The Ministry has dismissed media reports regarding TCS being applicable to the amount received before 1st October, 2020; it shall be applicable only on the amount received on or after 1st October, 2020
The Ministry of Finance has recently cleared any doubts relating to the applicability of the provisions relating to Tax Collection at Source (TCS) on certain goods introduced vide Finance Act, 2020. According to the official statement, Finance Act, 2020 amended provisions relating to TCS with effect from 1st October, 2020 to provide that seller of goods shall collect tax @ 0.1 per cent (0.075 per cent up to 31.03.2021) if the receipt of sale consideration from a buyer exceeds INR 50 lakh in the financial year. Further, to reduce the compliance burden, it has been provided that a seller would be required to collect tax only if his turnover exceeds INR 10 crore in the last financial year. Moreover, the export of goods has also been exempted from the applicability of these provisions. The Ministry has dismissed media reports regarding TCS being applicable to the amount received before 1st October, 2020. It states that it is incorrect and clarified that this TCS shall be applicable only on the amount received on or after 1st October, 2020. For example, a seller who has received INR 1 crore before 1st October, 2020 from a particular buyer and receives INR 5 lakh after 1st October, 2020 would be required to collect tax on INR 5 lakh only and not on INR 55 lakh [i.e INR 1.05 crore - INR 50 lakh (threshold)] by including the amount received before 1st October, 2020. The Ministry further stated that reports circulating that every transaction will attract this TCS is incorrect. It may be noted that this TCS applies only in cases where receipt of sale consideration exceeds INR 50 lakh in a financial year. As the threshold is based on the yearly receipt, it may be noted that only for the purpose of calculation of this threshold of INR 50 lakh, the receipt from the beginning of the financial year i.e. from 1st April, 2020 shall be taken into account. For example, in the above illustration, the seller has to collect tax on receipt of INR 5 lakh after 1st October, 2020 because the receipts from 1st April, 2020 i.e. INR 1.05 crore exceeded the specified threshold of INR 50 lakh. Further, the seller in most of the cases maintains a running account of the buyer in which payments are generally not linked with a particular sale invoice. Therefore, in order to simplify and ease the compliance of the collector, it may be noted that this TCS provision shall be applicable on the amount of all sale consideration received on or after 1st October, 2020 without making any adjustment for the amount received in respect of sales made before 1st October, 2020. Mandating the collector to identify and exclude the amount in respect of sales made up to 30th September, 2020 from the amount received on or after the 1st of October, 2020 would have resulted into undue compliance burden for the collector and also litigation. The Ministry also declined media reports stating that TCS is an additional tax, which is incorrect. "In this regard, it may be noted that TCS is not an additional tax but is in the nature of advance income-tax or TDS for which the buyer would get the credit against his actual income tax liability and if the amount of TCS is more than his tax liability, the buyer would be entitled for refund of the excess amount along with interest," the Ministry said in its official statement. It has been reported that this TCS shall be applicable only on the receipt exceeding INR 50 lakh by a seller from a particular buyer. Therefore, on payment of INR 1 crore made by a buyer to a particular seller only INR 5,000 (INR 3,750 this year) i.e. [0.1 per cent of (INR 1 crore - INR 50 lakh)] shall be collected. Hence, in case of a person making payment of INR 1 crore each to 10 different sellers, the total tax collected shall be only INR 50,000 (INR 37,500 this year) i.e 10 x [0.1 per cent of (INR 1 crore- INR 50 lakh)] on the total payment made for purchase of INR 10 crore to ten different sellers. Assuming a net profit of 8 per cent on sales, his business income in respect of this payment of INR 10 crore made for purchase would be around INR 87 lakh. The income-tax liability on the income of INR 87 lakh for an individual in the new taxation regime would be around INR 27 lakh. Hence, the amount of TCS collected i.e. INR 50,000 (INR 37,500 this year) would be a miniscule part of his actual tax liability and would be easily adjusted against his tax liability. In a rare case, if his tax liability is less than even INR 50,000 (INR 37,500 this year), he shall be entitled for refund of excess TCS with interest. Another report declined by the Finance Ministry is that every seller will have to collect TCS, which is also not correct. "In this context, it may be noted that in order to reduce the compliance burden, this TCS is made applicable to only those sellers whose business turnover exceeds INR 10 crore. In other words, those having turnover of less than INR 10 crore will not be required to collect TCS. There are only around 3.5 lakh persons who have disclosed business turnover of more than INR 10 crore in FY 2018-19. There are around 18 lakh entities which already deal with TDS/TCS. Therefore, this TCS collection under these new provisions would be required to be made by persons who, in most of the cases, would already be complying with the other provisions of TDS/TCS," the Finance Ministry stated in its official statement.