Practical Cases on TCS on Sale of Goods u/s 206C(1H)

According to section 206C(1H), Seller whose turnover exceeds Rs.10 crores in that preceding financial year will have to collect and deposit the TCS at the rate of 0.1% (presently 0.075% till the 31st march, 2021) on receipt of sale consideration from buyer exceeding Rs. 50 lakhs. In this article, we will discuss the practical cases on TCS on sale of goods u/s 206C(1H) of Income Tax Act,1961.

Here are some of the practical cases where a seller may find it difficult to implement these provisions.

Turnover limit of Seller- including or excluding GST

In case of computing the turnover of the seller, whether it should be inclusive of GST or not, the CBDT Circular did not clarify it but by virtue of the specific provisions, in computing the total sales/turnover/gross receipts, the amount of GST shall be included.

Receipt of Consideration from buyer- including or excluding GST

The receipt of sale consideration from a buyer towards sale of goods shall include the GST amount also. This has been clarified by the CBDT in the guidelines issued by Circular No. 17/2020.

For example, If the buyer pays Rs. 55 Lakhs inclusive of GST of Rs. 10 Lakhs, then even though the basic amount of consideration for the sale of goods is less than Rs. 50 Lakh (Rs. 45 lakhs in this case), TCS shall apply since after including GST, total consideration exceeds Rs. 50 Lakhs.

Receipt of Consideration from the buyer towards sale of goods or sale of services or both

In case a buyer pays the seller both for services and sale of goods, only the consideration paid towards the sale of goods shall be liable for TCS if it exceeds Rs. 50 Lakhs.

For example, a buyer pays for the followings to his seller during FY 2020-21 -

In this case, the buyer is not liable to pay TCS to the seller since the consideration paid to the seller does not exceed Rs. 50 Lakhs even total consideration exceeds Rs. 50 Lakh. This is because the consideration paid other than towards sale of goods are out of the scope of TCS provisions.

In an another example, a buyer pays for the followings to his seller during FY 2020-21 -

In this case, the buyer is liable to pay TCS to the seller since the consideration paid to the seller towards the sale of goods exceeds Rs. 50 Lakh. However, the buyer should pay TCS only on Rs. 10 Lakh (Rs. 60 Lakh - Rs. 50 Lakh) which is paid as consideration towards the sale of goods, since any consideration paid other than towards the sale of goods are out of the scope of TCS provisions.

There is no need to bifurcate GST on sale of goods to check the limit of Rs.50 lakhs. Since, TCS shall be liable to collect on the consideration received in excess of Rs.50 lakhs from each buyer (Consideration inclusive of GST), So GST component is already included in the consideration amount, no further adjustments required for the same.

How the buyer will know whether the seller is liable for TCS

There is no way to determine whether the seller’s turnover in the previous year is more than Rs. 10 crore or not. In case of companies, one may get the annual reports from the public domain but for other persons one has to depend on the seller’s action. Turnover can also be verified through GST common Portal.

However, the buyer can check whether he has paid consideration for sale of goods for more than Rs. 50 Lakh or not. In case, such consideration does not exceed Rs. 50 Lakh in a year, there is no obligation to pay the TCS to the seller.

Adjustment for sale return, discount or indirect taxes

CBDT guidelines issued by Circular No. 17/2020 states that no adjustment on account of sale return or discount or indirect taxes including 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.

From the plain reading of the words is that sales return or discount is not required to be adjusted from the amount of consideration received for sale of goods from the buyer.

However, this is not the case. It actually means that the amount of consideration received is already adjusted with the amount of sales return or discount and therefore, no further adjustment for the same is required.

TCS on Inter-Branch transfer of Goods

Inter-branch transfers or stock transfers are not ‘sale of goods’, hence TCS won't be applicable.

TCS on Job work or Works Contracts

A contract for job-work or a works contract comes under the purview of TDS provisions under section 194C. Hence, TCS provisions under this section shall not apply on Job-works/works contracts as this is already liable for TDS.

TCS on Sale of Land, Building, Flats

TCS provisions apply to goods only, and Land, buildings, flats, are immovable properties. Thus, TCS won't be applicable on sale of immovable properties.

TCS on Sale of Jewellery

Jewellery are goods and hence comes within the purview of section 206C(1H). Prior to 01.04.2017, sale of jewellery was covered under TCS under section 206C(1D). This section is now omitted.

TCS on Sale of goods on approval basis

The provisions of TCS under section 206C(1H) shall also apply to goods sold on approval basis. However, the TCS liability shall arise only when the buyer pays the consideration. Obviously, the buyer will pay the consideration only after giving the approval of the goods. If the goods are returned and not approved by the buyer, there will be no payment of consideration and thus section 206C(1H) cannot apply.

TCS on Export of Goods

The provisions of section 206C (1H) does not apply to export of goods out of India. It means, if the goods are sold to SEZ units or EOU units, since in these cases goods are not exported out of India, TCS provisions shall apply.

TCS on delayed payment interest

If the buyer makes a delay in payment of invoice, then seller charges interest for delay in the payment of the invoice. And, it is subject to GST under the GST laws. This is because in this case the interest actually represents the price of goods rather than interest for money borrowed.

The definition of interest under section 2(28A) of the Income Tax Act, 1961 only includes interest on money borrowed. Thus interest paid on delayed payment of invoices or consideration is not with respect to money borrowed but for non-payment of value of consideration within the time period. Since such interest represents the consideration, TCS shall be applicable on interest of delay in payment of invoices.

It can be understood with the following example. If a seller sells the goods on the condition that if payment is made within 10 days then the price of the goods is Rs. 100 and for payments made after 10 days, the price is Rs. 110. This Rs. 10 or 10% is nothing but part of the price of the goods.

In other words, A seller sells the goods for Rs. 100 with the condition that payment is required to be made within 10 days. On failure, interest @ 10% will be charged. A buyer fails to pay the same within 10 days and pays Rs. 110 to the seller. Will this be regarded as interest? The definition of interest says ‘No’. This is because the buyer has not borrowed the money from the seller. The interest of Rs. 10 actually represents the price of the goods. Hence, interest for delay in payment of consideration will be subject to TCS u/s 206C(1H).

TCS on sale of listed shares

Shares are defined as ‘goods’ under the Sale of Goods Act, 1930. Hence, TCS provisions shall apply to the sale of goods, being shares and securities, if the conditions specified in section 206(1H) are satisfied.

However, CBDT has clarified that provisions of section 206C(1H) shall not be applicable in relation to transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporations located in the International Financial Service Centre.

If the listed shares are transferred through off-market transactions then the provisions of TCS under section 206C(1H) shall apply subject to threshold limit.

TCS on Slump Sale

Slump sale is the transfer of a business undertaking or some division of a company or entity to another entity as a going concern basis for a lump sum amount as consideration. A going concern basis basically means that an entity will remain in business in the near future. In slump sale, all the moveable and immovable assets, debtors, creditors, stock-in-trade, investments, liabilities, contracts, licenses, obligations, rights, intellectual properties, employees, etc concerned with the business undertaking will be transferred to the purchaser.

Thus, it is a transfer of ‘business’ and not ‘goods’. Since slump sale is not a sale of goods it cannot attract TCS under this provision.

TCS on Sale of Motor Vehicles

TCS on sale of motor vehicles are already covered under section 206C(1F). However, where the provisions of section 206C(1F) does not apply, provisions of section 206C(1H) shall apply on sale of motor vehicles.

Section 206C(1F) is applicable where the value of the motor car sold exceeds Rs. 10 Lakh. If the value of the motor car does not exceed Rs. 10 Lakh then section 206C(1F) will not apply.

In this case, if the seller sells 9 motor cars of Rs. 9 Lakh each to a single buyer, then TCS u/s 206C(1H) shall apply to such transactions.

Further, section 206C(1F) applies only to B2C transactions and does not apply to B2B transactions. Hence, section 206C(1H) may apply in B2B transactions if the conditions of section 206C(1H) are satisfied.

This provision has come up with many new questions and doubts which need to be resolved. Thus, Webtel Experts have addressed all these queries in their recently published videos.

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