An Analysis of Section 206C (1H) of the IT Act 1961

1. ANALYSIS OF SECTION 206C(1H) OF THE IT ACT.
CA N.RAMASWAMY, F.C.A.
CHENNAI- 600024
PH- 04443512423
MOBILE: 9840446412
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2. Introduction
The newly introduced TCS provisions by Finance Act, 2020 vide
section 95 of the Finance Act 2020 made applicable FY 2020-21.The
changes were to be effective from 1-4-2020. However due to COVID-
2019, the effective date of these amended provisions is fixed from 1-
10-2020.The purpose of these amendments is to expand and widen
the scope of existing provisions. New TCS provisions introduced from
FY 2020-21-
 On remittance under Liberalised Remittance Scheme of
Reserve Bank of India exceeding seven lakh rupees in a year, and
 On sale of the overseas tour package.
On the sale of goods in excess of Rs. 50 lakh in a year by a seller
whose turnover is more than Rs. 10 crore
Since TCS of any sale of goods has wide ramifications, the
detailed analysis is attempted
The all the amended provisions was to be effective from 1-4-
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3. Take away from the amendments
Export of goods excluded from TCS- Originally TCS on sale of goods
did not distinguish between domestic sales and export meaning tax
was required to be collected when sale consideration was to be
received from export of goods Finance Act, 2020 has amended the
said sub-section (1H) to provide that no tax shall be required to be
collected in respect of goods exported out of India.
Applicability date deferred: The Finance Act, 2020 has deferred the
applicability of such amendments. Now, these provisions will be
effective from 01-10-2020.
Power to remove difficulty Finance Act, 2020 has empowered the
CBDT to issue guidelines, with the approval of central government,
if any difficulty arises in giving effect to the provisions of subsection
(1G) or sub-section (1H)
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4. The final bare provisions of section 206C 1 H
(1H) 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, other than the goods being exported out of
India or goods covered in sub-section (1) or sub-section (1F) or sub-section
(1G) shall, 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:
Provided that if the buyer has not provided the Permanent Account
Number or the Aadhaar number to the seller, then the provisions of
clause (ii) of sub-section (1) of section 206CC shall be read as if for
the words “five per cent.”, the words “one per cent.” had been
substituted:
Provided further that the provisions of this sub-section shall not
apply, if the buyer is liable to deduct tax at source under any other
provision of this Act on the goods purchased by him from the seller
and has deducted such amount.
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5. 206c(1H)continued
Explanation.––For the purposes of this sub-section,––
(a) “buyer” means a person who purchases any goods, but does not include,––
(A) the Central Government, a State Government, an embassy, a High Commission,
legation, commission, consulate and the trade representation of a foreign State; or
(B) a local authority as defined in the Explanation to clause (20) of section 10; or
(C) a person importing goods into India or any other person as the Central
Government may, by notification in the Official Gazette, specify for this purpose,
subject to such conditions as may be specified therein;
(b) “seller” means a person whose total sales, gross receipts or turnover from the
business carried on by him exceed ten crore rupees during the financial year
immediately preceding the financial year in which the sale of goods is carried out,
not being a person as the Central Government may, by notification in the Official
Gazette, specify for this purpose, subject to such conditions as may be specified
therein.’;
Board may issue guide lines to remove difficulties which shall be binding on the
Department as well as person liable to collect Tax.
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6. 206c(1H)continued
(1-I) If any difficulty arises in giving effect to the provisions of subsection (1G) or
sub-section (1H), the Board may, with the approval of the Central Government,
issue guidelines for the purpose of removing the difficulty.
(1J) Every guideline issued by the Board under sub-section (1-I) shall be laid before
each House of Parliament, and shall be binding on the Income-tax authorities and
on the person liable to collect the sum.
(2) The power to recover tax by collection under 63[this section] 55[***]] shall be
without prejudice to any other mode of recovery.
(3) Any person collecting any amount under 64[this section] 55[***]] shall pay
within 37[the prescribed time] the amount so collected to the credit of the Central
Government or as the Board directs
(IV) in sub-section (6A), in the first proviso, for the words “in accordance with the
provisions of this section”, the words, brackets, figures and letter “in accordance
with the provisions of sub-section (1) and sub-section (1C)” shall be substituted;
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7. Salient features
Only those seller whose total sales, gross receipts or turnover from the business carried on
by it exceed Rs. 10 crore during the financial year immediately preceding the financial year,
shall be liable to collect such TCS.
Similarly, TCS shall be collected from a buyer from whom consideration of more than Rs. 50
lakh will be received in the previous year.
The provision only covers business entities and not professionals.
No TCS is to be collected from the Central Government, a State Government and an
embassy, a High Commission, legation, commission, consulate, the trade representation of a
foreign State, a local authority as defined in Explanation to clause (20) of section 10 or any
other person as the Central Government may, by notification in the Official Gazette, specify
for this purpose, subject to conditions as prescribed in such notification.
No TCS is applicable in case of export or import of goods.
Similarly, Central Government may notify persons, subject to conditions contained in such
notification, who shall not be liable to collect such TCS.
No such TCS is to be collected, if the seller is liable to collect TCS under other provision of
section 206C or the buyer is liable to deduct TDS under any provision of the Act and has
deducted such amount.
In the case of the sale of goods, the rate of TCS is 0.1 per cent. In non-PAN/non-Aadhaar
cases the rate shall be 1 per cent.
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8. Some of the issues
Applicability of TCS on business to business (‘B2B’) sales
Section 206C(1) (applicable for TCS on sale of alcohol, tendu leaves, timber, scrap, etc.)
specifically excludes its applicability when such goods are procured for the purpose of further
manufacturing / processing, subject to declaration by buyer
Since no similar exemption in section 206(1H) is specified, TCS may be levied for any sale of
goods covered by section 206C(1H), even if the goods are procured for subsequent
manufacturing / processing
Applicability of TCS on works contract if single invoice issued
Where a single invoice is issued without bifurcation between value of goods and services, as
per 2nd proviso, TCS is not applicable when the buyer has deducted tax at source under any
other provision of the Act. Thus if the buyer has collected tax on the entire value of the Invoice,
TCS under 206c ! H will not be applicable.
Applicability of TCS on inter-unit transfer having multiple TAN
Even though both units have different TAN, They do have single PAN. TCS need not be collected
, primarily as these inter unit transfers can not be considered as sales
Ways to ascertain coverage
In the case of purchases by an organization, the seller has to comply with these provisions . In
order to be sure that Sellers do comply with the new TCS on any sale of goods, a suitable
declaration may be obtained to bind the seller to comply with the provisions of collection of
TCS, issue of Statements and certificate of collection and remittance to the treasury. .
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9. Methods of Calculations
As per section 206 c 1H the TCS ( Though 0.1%) is to be calculated at.075% of the Sale
Consideration which means GST is not be added for arriving at TCS to be Charged in the bill.
The word consideration is not defined under the Income Tax Act. But in a clarification
relating Inclusion of TCS for valuation on which GST is chargeable, CBDT has clarified that Tax
collection at source is not tax on goods but an interim levy on possible income arising from
the sale of goods by the buyer and to be adjusted against the final income Tax of the Buyer.
It can also be seen from the headline of at BB-collection at Source which is “ Profits and
gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.”. Thus
entire section is applicable on the profit & gains of Trading ..etc… Profit if any is on the
Basic price only and not on the Tax payable to the Government.
The board has also clarified that CGST, SGST OR IGST is payable on consideration without
inclusion of TCS as TCS portion is interim amount to be charged on behalf of Income Tax
Department and the amount so collected is to be paid to the treasury on appointed dates.
(As per corrigendum to circular NO 76/50/2018-GSTDated 31-12-2018 issued vide
F.NO.CBEC20/16/04/2018-GST regarding) Thus in all fairness rate of TCS specified at the
percentages is to be applied on the Basic Value only. This can also be seen from the
operative word after prescribing the relevant %, reproduced “ a sum equal to 0.1 per cent
of the sale consideration”.
Sale consideration can only mean Basic price of the goods. Collection and payment of GST to
Treasury can not have a profit element. Therefore TCS at bets will be only on Basic Price.
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10. .
Disclaimer:
The contents of this document are solely for informational purpose and It does not
constitute professional advice. It has been prepared on the basis of Law as existing .
While due care has been taken in preparing this document, the same cannot be taken as
law. For Complete understanding of the law, it is recommended to refer to The Act, Rules
and notification as published in the Gazettes from time to time. No part of this document
should be distributed or copied without express written permission of the author.
Thank You
N.Ramaswamy B.Com, F.C.A.
Shri Abhisekavalli Flats
163-164, Rangarajapuran main Raod
Kodambakkam, chennai 600024
PH- 04443512423
MOBILE: 9840446412
EMAIL: nryrams@gmail.com
Happy Reading
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