Section 206C(1H): Applicability, Rate, Due Date, Example, & More
Updated: Oct 22
Over the years, the Income Tax Act of India has been amended multiple times to guarantee an equitable and transparent tax system in India. With effect from October 1, 2020, the Finance Act 2020 instituted TCS on the sale of commodities under the Income Tax Act. This clause may also affect the GST's need for e-invoicing. The addition of Section 206C(1H) to the Income Tax Act was one such change. We will go over the interpretation, applicability, and ramifications of Section 206C(1H) of the Income Tax Act in this blog post.
Table of Contents
What is Section 206C(1H) of the Income Tax Act?
The Finance Act 2020 included the introduction of Section 206C(1H) of the Income Tax Act, which became operative on October 1, 2020. The collection of tax at source (TCS) on the sale of goods is the subject of this section. According to this provision, if the total sales value of the items or their selling value exceeds Rs. 50 lakhs in a financial year, the seller of the goods is obligated to collect TCS from the buyer. For vendors that sell products and earn more than Rs. 50 lakhs in revenue during a fiscal year, Section 206C(1H) regulations apply. This section applies to all sellers, including individuals, businesses, firms, companies, Hindu Undivided Families (HUFs), and anybody else who engages in the selling business. Other points related to this section are listed below:
This clause only applies to sellers whose gross revenue in the fiscal year prior to the fiscal year in which the sale is made exceeded Rs. 10 crore.
Exports and items covered by section 206C(1)—TCS on the sale of alcohol, tendu leaves, forest fruit, and scrap—section 206C(1F)—TCS on the sale of motor vehicles, and section 206C(1G)—TCS on foreign remittance—do not qualify as goods.
The seller is not obligated to collect TCS on such transactions if the buyer is required by any other sections of the Income Tax Act to deduct TDS on the products he has acquired from the seller and has already done so.
If the buyer is a Central or State Government, Embassy, High Commission, Legation, Consulate, Trade Representation of a Foreign State, or any local authority, TCS is not required to be deducted.
Imports of products into India are exempt from this clause.
Compliance Requirements under Section 206C(1H)
Sellers who fall under the purview of Section 206C(1H) must adhere to specific compliance standards. The following points are related to compliance:
Getting a PAN and TAN: The Income Tax Department must provide Permanent Account Numbers (PANs) and Tax Deduction and Collection Account Numbers (TANs) to sellers who fall under the provisions of Section 206C(1H).
TCS Collection: To receive payment from purchasers, sellers must collect TCS at the rate of 0.1% of the selling value that exceeds Rs. 50 lakhs.
TCS certificate issuance: Within 15 days of the TCS return filing deadline, sellers must provide the buyer with a TCS certificate. Information like the buyer and seller's names and PAN, the total amount of TCS collected, and the TCS rate should all be included in the TCS certificate.
Depositing TCS: Within seven days after the end of the month in which TCS is collected, sellers must deposit the TCS with the government.
Penalties for Non-Compliance with Section 206C(1H)
Penalties and legal ramifications may result from breaking Section 206C(1H) regulations. These include:
Penalty for non-collection or short-collection of TCS: The seller will be responsible for paying a penalty equivalent to the amount of TCS that they should have collected if they fail to collect TCS or collect less than the required amount.
Penalty for not depositing TCS: Should the vendor neglect to deposit the TCS gathered with the government, they would be responsible for paying a fine equivalent to the quantity of TCS they were supposed to submit.
Interest on late TCS payment: Should the seller neglect to deposit the TCS gathered within the allotted time, interest at the rate of one percent per month, or a portion thereof, will be due until the TCS is deposited.
TCS Calculation and Effective Dates
This clause took effect on October 1, 2020. When a seller receives consideration from a buyer that exceeds Rs. 50 lakh in a financial year, the seller is obliged to collect tax at source at a rate of 0.1%. Due to COVID-19, this rate was lowered to 0.075% until March 31, 2021. Additionally, the Rs. 50 lakh threshold was applicable for the entire fiscal year. Therefore, from April 1, 2020, to September 30, 2020, if the seller received any sale consideration from the buyer, that consideration was taken into account while determining the buyer's Rs. 50 lakh limit. TCS must be gathered from the customer and paid to the government by the product seller. Payment for TCS must be received by the next month's seventh. As an illustration, suppose that on December 30, 2021, you received Rs 70 lakh from a customer and obtained TCS of Rs 2,000 u/s 206C(1H). Then, by January 7, 2022, you must deposit that debt.
Illustration
For instance, suppose that between April 2020 and September 2020, buyer Y pays seller X Rs. 45 lakh. However, if on October 10, 2020, they get an additional Rs. 10 lakh, TCS will be applied, and the money would be collected on Rs. 5 lakh (55 lakh – 50 lakh) at a rate of 0.075%.
TCS Invoice Format
Assume a supplier opts to charge TCS in the invoice,
Value of goods = Rs.1,00,00,000
GST @ 18% = Rs.18,00,000
Total = Rs.1,18,00,000
TCS calculated on the total value = Rs.8,850
Total invoice value= Rs.1,18,08,850
TCS Deposit Due Date
TCS must be gathered from the customer and paid to the government by the products seller. Payment for TCS must be received by the seventh of next month. As an illustration, suppose that on December 30, 2021, you received Rs 70 lakh from a customer and obtained TCS of Rs 2,000 u/s 206C(1H). Then, by January 7, 2022, you must deposit that debt.
Implications of Section 206C(1H)
There are several ramifications for sellers, buyers, and the government with the implementation of Section 206C(1H). Let's go into more about a few of these ramifications.
Sellers: Sellers covered by Section 206C(1H) must deduct TCS from the buyer at the rate of 0.1% of the sale consideration, up to a maximum of Rs. 50 lakhs. This implies that the seller must obtain TCS from the buyer and deposit it with the government if the sale value of the products exceeds Rs. 50 lakhs. The burden of compliance for sellers may rise as a result.
Buyers: Buyers must pay TCS at the rate of 0.1% of the selling value exceeding Rs. 50 lakhs if they purchase products from vendors covered by Section 206C(1H). This implies that consumers will spend more for items, which may have an effect on their choice of purchases.
Government: The government received more income after Section 206C(1H) was implemented. The government can monitor high-value transactions and stop tax evasion by collecting TCS on the sale of products.
New TCS Provision and E-invoicing
In India, e-invoicing is being adopted gradually. The government has implemented e-invoicing, which requires all business-to-business invoices to be posted on the government portal, in an effort to prevent tax cheating. In the third phase, starting on April 1, 2021, e-invoicing was extended to all businesses with a revenue of more than Rs. 50 crore. Additionally, in the fourth phase, companies with an annual turnover of more than Rs. 20 crore in any of the preceding years from 2017–18 to 2021–22 were required to use e-invoicing. Later, starting on October 1, 2022, the government began offering e-invoicing to companies having a revenue of more than Rs. 10 crore. E-invoicing has been mandated by CBIC for firms with a turnover of over Rs 5 crore, starting on August 1, 2023.
There is no special provision for TCS under section 206C(1H) of the existing e-invoicing mandate. TCS should be included in "other charges" when producing the invoice reference number; as a result, TCS will be included in the invoice value reported. This amount will therefore automatically be included in the invoice value in GSTR-1 as well. Additionally, e-invoicing will not be affected if TCS is absent from the invoice.
Conclusion
An important change to the Income Tax Act is Section 206C(1H), which affects purchasers, sellers, and the government in a number of ways. Although it is anticipated to make sellers' compliance obligations heavier and influence purchasers' decisions to buy, it will also assist the government in monitoring high-value transactions and combating tax evasion. To prevent fines or legal repercussions, it is crucial for both buyers and sellers to comprehend this section's criteria and abide by them.
FAQ
Q1. What is TCS on the sale of goods?
The items that are subject to tax collection from buyers by the seller are governed by Section 206C of the Income-tax Act. To be able to collect TCS, such individuals need to obtain the Tax Collection Account Number. For example, the buyer pays Rs. 20, which is the tax collected at the point of sale, if a box of chocolates costs Rs. 100.
Q2. Should the GST amount be taken into consideration for calculating TCS?
According to CBDT Circular No. 17 of 2020, as tax is withheld upon receipt of consideration rather than the sale, there should be no GST adjustments made while calculating TCS because of indirect taxes or discounts.
Q3. Is TCS applicable to SEZ units?
Sales made by a SEZ unit are regarded as exports. Nevertheless, TCS is applicable in this case if the buyer's payment exceeds Rs. 50 lakh for the fiscal year.
Q4. What is the due date for filing TCS return?
By the 15th of the month following the quarter, each tax collector must file a quarterly TCS return in Form 27EQ. On the other hand, TCS returns for the quarter ending in January through March may be submitted by May 15 of the subsequent year.
Q5. How much is the TCS on sale of goods above Rs. 50 lakhs?
The buyer will be the foundation for calculating the TCS. In a fiscal year, the threshold limit under u/s 206C(1H) is Rs. 50 lakh. Hence, on amounts beyond Rs 50 lakh, you must collect at a rate of 0.1%.
Q6. What is TCS on the sale of scrap?
TCS is due to the Railways from scrap buyers at the time the Balance Sale Value (BSV) is remitted in accordance with section 206C of the Income Tax Act (ITA). TCS now charges 1% of the total inclusive sale value. On the TCS, there isn't a cess or surcharge.
Q7. What is the purpose of Section 206C(1H)?
The purpose of Section 206C(1H) is to monitor high-value transactions and stop tax evasion. The government can raise tax money and allocate it to various developmental initiatives by collecting Transaction Cost Surcharges (TCS) on high-value transactions.
Q8. Who needs to collect TCS under Section 206C(1H)?
Under Section 206C(1H), sellers who sell items and whose total sales consideration is above Rs. 50 lakhs in a fiscal year are obliged to collect TCS from purchasers.
Q9. What rate of TCS is applicable under Section 206C(1H)?
Under Section 206C(1H), the TCS rate is 0.1% of the sale consideration that exceeds Rs. 50 lakhs for a fiscal year.
Q10. What is the due date to deposit TCS collected under Section 206C(1H)?
Sellers are required to deposit TCS with the government within seven days of the end of the month in which it is collected.
Q11. What is the due date to issue a TCS certificate under Section 206C(1H)?
After the deadline for filing the TCS return has passed, sellers must provide the customer with a TCS certificate within 15 days.
Q12. Is it mandatory to get PAN and TAN under Section 206C(1H)?
Yes, dealers covered by Section 206C(1H) must apply for an Income Tax Department Tax Deduction and Collection Account Number (TAN) and Permanent Account Number (PAN).
Q13. Are SMEs given any relief under Section 206C(1H)?
Instead of filing their TCS reports monthly, SMEs with a revenue of up to Rs. 10 crore can do so on a quarterly basis. This will lessen the need for SMEs to comply with regulations.
Q14. What do sellers need to do to comply with the provisions of Section 206C(1H)?
To adhere to the guidelines outlined in Section 206C(1H), sellers must get PAN and TAN, gather TCS from purchasers, certify the TCS, and deposit the TCS with the government within the allotted time frame. Vendors must comprehend the terms and conditions provided in this section to avert fines and potential legal ramifications.
Q15. What is the penalty applicable for non-compliance with Section 206C(1H)?
Penalties and legal ramifications may result from breaking Section 206C(1H) regulations. The amount of TCS that should have been collected is the penalty for either short- or non-collection of TCS. The amount of TCS that should have been deposited is also the penalty for not depositing TCS. TCS charges interest in addition to late fees.
Q16. Is supply of services covered under Section 206C(1H)?
This clause is only applicable when items are being sold. Payments obtained in exchange for the performance of services are therefore not covered by this clause.
Q17. What is the TCS rate if the buyer does not supply their PAN or Aadhaar?
In certain situations, 1% of the sale consideration will be subtracted from TCS. Section 206C(1H) is superseded by section 206CC.
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