TCS on realisation from sale of goods Section – 206C(1H)

Newly introduced Section 206C(1H) in Finance Bill, 2020 is applicable w.e.f., 1^st October, 2020. According to the provisions of the section, if the following conditions are satisfied, the seller is required to collect TCS from buyer at the time of receipts of sales realization w.e.f., 1^st October, 2020:

1. The Turnover of Seller during preceding financial year (FY 2019-20) exceeds Rs. 10 crores.
2. Seller receives Sales Realisation from a Buyer in excess of Rs. 50 lacs during the Financial Year (FY 2020-21)
3. Such Realisation is attributable to sale of goods other than Export or Goods on which TCS is to be collected under any other section of Income Tax Act, 1961.

The TCS shall be collected at 0.1% (for FY 2020 -21 : 0.075%) on realisation in excess of Rs. 50 lacs.

If Buyer is a person of following category, then No TCS Shall be Collected under this section :

• Central / State Government
• Embassy
• Commission / High Commission
• Legation
• Consulate
• Local Authorities
• Trade Representation of Foreign State

1. The limit of Rs. 50 lacs is not for sales to the Buyer/Customer but it is for realisation of sales proceeds from the Buyer / Customer. (Point No. 1 of table)
2. TCS is only collected on Realisation relating sale of Goods to the buyer. Realisation from Buyer relating to rendering of services will not be calculated in the limit of Rs. 50 Lakh and even not attract TCS. (Point No. 5 of table)
3. If TCS is collected under any other section of Income Tax Act, 1961 (E.g., TCS on Sale of Scrap) then TCS shall not be collected under section 206C(1H). Even Realisation received from sale of such goods (E.g., Scrap) shall not be considered in the limit of Rs. 50 Lakh. (Point No. 5 of table)
4. The limit of realisation of Rs. 50 Lakh is for whole financial Year i.e., (FY 2020-21). However, the TCS Shall be collected only on those realisations which are received after 1^st October, 2020. Thus, the realisations received in excess of Rs. 50 Lakh before 01-10-2020 shall not attract TCS. However, for purpose of calculating whether the realization exceeds Rs. 50 lacs, the realization received prior to 01-10-2020 should be considered (Point No. 2 of table)
5. If Sales made to the buyer is set – off against Purchase from the Buyer then such purchase will be deemed as consideration and TCS shall be levied on such consideration if all other conditions are satisfied. (yet to be clarified by the Government)

• Currently in case of TCS we normally include the same in invoices, however, as TCS u/s 206C(1H) is to be collected when sales proceeds are received, so it is not possible to charge TCS in the invoice.
• A practical way out may be to raise a debit note (without GST effect) to the buyer at the time of receipt of money. For example, Rs. 5 lacs are received from the buyer for settling the account and TCS is applicable, a debit note should be issued for the TCS amount to the buyer on receipt of money and the TCS amount should be kept outstanding in the buyers account (instead of settling the account) and the TCS should be paid with the Government for the month.

Still the following issues are still debatable regarding Section 206C(1H) :

1. The Realisation received from buyer is including GST. Then, whether TCS shall be collected on amount including GST or for each realisation, sales invoice shall be identified and TCS Should be collected on realisation attributable to Taxable amount of such Sales Invoice.
2. Whether to collect TCS on Advance from Buyer for sale of Goods in future? If TCS is collected on Advance from Buyer and subsequently Contract of Sale is cancelled, seller will have to refund only the amount of Advance to buyer and not the amount of TCS as it will be shown credited to buyer in his 26AS.
3. Many such other issues remain, for which a Clarification is expected from the Government.