TCS applicable only on amounts received on or after Oct 1: CBDT

Moreover, export of goods has been exempted from the applicability of the provisions of TCS.

The Finance Act, 2020 has amended the provisions relating to TCS with effect from October 1 to provide that seller of goods shall collect tax at the rate of 0.1 per cent (0.075 per cent up to March 31, 2021) if the receipt of sale consideration from a buyer exceeds Rs 50 lakh in the financial year.

The CBDT said TCS has been made applicable to the amount received from October 1 onwards and not before it. A CBDT circular issued on Monday has also stated that TCS shall be applicable only on the amount received on or after October 1.

For example, a seller who has received Rs 1 crore before October 1 from a particular buyer and receives Rs 5 lakh on or after the cut-off period would be required to collect tax on Rs 5 lakh only and not on Rs 55 lakh [i.e, Rs 1.05 crore - Rs 50 lakh (threshold)] by including the amount received before October 1.

The provisions relating to TCS were introduced in the Income Tax Act in 1988. Currently, TCS provisions are applicable on various transactions and rate of TCS varies from 1 to 5 per cent. The TCS collected is treated as advance tax payment/TDS for the taxpayers and he is allowed credit against his actual tax liability and excess amount of TCS, if any, is refunded to the taxpayer, along with interest.

The provisions of TCS also empower the CBDT to issue guidelines. Under it, the guidelines issues on September 29, inter alia, exempted certain transactions such as transactions carried through recognised stock exchanges/clearing houses and sale of fuel to non-resident airlines and also clarified method of computation of threshold, applicability of these provisions on motor vehicle sale, adjustment of sales return, discount, etc.

The CBDT has said that TCS applies only in cases where receipt of sale consideration exceeds Rs 50 lakh in a financial year. As the threshold is based on the yearly receipt, it has also been clarified that only for the purpose of calculation of this threshold of Rs 50 lakh, the receipt from the beginning of the financial year, i.e., from April 1, 2020 shall be taken into account.

For example, in the above illustration, the seller has to collect tax on receipt of Rs 5 lakh after October 1, 2020 because the receipts from April 1, 2020, i.e. Rs. 1.05 crore exceeded the specified threshold of Rs 50 lakh.

The CBDT further said that 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 has been clarified that this TCS provision shall be applicable on the amount of all sale consideration received on or after October 1, without making any adjustment for the amount received in respect of sales made before this date.

Mandating the collector to identify and exclude the amount in respect of sales made up to September 30 from the amount received on or after October 1 would have resulted into undue compliance burden for the collector and also litigation, the CBDT said.

The CBDT said that this TCS shall be applicable only on the receipt exceeding Rs 50 lakh by a seller from a particular buyer. Therefore, on payment of Rs 1 crore made by a buyer to a particular seller, only Rs 5,000 (i.e. 0.1 per cent of Rs 1 crore - Rs 50 lakh shall be collected). However, the seller would be collecting Rs 3,750 only as the tax rate is reduced to 0.075 per cent till March 31, 2021.

Hence, in case of a person making payment of Rs 1 crore each to 10 different sellers, the total tax collected shall be only Rs 50,000 (i.e. Rs 37,500 this year) i.e 10 into [0.1 per cent of (Rs. 1 crore- Rs 50 lakh)] on the total payment made for purchase of Rs 10 crore to 10 different sellers.

The CBDT said that assuming a net profit of 8 per cent on sales, his business income in respect of this payment of Rs 10 crore made for purchase would be around Rs 87 lakh. The income tax liability on the income of Rs 87 lakh for an individual in new taxation regime would be around Rs 27 lakh. Hence, the amount of TCS collected, i.e. Rs 50,000 (Rs 37,500 this year) would be a miniscule part of his actual tax liability and would be easily adjusted against his tax liability. If the tax liability is less than Rs 50,000 (Rs 37,500 this year), the tax payer shall be entitled for a refund of excess TCS with interest.

It is pertinent to note here that currently, all sellers (except individuals and Hindu undivided family) are required to collect TCS without any threshold of turnover. In case of individuals and Hindu undivided family, the requirement of collection of TCS is applicable if their turnover exceeds Rs 1 crore in business or Rs 50 lakh in profession. Similar provisions exist for the applicability of Tax Deduction at Source (TDS).

It may also be mentioned that in order to reduce the compliance burden, these new provisions are made applicable to only those sellers whose business turnover exceeds Rs 10 crore.

The CBDT said that there are only around 3.5 lakh persons who have disclosed business turnover of more than Rs 10 crore in FY 2018-19 whereas active deductors/collectors as on date is more than 18 lakh. Therefore, the collection under these new provisions would be required to be made by very few persons who in most of the cases would already be complying with the existing provisions of TDS/TCS, it said.