FAQs on TCS – Section 206C(1H)

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FAQs on TCS – Section 206C(1H)

Section 206C(1H) – TCS on sale of Goods is a new provision that will be applicable from 1st October 2020. In this article will be discussing the  Frequently Asked Questions and Intricacies under this new Provision of TCS on Sale of Goods u/s 206C(1H). Click here to see the basic provision of Section 206C(1H) of Income Tax


You may also like: Section 194Q – TDS on Purchase of Goods (w.e.f. 1st July 2021) and Difference between Section 194Q and Section 206C(1H)

Let us now discuss the FAQs on TCS

Ques 1. What is the meaning of ‘Goods’ under this provision?

Ans: – ‘Goods’ are not defined anywhere under the Income Tax Act. This provision also does not provide clarity as to ‘What are goods?’ Since, no specific definition is provided, therefore, all goods in whichever form are covered under this provision.

Ques 2. Whether consideration will include the GST component also?

Ans: – ‘Consideration’ has not been defined under the Income Tax Act. As per Section 145A, the value of sales shall include any kind of tax recovered. Also, Circular 23/2017 dated 19.07.2020 does not apply to Chapter XVII-BB (TCS Provisions). Hence, TCS shall be collected on the GST component also.

The government needs to come up with a clarification on TCS on the GST component otherwise this will lead to an extra cash flow burden.

Ques 3. Whether TCS will be collected on Trade Receivables outstanding as of 30th September 2020?

Ans: – Since, this provision is applicable on a receipt basis, as per my view any payment received out of trade receivables outstanding as on 30.09.2020 will come under the TCS ambit. There may be divergent views as well considering that TCS shall not be applicable on Sales made before the provision is made applicable i.e. before 01.10.2020.

Ques 4. Whether TCS will be applicable to the Trading of Shares?

Ans: – ‘Goods’ are not defined under the Income Tax Act. As per the Sale of Goods Act, the definition of Goods includes Shares and Securities. Therefore, TCS shall be applicable on shares.

Ques 5. Whether TCS is applicable on Motor Vehicles of value less than 10 Lakhs?

Ans: – TCS on the motor vehicle is levied u/s 206C(1F) whose value is more than 10 Lakhs. As per the provisions of Section 206C(1H), TCS is not applicable to goods that are covered under other provisions of TDS/ TCS. As per clarification, TCS will be applicable to Motor Vehicle below 10 Lakhs.

Ques 6. What will be the applicability of TCS where the value of goods and labor is not separately mentioned in the invoice?

Ans: – This is a case of Works Contract where TDS provisions u/s 194C are applicable. Now, as per the Non-applicability provisions of Section 206C(1H), TCS shall not be applicable to such transactions.

Ques 7. Can an assessee apply for Lower Collection Certificate for this section?

Ans: – Section 206C(9) specifically bars an assessee to apply for a Lower collection certificate for this section. Hence, one cannot apply for a lower collection certificate.

Ques 8. What will happen in a situation where sale consideration is adjusted against Accounts Payable for purchases from the said party?

Ans: – In the given case, consideration is not received in cash/ cheque rather it is received in any other mode. Hence TCS provisions will be applicable.

Ques 9. What will be the treatment of Sales return under this provision?

Ans: – Credit Notes are issued by the supplier in case of sales return. In case of sales return, the trade receivables will be reduced by the amount of sales return and hence the payment that will be received of a lesser amount. Hence, TCS will be charged on the reduced amount i.e. Net of Sales Return.

Ques 10. On what amount will TCS be charged either on CIF/ FOB amount?

Ans: – Since TCS has to be charged on Total Invoice Value after including all taxes, freight and other charges, hence TCS amount will be charged on a CIF basis.

Ques 11. Whether the export of goods by the seller or through any other export house will attract TCS under this section?

Ans: – Goods exported outside India are not covered under this section. If the seller exports goods outside India then there will be not TCS. Also, if the seller sells goods and the buyer further exports goods outside India, then also TCS is not applicable. The only compliance here the seller has to complete is that the seller needs to obtain a declaration from the buyer that the goods will be exported.

Ques 12. Whether sales made to Wholly or substantially owned entities by the Government chargeable to TCS?

Ans: – The exemption is for the central or state government and not for entities owned by the government. Hence, TCS will be applicable to such transactions.

Ques 13. Whether TCS has to be charged on full amount or amount exceeding 50 Lakhs?

Ans: – TCS has to be charged on the amount exceeding 50 Lakhs. For example: – Receipt of 55 Lakhs – TCS has to be charged on 5 Lakhs.

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About CA Mehul Gupta 30 Articles
Chartered Accountant in practice, Certified GST Practitioner & Commerce Graduate. He is mainly engaged in the practice of Direct taxes, GST, International taxation, & assurance services. A visiting faculty in the Faridabad Branch of ICAI.

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