Download this "Tax Alert" penned down by me on #TCS on Sale of goods u/s 206(1H) - https://rb.gy/teozs0 and give your feedback. I have tried to address the amendment with a different approach which will help decision makers!

1. With effect from 01-10-2020, the Finance Act, 2020
inserted Sub-Section (1H) in Section 206C. This provision
is applicable to assessee having turnover of more than
10 Crore in the preceding year and requires a seller to
collect tax at source from the amount received as
consideration for the sale of goods if it exceeds Rs. 50
lakhs in any previous year. There has been a lot of hue
an cry around the implementation of the new provisions
of TCS on Sale of goods u/s 206(1H). The ambiguities and
confusions surrounding the provisions have led to
issuance of various clarifications vide Circular No.
17/2020 dated 29th Sep 2020 by CBDT and Professionals
and Tax Practioners have added their own clarifications
based on judgement and practicality while advising
their clients. In this article, I have made an attempt to
consolidate the areas of decision making and have tried
to approach the issue through a different perspective.
OCTOBER 2020 TAX ALERT
Rasesh Shah and Co
SECTION 206C(1H) : AREAS OF DECISION MAKING FOR COMPANY
MANAGEMENT AND BUSINESS OWNERS FOR SMOOTH
IMPLEMENTATION OF TCS ON SALE OF GOODS
TCS provision
would apply on
all sale
consideration
(including
advance
received for
sale) received
on or after 01-
10-2020 even if
the sale was
carried out
before 01-10-
2020
PAGE 1

2. At Para 4.4.2(ii) of Circular 17/2020, CBDT has clarified that “this provision applies on receipt of
sale consideration, thus the provision of this sub-section shall not apply on any sale
consideration received before 01-10-2020. Consequently, it would apply on all sale consideration
(including advance received for sale) received on or after 01-10-2020 even if the sale was carried
out before 01-10-2020”. Though the clarification has been given in respect of another issue, but
the language of the CBDT’s circular indicates that the tax should be collected when the
consideration received during the previous year exceeds the threshold limit. Even otherwise, as
per the provisions of law it is undisputed that the provision of TCS applies on receipt of sale
consideration and not Sales ‘per se’ however for administrative convenience, the management
of the Company or business owners have to take a call for adherence to any one of the
following methodology for the smooth implementation of TCS provisions.
1. DO NOT PASS ANY ENTRY AT THE TIME OF SALES ON ACCOUNT
OF TCS COMPONENT AND PAY TCS AT
TIME OF COLLECTION.
Rasesh Shah
and Co
PAGE 2
Section 206C(1H) : Areas of Decision
Making for Company Management and
Business Owners for smooth
implementation of TCS on Sale of Goods
a. At the time of Sales: Do not pass any accounting entry at the time of Sales on account of TCS
component. You may mention a Note in Sales Invoice that “The Customer shall be required to
pay an additional amount of 0.10% (0.075% if the payment is made in FY 2020-21) over and
above the Sale Consideration at the time of payment to fulfil the requirement of the provisions
of Section 206(1H)” Alternatively, an additional field in Invoice may be given stating “Amount
with TCS” but no accounting entry to be passed for the same.
b. At the time of receipt of Sales consideration: A common monthly debit note may be raised for
all total Sale consideration received in the name of Customer at the end of the month. The
Accounting Software at this point may ask whether the Sale consideration received is inclusive
of TCS or exclusive of TCS. Where the assessee selects that Sale consideration is inclusive of
TCS, the debit note should be raised by grossing up of the net amount received.
c. For outstanding Debtors as on 1.10.2020: No accounting entry needs to be passed.
d. Reflection in Quarterly TCS returns: The TCS returns may be prepared and filed as per the
dates of Debit Notes raised crediting the TCS payable account which should be paid at the end
of seven days of next month.
e. Use Cases: In this case, a consolidated entry is passed for each customer whose payment has
exceeded the threshold limit of Rs. 50 lakhs which is as per law. This is the best methodology
where there are fewer customers with ongoing business who can be trained to voluntarily pay
an additional amount of 0.10% at time of each payment. This method is also apt where the
business transactions with the customer is maintained like a current account without any
actual one-to-one correlation between Invoice and Payment so payment may be considered as
inclusive of TCS and a simple year end account contra confirmation exercise may be carried out
to discuss any mismatch.

3. a. At the time of Sales: Charge the amount of TCS on Invoice value after GST and mention
total Invoice Amount with TCS separately. In the accounting, debit the customer at the time
of Sale and credit the TCS component to separate parked account called “TCS to be
collected”. This account only acts like a “storage of memory” as separate variable for seller
because otherwise we might have to remember the amount to be collected on account of
TCS from customer in separate Spreadsheet and remind them at periodic intervals.
b. At the time of receipt of Sales consideration: After recording the Payment of Sale
consideration in customers account, a corresponding entry needs to be passed debiting the
“TCS to be collected account” and crediting the same to “TCS Payable”
c. For outstanding Debtors as on 1.10.2020: A debit Note needs to be raised for all outstanding
payment subject to applicable threshold on 01.10.2020 and credited to “TCS to be collected”
d. Reflection in Quarterly TCS returns: The TCS returns may be prepared and filed as per the
amount credited to TCS Payable account and not when the amount is credited to TCS to be
collected. Infact, ideally “TCS to be collected” is just a control account which may be reversed
as on 31st March each year by crediting Debtors account and re-entered on 1st April every
year which shall present a fairer view of the affairs of the business. Simarly, reversal entry
may be passed in case of Bad debts and so the seller does not end up paying the TCS from his
pockets
in case of bad debts.
e. Use Case: This method should be adopted by businesses wherein the payment is mostly
received on Bill to Bill basis and there are many customers whose accounting Department
releases payments only on basis of outstanding dues ledgers and at the same time, the
seller do not wish to make payment to the credit of the Government without receiving his
own payment from the customer.
2. PASS ACCOUNTING ENTRY AT THE TIME OF SALE ON ACCOUNT
OF TCS BUT TREAT IT AS PARKED
ACCOUNT AND PAY TCS AT THE TIME OF COLLECTION ONLY.
Rasesh Shah
and Co
PAGE 3
Section 206C(1H) : Areas of Decision
Making for Company Management and
Business Owners for smooth
implementation of TCS on Sale of Goods

4. 3. PASS ACCOUNTING ENTRY AT THE TIME OF SALE ON ACCOUNT OF TCS
AND PAY TCS AT THE TIME
OF CREDIT TO TCS ACCOUNT DURING SALE ITSELF.
Rasesh Shah
and Co
PAGE 4
Section 206C(1H) : Areas of Decision
Making for Company Management and
Business Owners for smooth
implementation of TCS on Sale of Goods
a. At the time of Sales: Charge the amount of TCS on Invoice value after GST and mention total
Invoice Amount with TCS separately. In the accounting, debit the customer at the time of Sale
and credit the TCS component to TCS Component.
b. At the time of receipt of Sales consideration: No additional entry.
c. For outstanding Debtors as on 1.10.2020: A debit Note needs to be raised for all outstanding
payment subject to applicable threshold on 01.10.2020 and credited to “TCS Component”
d. Reflection in Quarterly TCS returns: The TCS returns may be prepared and filed as per the
amount credited to TCS Component account.
e. Use Case: This method should be followed only for administrative convenience when
Method 1 and 2 are not feasible or those method disturbs the ease of doing business “more”.
Imagine a scenario where the seller has sold goods of Rs. 1 Cr and passed the entry on
account of TCS and the outstanding balance as on 31st March is Rs. 40 lakhs and the buyer
makes this payment in next year wherein as per law no TCS is collectible on this payment but
seller would have already deposited the TCS to the credit of the Government giving rise to
anomalies. However, this method may be required to be followed because of the peculiar
nature of the Accounting Package used by business owner or some rigidness in ERP system
where following the earlier
stated method may lead to discrepancy in some other modules of ERP.

5. PAGE 5
Thank you
To know more about this
publication from us
CA Mehul Shah
mehul@raseshca.com
Website
rscindia.in
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© October, 2020
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