consolidated To The Sum Of Rs. 80 Lacs. The Threshold Limit Will Be Seen By Aggregating The Figure.

 

[G.3] RATE OF TAX:

 

Rate Of TCS Is 0.1% In The Case Where PAN Of The Buyer Is Available. If The PAN Of The Buyer Is Not Available Then TCS Shall Be Deducted At 1%.

 The Govt. Of India By “The Taxation And Other Laws (Relaxation And Amendment Of Certain Provisions) Act 2020″ Has Relaxed The Levy Of TCS By 25% I.E. From 1% To 0.75%. This Relaxation Is Applicable From 14th  May, 2020 To 31st March, 2021.

 

[G.4]TCS TO BE COLLECTED AT THE TIME OF RECEIPT OR ACCRUAL:

 The Other Question Which Need Significant Deliberation Is Whether The TCS Shall Be Collected At The Time Of Receipt Or Accrual. For This Once Again A Reference Is Made To The Words Used In Sec 206C(1H). The Occurrence Of Phrase “At The Time Of Receipt” Makes It Amply Clear That The TCS Shall Be Collected At The Time Of Actual Payment.

 Let Us Assume That Mr. Salman Khan Has Total Sale Of Rs. 90 Lacs. 90 Lacs Gives A Green Signal For Applicability Of TCS Provision But In Actuality There Is A Break-Up In The 90 Lacs Total Sale I.E. 50 Lacs Sale Is For Cash Consideration Whereas Remaining 40 Lacs Is On Credit Basis. Now, Because The Cash Consideration Of Total Sales Made By Mr. Salman Khan Comes To Rs. 50 Lacs Which Is Within The Threshold Limit Then There Will Be No Applicability Of TCS Provisions.The Remaining Amount Of Rs. 40 Lacs Shall Be Taken Into Consideration When The Amount Of Consideration Is Actually Received.

 It Is Pertinent To Mention Here That Collection Is Relatable To Purchase Price And Not To Income Component – The Collection Of Tax At Source Provided By Section 206C Is Relatable To The Purchase Price And Not To The Income Component Thereof – Sat Pal & Co. V. Excise & Taxation Commissioner.

 

[G.5] DEEMED RECEIPTS:

 

Where A Buyer Is Required To Keep Certain Amount With Him As A Security Deposit Of Performance Guarantee Which Eventually Will Be Adjusted With The Sale Consideration Then Under Such Condition The Seller Is Still Under Obligation To Deduct TCS Even Though It Is Not

A Receipt In Technical Language But Is A Part Of The Sale Consideration Deemed To Have Been Received.

 

[G.6] TCS ON LEASE OR RENTING:

 

Lease And Renting Is Not Sale As Per Sale Of Goods Act, 1930. The Term Sale Is Not Defined Under Law But An Inference Can Be Drawn From Sale Of Goods Act, 1930. Sec 4 Of The Sale Of Goods Act, 1930, Sale Means An Act Where Seller Transfers Or Agrees To Transfer The Property In Goods To The Buyer For A Price. Here, Transfer Means Title/Ownership Of The Goods And Does Not Mean Lease Or Renting.

 

Provision Is Not Applicable To L-13 Licences – Section 206C Is Not Attracted To Licences Issued By The Government Permitting The Licensee To Carry On Liquor Trade As The Licensee Does Not Fall Within The Concept Of “Buyer” Referred To In That Section; Buyer Has To Be A Buyer Of Goods And Not Merely A Person Who Acquires A Licence To Carry On The Business – Union Of India V. Om Prakash S.S. &Company [2001] 115 Taxman 325 (SC).

 

[G.7] BUSINESS:

 

The Person Making Sale Shall Be Engaged In The Trading Of Sale And Purchase Of Goods. The Activity Of Sale And Purchase Should Be His Business. In My Opinion Any Adventure In The Nature Of Trade Or A Single Transaction Shall Be Not Included In For Calculation Of TCS. It Is Also To Be Noted That The Provision Is Applicable Only On The Business Entities And Not The Professionals.

 

[G.8] TCS ON BAD DEBTS RECOVERED: 

Bad Debts Are Part And Parcel Of Business. Every Business Activity Has Certain Number Of Bad Debts. The Situation That After Affecting Sale On Credit There Was No Recovery And Then Subsequently The Seller Marked The Same As Bad Debts And Gave The Treatment In Profit And Loss Account But Subsequently He Receives That Amount In Upcoming Year Or A Stage Later. The Question Here Arises Is Does Recovery Of Bad Debts Still Carries Its Relationship Of Seller And Buyer So As To Be Called The Part Of The Sale Consideration. In My Opinion, A Sale Consideration Belatedly Received Will Not Alter Its Character. The Treatment In The Books Of Seller As Bad Debts Recovered, Cannot Take Away His Liability Under Section 206C(1H).

 

 

[G.9]CANCELLATION OF SALE: 

 

Practical Difficulties Arise Where Advance Is Collected For Sale Of Goods And TCS Is Remitted And Subsequently The Contract Is Cancelled And The Amount Is Refundable. In Such Cases, The Seller Is Required To Refund Only The Primary Sale Consideration Received But Not The TCS Amount Since Such TCS Amount Is Already Credited As Prepaid Taxes And Will Appear In Form 26AS And The Buyer Cannot Insist For Refund Of The TCS Amount.

 

[G.10] THIRD PARTY PAYMENTS/REBATE/SUBSIDY:

 

 

To Promote And Grow Industries Of A Particular Nature, Govt. Of India Has Been Providing For Various Scheme. Subsidy, Cash Back, Rebate Etc. Are Few Of The Steps By Which Govt. Extends Its Support To Growing Industries. All Such Transactions, In The Eyes Of Law, Will Amount To Receipts For Seller And Hence The Seller Will Be Under Obligation To Remit TCS.

 

[G.11] TREATMENT OF ADVANCE PAYMENT:

 

The Advance Payment Or Trade Advance Is The Blood Of Trading Community. These Transactions Are Unavoidable. The Word Used Under Sec 206C Is “Who Receives Any Amount As Consideration…” And “At The Time Of Receipt Of Such Amount …”. This Implies That At The Time Of Receipt Of Advance Payment Also The TCS Will Be Charged If The Transaction Reaches Threshold Limit.

 

[G.12] TREATMENT OF DISCOUNT:

Trade Discount Is Again An Integral And Inseparable Part Of A Business. Discounts Are Generally Provided On Bulk Purchase, Early Payment, Advance Payment Etc. The Question Arises Is Whether Any Such Discount Shall Be Included During Calculation Of Threshold Limit?

In This Regard The Central Board Of Direct Taxes Vide Circular No. 17 Of 2020, Dated 29th September, 2020 Clarified In The Pointer No. 4.6 That No Adjustment On Account Of Discount Is Required To Be Made For Collection Of Tax Under Sub-Section (1H) Of Section 206C Of The Act Since The Collection Is Made With Reference To Receipt Of Amount Of Sale Consideration.

 

[G.13] WHETHER TCS IS APPLICABLE ON BARTER TRANSACTIONS:

 

The Term Used Under The Sec 206C(1H) Is “Who Receives Any Amount As Consideration…” And “At The Time Of Receipt Of Such Amount …”. The Term Used Is Consideration And Not Money. Consideration In Its Meaning Includes Both Cash As Well As Kind. In The Barter Or Exchange System There Is No Role Of Cash But This Transaction Is Taken Place In Kind.

According To Section 2(D) Of The Indian Contract Act “When At The Desire Of The Promisor, Promisee Or Any Other Person Has Done Or Abstained From Doing Or Does Or Abstains From Doing Or Promises To Do Or To Abstain From Doing Something, Such Act Or Abstinence, Or Promise Is Called A Consideration For The Promise.”

So, Consideration Under Law, Strictly Speaking, Cannot Be Said To Be Monetary Equivalent. Consideration Can Be In Kind, Action Or Any Right. The Only Question Which Need To Be Pondered Upon Is How Quantification Of Any Such Consideration Shall Be Quantified. Until Or Unless There Is Any Specific Mechanism In Place There Cannot Be Any Gauge Of Fair Market Value Of A Good.

 

[G.14] TREATMENT OF SALES RETURN:

 

Sales Return Is When The Goods Are Returned Owing To Any Reason. For E.G.: When Goods Are Sold To A Person But Those Goods Were Faulty Or Of Substandard Then Such Goods Are Returned Back By The Purchaser. Practically, In Terms Of Accounting Any Such Sale Return Is Adjusted I.E. Reduced From The Total Sale. If The Adjustment Is Given Effect Then This Will Resultantly Reduce The Total Sale Which In Some Case Can Bring Total Sale Below Threshold Limit Of Rs. 50 Lacs.

In This Regard The Central Board Of Direct Taxes Vide Circular No. 17 Of 2020, Dated 29th September, 2020 Clarified In The Pointer No. 4.6 That No Adjustment On Account Of Sale Return Is Required To Be Made For Collection Of Tax Under Sub-Section (1H) Of Section 206C Of The Act Since The Collection Is Made With Reference To Receipt Of Amount Of Sale Consideration.

 

[G.15] TURNOVER IS WITH GST OR WITHOUT GST:

 

Now, There Arises A Very Interesting Question Whether While Calculating The Amount Of Consideration The Quantum Of GST Shall Be Included In It Or Not.

In This Regard The Central Board Of Direct Taxes Vide Circular No. 17 Of 2020, Dated 29th September, 2020 Clarified In The Pointer No. 4.6 That No Adjustment On Account Of GST Is Required To Be Made For Collection Of Tax Under Sub-Section (1H) Of Section 206C Of The Act Since The Collection Is Made With Reference To Receipt Of Amount Of Sale Consideration.

Therefore, Now It Is Clarified That There Is No Requirement Of Breaking Down The Total Sales Into Sales Component And GST Component As The For Threshold Calculation It Is The Total Sales Consideration Which Need To Be Seen. So, The Moment Total Sales Amount Including GST Is Received The Same Shall Be Taken Into Calculation For Gauging Threshold Limit.

It Is Pertinent To Notice Here That The Term Used In The Circular No. 17 Of 2020 Is….”Receipt Of Amount Of Sale Consideration” And Not “Total Sales, Gross Receipts Or Turnover”.  So, It Is Advised That To Avoid Any Unnecessary Litigation, It Is Advisable To Include GST While Calculating The Said Total Sales, Gross Receipts Or Turnover.

However, Tax Amount Is Never Considered As Price Of Goods. The SC In Case Of Anand Swarup Mahesh Kumar V. The Commissioner Of Sales Tax On 15 September, 1980, 1981 AIR 440, 1981 SCR (1) 707 Under The Sales Tax Law Held That;-

”From The Observations Made In The Decisions Referred To Above, It Follows That Where A Dealer Is Authorised By Law To Pass On Any Tax Payable By Him On The Transaction Of Sale To The Purchaser, Such Tax Does Not Form Part Of The Consideration For Purposes Of Levy Of Tax On Sales Or Purchases But Where There Is No Statutory Provision Authorising The Dealer To Pass On The Tax To The Purchaser, Such Tax Does Form Part Of The Consideration When He Includes It In The Price And Realizes The Same From The Purchaser”.

[H] CONDITIONS UNDER WHICH SELLER IS NOT REQUIRED TO COLLECT TCS:

 

There Are Certain Instances In Which There Is No Applicability Of Sec 206C(1H) And These Are As Follows:-

1. If the buyer isthe Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or a local authority as defined in the Explanation to clause (20) of section 10;
2. TCS provisions are not applicable on branch transfer of goods between Head office and Branch; and
3. If the buyer is required to deduct tax at source on any of his other transactions (e.g. 194C / 194H) as per business requirements, the seller need not collect tax at source on sales to those specified buyers.

 

[I] STATUTORY COMPLIANCES:

 

1. All sums collected by an office of Govt. as a Tax Collected at Source shall be deposited on the same day of collection to the Govt.
2. The seller shall deposit the TCS amount collected in Challan No. 281 within 7 days from the last day of month in which TCS was collected.
3. Every tax collector i.e. supplier has to submit quarterly TCS return in Form 27EQ in respect of the tax collected in a particular quarter.

 

[J] TCS PAYMENTS TO GOVT.:

 

·         The Seller Collecting Any Sum As TCS Shall Be Deposited Through Challan 251 Within 7 Days From The End Of Month In Which Such TCS Was Collected.

·         Any Sum Collected By Govt. Office Shall Be Deposited On The Very Same Day.

·         Every Tax Collector Shall Submit Quarterly TCS Return Through Form 27EQ Showing The Tax Amount Collected By Him For The Particular Quarter.

 

[K]CERTIFICATE OF TAX COLLECTED AT SOURCE:

 

1. As stated above quarterly TCS return has to be filed in Form 27EQ. Whenever, a tax collector files his TCS return in Form 27EQ, he has to provide a TCS certificate to the purchaser of the goods. The certificate of TCS is issued in Form 27D for TCS return filed.
2. The certificate of TCS is to be issued within 15 days from the date of filing of return as specified under sub-rule (2) of rule 31AA.

 

[L] FAILURE TO PAY TCS:

 

If Any Tax Collected By The Seller Is Not Deposited To The Govt. In The Stipulated Time Period Then He Will Be Liable To Pay An Interest @1% Per Month Or A Part Of The Month.Interest Is Required To Be Paid On Tax Which Was Not Collected By Assessee And Not On Tax Liability Of Deductees (Contractors) – Executive Engineer, PWD V. Recovery Officer [2012] 22 Taxmann.Com 226/209 Taxman 395 (MP).

 

 

[M] What Will Be The Procedural Obligations On The Seller Due To Sec 206C(1H):

 

Some Of The Basic Compliances That A Business Entity Has To Execute Are As Follows:

·         TAN – Seller Needs To Have Tax Deduction And Collection Account Number (TAN). No Separate TAN Required For TCS And TDS.

·         Collection Of Tax At Source– Tax To Be Collected At The Time Of Receipt Of Sale Consideration.

·         Deposit Of Tax So Collected- The Tax Collected During The Month Need To Be Deposited Within Seven Days Of Next Month.

·         Filing Of Statements Of TCS (Form No. 27EQ)- A Quarterly Statement Of All The Tax Collected At Source During The Quarter To Be Submitted Within 15 Days From The End Of The Quarter.

·         TCS Certificate (Form No 27D)– Certificate For Tax Collection Need To Be Issued To The Buyer By Seller.

·         This Will Add Up To An Another Compliance Related To Reconciliation Of Amount Of TCS As Per 26AS With Accounts.

 

[N]REQUIREMENT TO FURNISH PERMANENT ACCOUNT NUMBER BY COLLECTEE.

 

Sec. 206CC(1) Of The Act Provides For Collection Of TCS Under Chapter XVII-BB That Buyer Shall Furnish His Permanent Account Number To The Person Responsible For Collecting Such Tax, Failing Which Tax Shall Be Collected At The Higher Of The Following Rates, Namely:-

 

 (I) At Twice The Rate Specified In The Relevant Provision Of This Act; Or

(Ii) At The Rate Of 1 Per Cent.

 

[M] CAN TCS BE CLAIMED AS PREPAID TAXES?

 

Yes, TCS Can Be Claimed As Prepaid Taxes. TCS Will Credited As Prepaid Taxes And Will Appear In Form 26AS Of The Buyer.

 

[O] INTEGRATION OF SOFTWARE:

 

A Person Involved In Business Has Little To Do With The Daily Accounting. A Businessman Will Focus More On Sales And Revenue Generation. A Person Keeps On Checking Everything Then The Whole Structure Will Suffer As Key Areas Will Not Get Adequate Focus.

 

Every Organization Is Using Some Or Other Software For Their Accounting Work. A Facility Can Be Provided Wherein A System Can Be Placed Which Will Help In Letting Know Supplier That A Sale With Certain Buyer Has Crossed The Threshold Limit And He Is Liable To Deduct TDS On The Same. This Will Not Only Save Time Of The Supplier But Also Helps In Keeping Things Under Check As Per Accounting Standard.

 

 

CONCLUSION:

 

The Provisions Of Section 206C(1H) Was Inserted Inserted With A Specific Intent That It Will Increase The Tax Net. It Will Help In Bringing The Persons Who Escape Or Skip From The Radar Of Income Tax Department. But It Is Amusing To Find That Presumption That Assesses, Who Have Turnover Of More Than Rs. 10 Crores, Be It Buyer Or A Seller And Transacting In Goods Of More Than Rs. 50 Lakhs Or More Would Not Be In Tax Net Appears To Be Exaggeration Of Fact. The Justification Seems To Be Unreasonable And Illogical.

 

It Is Important To See That How Companies Will Receive This Provisions. These Provisions Will Undoubtedly Increase The Compliance Part. Details Of Transactions Will Be Required To Regularly Update By Filing Different Forms And Same Has To Be Provided While Filing Return. Further, It Is Assessee Who Has To Claim TDS And TCS Credit In The Relevant Year In Which Transaction Took Place. Providing For Reconciliation Statements And Providing With Cumbersome Details Will Put Undue Compliance Pressure On The Assessee. Further, It Is Also Not Known How Sale Return Will Be Dealt. There Are Still Intricacies Which Are Shrouded In Shadow Which Need To Be Explored And A Strong And Clear System Shall Be Put In Place.