Collect When You Sell Goods

TCS

In order to widen and deepen the tax net, Finance Act 2020 has inserted sub-section (1H) under section 206C, to provide that every person being a seller of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods covered in sub-section (1) or sub-section (1F) or (1G), section 206C to levy TCS on sale of goods. The provision is applicable from 1 October 2020.

To whom Applicable?

Every person,

  • being a seller,
  • who receives any amount as consideration,
  • for sale of any goods
  • of the value or aggregate of such value exceeding fifty lakh rupees in any previous year,

at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax.

Thus, only those sellers whose total sales, gross receipts or turnover from the business carried on by it, exceed ten crore rupees during the financial year immediately preceding the financial year, shall be liable to collect such TCS.

When not Applicable?

The Section shall not be applicable in the following cases:

  • If Gross Turnover/Sales/Receipts of the assessee(seller), during immediately preceding FY is less than Rs.10 Crores.
  • If the sale consideration received from the buyer is less than Rs. 50 lakhs (the consideration to be computed basing PAN not GSTIN).
  • In case the sale is made to the Central Government, a State Government, an Embassy, a High Commission, legation, commission, consulate or any trade representation of a foreign State OR a local authority or such other person as may be specified.
  • In case the transaction is covered by TDS under any other section.
  • In case goods being sold are covered by
    • Sec 206C (1) which covers – alcoholic liquor, tendu leaves, timber, forest produce other than timber and tendu leaves, scrap, minerals like coal or iron ore OR
    • Sec 206C(1F) which covers – motor vehicles exceeding Rs. 10 lakhs in value OR

Sec 206(1G) wherein remittance is being made outside India and TCS is being collected by Authorised Dealer for the same.

Rate of TCS?

PAN / AADHAAR furnished Up to 31st March 2021 From 1st April 2021
YES 0.075% 0.1%
NO 0.75% 1%

Other points:

  1. As Section 206(1H) is Applicable from 1st of October 2020, only amount received for sales made after 1st October 2020 is liable for TCS
  1. If credit sale is made before 01st October 2020 but its receipt is made after 01st October 2020, then, such payment is to be covered under the limit of Rs. 50 lakhs.
  1. The CBDT vide Circular No. 17, dated 29-09-2020, has clarified that since the collection is made with reference to receipt of the amount of sale consideration, no adjustment on account of indirect taxes including GST is required to be made for the collection of tax under this provision. Thus, TCS is required to be collected on the sale consideration inclusive of GST.
  1. Every Seller needs to change Invoice format to include line item for TCS Amount.
  1. As TCS needs to be deducted on amount received there will be yearend cases of sales for which amount not received. In such scenarios, need to reconcile TCS liability with Turnover will arise. Also, this may result in extra Working Capital requirement.
  1. CBIC clarified through Corrigendum to Circular No. 76/50/2018-GST dated 7th March 2019 that amount of TCS will not  be included in the total value of goods for computation of the GST.

Contributors: Mayank Bansal; Shipra Walia

GST Council Meeting on 27th August 2020 – What to expect?

41st GST Council Meeting

 

The upcoming council meet is likely to remain focused on the matter of compensation payouts to the states. As the State governments face decreased cash flows due to ongoing COVID-19 lock down induced pause in the economic activity and continue to struggle with the burgeoning expenses, the demand is two-fold:

  • Review the rates of GST compensation cess (herein after referred to as “cess”) to factor in inflation
  • Evaluate the potential for borrowing by the Council to make accelerated payouts to the States. The States have flagged that the council can borrow cheaper than the states.

The council may look to rationalize the GST rates, cast the cess net wider or increase the rate of cess. Alternatively, it may recommend the states to step up the borrowings to be repaid through the future collections in the compensation cess fund. This alternative, however, is likely to meet a serious objection from the States.

The cess was introduced at the inception of GST in 2017, to compensate the manufacturing-heavy states, for the potential loss in revenue due to the allocation GST being based on destination of the consumer as opposed to the destination of the manufacturer under the previous regimes.

Under the existing rules, the cess will be levied for the first five years of the GST regime. The cess is applicable on certain notified goods in addition to the regular GST, as per the GST (Compensation to States) Act, 2017. The cess is also applicable on imports under Section 3 of the Customs Tarrif Act, 1975. Further, input tax credit is also available against the amount of cess paid by the assessees, however, such credit can only be utilized towards the payment of cess and not towards any other liability payable under the GST Act.

The cess collected by the Central Government is allocated to the manufacturing-heavy States by calculating the shortfall in the State’s revenue under GST versus the projected revenue. The projected revenue is calculated taking in to consideration, the State’s revenue for FY 2016-17 as the base revenue and assuming a growth rate of 14% per annum. The cess is provisionally calculated and released to the States every two months.

The challenge for Central Government is the gap between the cess collection versus the compensation payout to the States. The total cess collection and payment status currently stands as follows:

(Amount in Rs. crores)
Financial Year Cess Collection Cess Payout Shortfall
2017-18 62,612 41,146 (21,466)
2018-19 95,081 69,275 (25,806)
2019-20 95,444 165,302 69,858
Total 253,137 275,723 22,586

For FY 2020-21, as the cess collections have fallen due to the pandemic, the gap is expected to be much larger and hence has ignited a debate between the Center and the States. The legal challenge is also, that as per the law the cess is to be paid to the States through collection of the cess and not from the consolidated fund of India. This effectively means, that the shortfall in the cess collection has to be met from the future collections of cess and can not be funded through other budgetary measures.

At the end, it seems inevitable, that the tax payer will ultimately have to shoulder this burden as the gap funding solely from borrowings does not seem viable unless measures are put in place to ensure that future cess collection is sufficient to meet the future payouts as well as the current shortfall.

The Council will meet again on 19 September 2020, to take up the issues such as resolution of the inverted duty structure, tax rate on various items and additional measures for ease of doing business. The tax payer will thus, need to hold until 19 September 2020 to see what the council has in store for them in terms of measure and support for the business lost during the pandemic.