CBDT Clarification on New TCS Provisions

The Finance Act, 2020, widens the scope of TCS provisions to cover the sale of goods, sale of overseas tour packages and overseas remittance of funds under the Reserve Bank of India's (RBI) Liberalized Remittance Scheme (LRS). After the introduction of this new TCS Provisions, there were several representations for seeking clarifications on the applicability of the provisions relating to Tax Collection at Source (TCS) on certain goods introduced vide Finance Act, 2020. To address such queries the Central Board of Direct Taxes (CBDT) has issued a detailed clarification on new TCS Provisions.

Finance Act, 2020– TCS Provisions

The provisions of ‘Tax Collection at Source’ i.e. TCS are covered under Section 206C of the Income Tax Act, 1961. The Finance act has proposed the insertion of two new Sub-section namely (1G) and (1H) to Section 206C. With the introduction of two new sub-Sections, the scope of the ‘Tax Collection at Source’ has been widened. The following transactions are proposed to be covered under TCS:

Transactions covered under Liberalised Remittance Scheme (Section 206C (1G)(a))
Overseas tour program package (Section 206C (1G)(b))
TCS on sale of goods (Section 206C (1H))

Note on New TCS Provisions

The Finance Act, 2020 has amended provisions relating Provisions The Finance Act, 2020 has amended provisions to Tax collected at source (TCS) with effect from 01.08.2020 to provide that seller of goods will collect tax at 0.1 per cent (0.075% up to 31.03.2021) if the receipt of sale consideration from a buyer exceeds Rs.50 lakh in the fiscal year.

As per the new TCS provision, the seller needs to collect tax only if his turnover exceeds Rs. 10 crores in the last fiscal year.
The export of goods has also exempted from the applicability of the new TCS provisions.

Applicability of New TCS Provisions – Prescribed Period

The Central Board of Direct Taxes (CBDT) notified that the new TCS provision will be applicable only on the amount received on or after 1st October 2020. For example, if a seller has received Rs. 1 crore before 01.10.2020 from a particular buyer and receives Rs. 5 lakh after 01.10.2020 would be required to collect tax on Rs. 5 lakh only and not on Rs. 55 lakh (Rs.1.05 crore - Rs. 50 lakh (threshold)) by including the amount received before 1st October 2020

Applicability of New TCS Provisions – Amount of Transaction

It has also been reported in a certain section of the media that every transaction will attract this TCS. To address such an issue, CBDT clarified that this TCS applies only in cases where the receipt of sale consideration exceeds Rs. 50 lakh in a financial year. As the threshold is based on the yearly receipt, it may be noted that only for the calculation purpose of this threshold of Rs. 50 lakh, the receipt from the beginning of the fiscal year i.e. from 01.10.2020 will be taken into account. For example, in the above illustration, the seller has to collect tax on receipt of Rs. 5 lakh after 01.10.2020 because of the receipts from 1st April 2020 i.e. Rs. 1.05 crore exceeded the specified threshold of Rs. 50 lakh.

Applicability of New TCS Provisions - The amount of sale consideration

The seller in most cases maintains a running account of the buyer in which payments are generally not linked with a particular sale invoice. To simplify and ease the compliance of the collector, CBDT clarified that the TCS provision will be applicable on the amount of all sale consideration received on or after 01.10.2020 without making any adjustment for the amount received in respect of sales made before 01.10.2020. CBDT also announced that the collector needs to identify and exclude the amount in respect of sales made up to 30.09.2020 from the amount received on or after the 01.10.2020

TCS is not an Additional Tax

CBDT clarified that TCS is not an additional tax but is in the nature of advance income-tax/TDS for which the buyer would get the credit against his/her actual income tax liability and if the amount of TCS is more than his/her tax liability, the buyer will be entitled to refund of the excess amount along with interest.

Eligibility of Seller to collect TCS

The CBDT is clarified that the TCS Provision is not applicable to every seller.
To reduce the compliance burden, the new TCS provision is applicable to only those sellers whose business turnover exceeds Rs. 10 crore

Note: Those having a turnover of less than Rs. 10 crores will not be required to collect TCS.

The TCS collection under this new provision would be required to be made by persons who would already be complying with the other provisions of TDS/TCS.