FAQ’s on Section 206C(1H) of the Income-tax Act, 1961

1. Please advise system to be followed from step one to the end.

Ans. As per Circular no. 17 of 2020 dt. 29th September, 2020, point no. 4.4.2 (iii) – Since the threshold of fifty lakh rupees is with respect to the previous year, calculation of receipt of sale consideration for triggering TCS under sub-section (1H) of section 206C shall be computed from 1st April, 2020. Hence, if a person being seller has already received fifty lakh rupees or more up to 30th September 2020 from a buyer, the TCS under sub-section (1H) of section 206C shall apply on all receipt of sale consideration during the previous year, on or after 1st October 2020, from such buyer.

Following entries to be passed in books of accounts:-

Entry on Sales booking:-

Debtor …………………Dr.       1,18,000

TCS Receivable ……….Dr.            88.50

To Sales                                                           1,00,000

To GST Payable                                                   18,000 (assumed to be @ 18%)

To TCS Payable                                                    88.50  (@ 0.075% of (Sales value including GST) considering abatement of 25% prescribed by Press Release of Central Board of Direct Tax dated 13th May, 2020 which is applicable upto 31/03/2021.)

(As per Circular no. 17 of 2020 dt. 29th September, 2020, point no. 4.6.1 – It is requested to clarify that whether adjustment is required to be made for sales return, discount or indirect taxes including GST for the purpose of collection of tax under sub-section (lH) of section 206C of the Act. It is hereby clarified 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 (IH) of section 206C of the Act since the collection is made with reference to receipt of amount of sale consideration.)

Entry on Payment received from debtor

Bank ……………Dr.          1,18,088.50

To Debtor                                                         1,18,000

To TCS Receivable                                                 88.50

(As per Circular no. 17 of 2020 dt. 29th September, 2020, point no. 2 – a seller receiving an amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year to collect tax from the buyer a sum equal to 0.1 per cent (subject to the provisions of proposed sub-section (10A) of the section 206C of the Act) of the sale consideration exceeding fifty lakh rupees as income-tax. The collection is required to be made at the time of receipt of amount of sales consideration.)

Entry on Payment of TCS Liability

TCS Payable ……………..Dr.           88.50

To Bank                                                                    88.50

(As per Rule 37CA(2) All sums collected in accordance with the provisions of section 206C by collectors other than an office of the Government shall be paid to the credit of the Central Government within one week from the last day of the month in which the collection is made.)

  1. Do we charge TCS in our Invoicing.

Ans. We have two options.

  1. Either we charge TCS on the invoice or;
  2. Raise a debit note for this amount

We need to make sure that the invoice/ Debit note are GST Compliant. It will be less complex if we charge TCS on invoice on the assumption that the amount received, from the buyer is inclusive of TCS and do the reverse calculation for the TCS amount and credit the same to government.

  1. Is TCS charged on the billing amount before GST or on amount including GST.

Ans. TCS is required to be charged on invoicing amount including GST. Please refer to the clarification in Point no. 4.6.1 of Circular no. 17 of 2020 dated 29th September, 2020.

  1. Do we deposit TCS based on billing date or after receipt of payment from your customer.

Ans. TCS is to be deposited on receipt of payment from the buyer irrespective whether it is an advance or against an invoice.

(As per Circular no. 17 of 2020 dt. 29th September, 2020, point no. 4.4.2 – Since sub-section (1H) of section 206C of the Act applies on receipt of sale consideration, the provision of this sub-section shall not apply on any sale consideration received before 1st October 2020. Consequently, it would apply on all sale consideration (including advance received for sale) received on or after 1st October 2020 even if the sale was carried out before 1st October 2020.

  1. If TCS have to be deposited on payment basis, do we deposit TCS on all payments receipt after 01/10/2020 i.e. even including supplies made prior 01/10/2020 and payment received after 01/10/2020.

Ans. Yes, you need to deposit TCS on all payments received after 01/10/2020, even if it relates to supplies before 01/10/2020. This is clarified in circular no. 17 of 2020 dated 29th September, 2020. Please refer to clarification in point no. 4.4.2 of Circular no. 17 of 2020 dated 29th September, 2020 above.

6. We have division of our Company located at different states near customer premises. Do we charge TCS on supply made to our own division. In the Balance Sheet the sale is consider as Stock Transfer and not sale despite the fact that GST bill are raised for movement of goods.

Ans. As per explanation to sub section (1H) of Section 206C (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.

 As per Section 2(31) of Income tax act, 1961 “person” includes—

  • an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses.

Accordingly, the provision of TCS under section 206C(1H) is not applicable in case of Stock Transfers.

Disclaimer: – Khurana Khurana & Associates LLP shall not be liable for any direct, indirect, incidental, consequential damages, or any loss of profit or revenue whether incurred directly or indirectly. Laws may change with passage of time. 

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