Government of India
Department of Revenue
Ministry of Finance
Central Board of
Direct Taxes
New
Delhi, 30th September, 2020
PRESS RELEASE
Clarification on
doubts arising on account of new TCS provisions
There are reports in certain
sections of media wherein certain doubts have been raised regarding the
applicability of the provisions relating to Tax Collection at Source (TCS) on
certain goods introduced vide Finance Act, 2020. This press note is being
issued to clarify those doubts about the applicability of these provisions.
Finance Act, 2020 amended
provisions relating to TCS with effect from 1st October, 2020 to
provide that seller of goods shall collect tax @ 01 per cent (0.075% up to
31.03.2021) if the receipt of sale consideration from a buyer exceeds Rs. 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 Rs_ 10 crore in the last financial year. Moreover, the export
of goods has also been exempted from the applicability of these provisions.
It has been reported in the media
that TCS has been made applicable to the amount received before 1st October,
2020, It is clarified that this report is not correct In this connection, it
may be noted that this TCS shall be applicable only on the amount received on
or after 1st October, 2020. For example, a seller who has received Rs, 1 crore
before 1st October, 2020 from a particular buyer and receives Rs. 5 lakh after
1st October, 2020 would be required to collect tax on Rs. 5 lakh only and not
on Rs. 55 lakh [Le Rs.1.05 cram - Rs. 50 lakh (threshold)] by including the
amount received before 1st October, 2020.
It has also been reported in
certain section of the media that every transaction will attract this TCS.
This report is not correct. It may be noted that this 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 may be noted that only for the
purpose of calculation of this threshold of Rs. 50 laIch, 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 Rs, 5 lakh after 1st October, 2020 because the receipts from 1st
April, 2020 i.e. Rs. 1.05 crore exceeded the specified threshold of Rs. 50
lakh.
Further, the seller in most of
the cases maintains 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_ it has been reported in certain
section of the media that this TCS is an additional tax. This is obviously not
correct. In this regard, it may be noted that TCS is not an additional tax but
is in the nature of advance incorne-taxITDS 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.
It may also be noted that thls
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 (Rs. 3,750 this year) i.e. [0.1% of
(Rs. 1 crore Rs, 50 lakh)] shall be collected. Hence, in case of a person
making payment of Rs,1 crore each to 10 different sellers, the total tax
collected shall be only R5,50000 (Rs. 37]500 this year) i.e 10 x [0.1% of (Rs.
1 crore- Rs. 50 lakh)] on the total payment made for purchase of Rs. 10 crore
to ten different sellers_ Assuming a net profit of 8% 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 the new taxation regime would be around Rs. 27 lakh, Hence,
the amount of TCS collected i.e. Rs.50,000 (Rs. 3/,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 Rs.50000 (Rs. interest.37,500 this year), he shall be entitled for refund
of excess TCS with interest
It has also been reported in
certain section of media that every seller will have to collect TCS. This 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 Rs. 10 crore. In other words, those having turnover
of less than Rs. 10 crore wil not be required to collect TCS. There are only
around 3.5 lakh persons who have disclosed business turnover of more htan Rs.
10crore 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.
(Surabhi Ahluvvalia)
Commissioner of Income
Tax
(Media & Technical
Policy)
Official Spokesperson,
CBDT