TCS on Sale of Goods: Section 206c(1h) of the Income Tax Act, 1961

Under Income Tax, Tax Collection at Source (TCS) has the provision for collecting a certain percentage of tax from the buyer. Finance Act 2020, has amended some of the provisions of section 206C by inserting a new subsection (1H). Under this article, we will know about the New provision of TCS on the sale of goods under section 206c(1h) of the Income Tax Act, 1961

Section 206c(1h) of the Income Tax Act, 1961

Every person, being a seller, who receives any amount as consideration for the sale of any goods of the value or aggregate of such value exceed Rs. 50 Lakh in any previous year, other than the goods being exported out of India or goods covered in subsection (1F) or subsection (1G) shall at the time of receipts of such amount, collect from the buyer, a sum equal to 0.1% of the sale consideration exceedings fifty lakh rupees as Income Tax.

Points to be kept in mind while applying Section 206c(1h) of the Income Tax Act, 1961

Applicability- The new provision of section 206c(1H) has been applicable from 1st, October 2020.

Who will collect TCS- A Seller of Goods having turnover more than Rs. 10 crores in the previous Financial Year, is liable to collect TCS on sale of goods from the buyer.

Goods- For the purpose of this section, goods include all type of goods except, the goods being exported out of India or goods covered in subsection (1F) or subsection (1G)

Value of Transaction- TCS needs to be collected if the sale consideration of goods is more than Rs. 50 Lakh in a Financial Year.

Sale Consideration for TCS Collection- TCS to be collected on value = Total Sale Value – Rs. 50 Lakh.

Also Read- FY 2021-22: TCS Threshold Limit, Challan Code, nature of receipts, and applicable TCS rates

Sale Consideration- It will be the value of goods + GST+ Cess + any other amount.

Any other amount- Interest or penalty shall also be liable for the collection of TCS. It means that This amount will also be included in the sale consideration.

Sale Return- It is clarified vide circular no. 17/2020 dated 29 September 2020 that no adjustment on account of sales return/discount or indirect taxes including GST is required to be made for the collection of tax since the collection is made with reference to receipts of the amount of sale consideration.

Rate of TCS- The rate is 0.01% (however it is 0.075% till 31st March 2021) and if the buyer PAN is not available then the rate is 1%.

Also Read- Section 206CCA: Higher Rate of TCS for non-filers of Income Tax Return

Service- New TCS provisions are only applicable to the sale of certain kinds of goods and it will not apply to service providers.

Event for TCS Collection- As per Section 206c(1h) of the Income Tax Act, TCS is required to be collected at the time of receipts of sale consideration.

Note 1- Sale consideration from 01.04.2020 is to be taken to determining eligibility for recovering TCS.

Note- 2 TCS would be applicable to receipts made on or after 01.10.2020, even if the sale made prior to 30.09.2020.

Must Read- Section 194Q: Applicability, non-applicability, rate, and example

Section 206c(1h) of the Income Tax Act Notification PDF

The Ministry of Finance vides notification no. 54/2020 dated 24th July 2020 has made applicability of section 206 (1H). The same can be viewed and downloaded from here-

Section 206c(1h) of the Income Tax Act, 1961 Press Release PDF

There are reports in certain sections of media wherein certain doubts have been raised regarding the applicability of the provisions relating to the collection of TCS on sale of goods introduced vide Finance Act, 2020. The press note has been issued to clarify those doubts about the applicability of these provisions.

Frequently Asked Questions- FAQs

  1. When was section 206(c) introduced?

    The Ministry of Finance vides notification no. 54/2020 dated 24th July 2020 has made applicability of section 206 (1H). Every person, being a seller, who receives any amount as consideration for the sale of any goods of the value or aggregate of such value exceed Rs. 50 Lakh in any previous year, other than the goods being exported out of India or goods covered in subsection (1F) or subsection (1G) shall at the time of receipts of such amount, collect from the buyer, a sum equal to 0.1% of the sale consideration exceedings fifty lakh rupees as Income Tax.

  2. How is TCS calculated in sale of goods?

    Section 206c(1h) of the Income Tax Act, TCS is required to be collected at the time of receipts of sale consideration. The rate is 0.01% (however it is 0.075% till 31st March 2021) and if the buyer PAN is not available then the rate is 1%. New TCS provisions are only applicable to the sale of certain kinds of goods and they will not apply to service providers. For the purpose of this section, goods include all type of goods except, the goods being exported out of India or goods covered in subsection (1F) or subsection (1G)

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Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.

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Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)

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