TCS under Section 206C(1H) on e-Invoicing

What is the new TCS provision U/S 206C(1H) of the Income Tax Act?

The government introduced Section 206C 1H through the Finance Act 2020 to expand TCS provisions to sellers of goods. Sellers with an annual turnover exceeding ₹10 crore must collect tax when receiving more than ₹50 lakh from a single buyer in a financial year. TCS is collected at the time of payment.

Key points to remember:

• This applies to sellers with a gross turnover exceeding ₹10 crore in the previous financial year.
• Exclusions include exports and goods covered under sections 206C(1), 206C(1F), and 206C(1G).
• TCS is not required for government entities, embassies, or foreign trade representations.
• If the buyer is subject to TDS on the same transaction, TCS is not necessary.
• This provision does not apply to imported goods.

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Applicability and Non-Applicability of TCS on Sale of Goods

Applicability: The provisions of Tax Collected at Source (TCS) on the sale of goods, as outlined in Section 206C 1H of the Income Tax Act, are applicable when the following conditions are met:

• Nature of Goods: The seller is engaged in the sale of any goods other than export goods, tendu leaves, alcoholic liquor, timber, scrap, motor vehicles, or foreign remittances.
• Annual Turnover: The total sales, gross receipts, or turnover from the business of the seller should exceed ₹10 crore in the immediately preceding financial year.
• Sale Value: The value or aggregate value of sale consideration for goods received from a single buyer during a financial year is more than ₹50 lakh.

Non-Applicability:

The TCS on Sale of Goods provisions are not applicable under the following circumstances:

1. Annual Turnover: The total sales, gross receipts, or turnover from the business of the seller is less than ₹10 crore in the immediately preceding financial year.
2. Sale Value: The value or aggregate value of sale consideration received from a single buyer during a financial year is less than ₹50 lakh.
3. Export of Goods: The goods are exported out of India.
4. Sale of Services: The transaction involves the sale of services rather than goods.
5. Government or Local Authority: The buyer is a Central or State Government, Embassy, High Commission, Legation, Consulate, Trade Representation of a Foreign State, or any local authority.

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Rate of TCS under Section 206C(1H)

A seller must collect tax at source (TCS) at the rate of 0.1% on the receipt of consideration exceeding Rs. 50 lakh in a financial year from a buyer. However, if the buyer does not provide their PAN or Aadhaar, the TCS rate will increase to 1% instead of 0.1%.

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TCS Deposit Due Date

The due date for TCS (Tax Collected at Source) deposit depends on the specific type of transaction and the applicable tax rate. However, generally, the TCS amount collected during a quarter must be deposited to the government within the 7th day of the subsequent month.

For example, if you collected TCS during the period from April 1st to June 30th, you would be required to deposit the amount by July 7th.

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Who is a buyer as per Section 206C(1H)?

Under Section 206C(1H), a buyer refers to any person purchasing goods worth over Rs. 50 lakh from a seller liable to deduct TCS under this section. However, certain buyers and transactions are excluded from its scope:

• Purchases involving exports or imports.
• Goods specified under Section 206C(1), such as alcohol, tendu leaves, timber, forest produce, scrap, and minerals (coal, lignite, or iron ore).
• Goods covered under Section 206C(1F), which pertains to the sale of motor vehicles.
• Goods covered under Section 206C(1G) related to foreign remittances.
• Buyers such as the Central or State Government, Embassies, High Commissions, Legations, Consulates, Trade Representations of Foreign States, or any local authority.

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Who is seller as per Section 206C(1H)?

Under Section 206C(1H), a seller is defined as a person whose total sales, gross receipts, or turnover from their business exceeds Rs. 10 crore in the immediately preceding financial year.

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Exceptions to the Applicability of Section 206C(1H)

The government has excluded certain categories of individuals and transactions from the applicability of Section 206C(1H). As a result, the TCS provisions under this section will not apply in the following cases:

• When goods are exported out of India.
• Goods fall under Section 206C(1), including the sale of alcohol, tendu leaves, timber, forest produce, scrap, or minerals such as coal, lignite, or iron ore.
• Goods are covered under Section 206C(1F), which pertains to the sale of motor vehicles.
• Goods fall under Section 206C(1G), related to foreign remittances.
• The buyer is the Central/State Government, an Embassy, High Commission, Legation, Consulate, Trade Representation of a Foreign State, or a local authority.
• The person is importing goods into India.
• Any other category of person notified by the Central Government in the Official Gazette.

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How does the new TCS provision affect e-invoicing?

The introduction of the new TCS provision under Section 206C 1H has a direct impact on e-invoicing in India due to the following reasons:

• Inclusion of TCS in Invoice Value: When generating the Invoice Reference Number (IRN), the TCS amount included in the invoice value must be reported under "other charges." This means that the invoice value reported on the government portal will include the TCS amount. Consequently, this amount will also be automatically reflected in the GSTR-1 return.
• Receipt-Based TCS Collection: The new provision mandates TCS collection on a receipt basis rather than a sale basis. This means that sellers must collect TCS on any advances received from buyers, even if these advances are later adjusted against the final invoice. This approach differs from the traditional method of collecting TCS at the time of invoice issuance.
• Impact on E-Invoicing if TCS is Missing: If the TCS amount is not included in the invoice, there will be no direct impact on the e-invoicing process. However, it's important to note that this omission could lead to discrepancies in tax reporting and potential penalties if not addressed.

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Penalties for Non-Compliance with Section 206C(1H)

Failure to comply with TCS requirements under Section 206C(1H) may result in the following penalties:

1. Penalty for Non-Collection of TCS: If the seller fails to collect TCS, a penalty equal to the uncollected TCS amount will be imposed.
2. Penalty for Non-Deposit of TCS: If the TCS collected is not deposited with the government, the seller will be liable for a penalty equal to the amount that should have been deposited.
3. Penalty for Late Payment of TCS: Any delay in remitting the TCS to the government attracts interest at the rate of 1% per month.
4. Penalty for Delayed Return Filing: Failing to file Form 27EQ by the quarterly deadline incurs a fine of ₹100 per day.

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