TCS on Sale of Goods [Section 206C(1H)]: Threshold, Rate & Compliance

In a continuous effort to widen and deepen the tax net, the Indian government introduced Section 206C(1H) of the Income Tax Act, 1961, effective from October 1, 2020, to ensure that transactions involving the sale of goods are brought under the tax ambit. This provision mandates the collection of Tax Collected at Source (**TCS**) on the sale of goods by certain sellers, making it a critical aspect of compliance for many businesses. Understanding its applicability, thresholds, rates, and compliance requirements is essential to avoid penalties and ensure smooth operations.

Applicability: Who Needs to Collect TCS under Section 206C(1H)?

Section 206C(1H) applies to a seller of goods who receives any amount as consideration for the sale of any goods. However, this obligation is not universal and comes with specific conditions:

1. Seller's Turnover Threshold:

• The seller must have had a total sales, gross receipts, or turnover from their business exceeding Rs. 10 crore in the financial year immediately preceding the financial year in which the sale of goods is carried out.
• Example: If a seller's turnover for FY 2023-24 (April 1, 2023, to March 31, 2024) was Rs. 12 crore, then Section 206C(1H) provisions would apply to them for FY 2024-25. If their turnover was Rs. 9 crore, these provisions would not apply.

2. Buyer-Specific Threshold:

• The seller is required to collect TCS from a buyer if the aggregate value of the consideration received from that particular buyer for the sale of goods exceeds Rs. 50 lakh in any previous year.
• The TCS is collected only on the amount exceeding Rs. 50 lakh.
• This Rs. 50 lakh threshold is cumulative for the entire financial year from April 1 to March 31.
• Example: If Seller 'X' receives Rs. 45 lakh from Buyer 'Y' between April 1, 2024, and September 30, 2024, and then receives another Rs. 10 lakh on October 10, 2024, the total consideration from Buyer 'Y' becomes Rs. 55 lakh. In this case, TCS would be applicable on Rs. 5 lakh (Rs. 55 lakh - Rs. 50 lakh).

Rate of TCS under Section 206C(1H)

The standard rate for TCS under Section 206C(1H) is:

• 0.1% of the sale consideration exceeding Rs. 50 lakh.

However, there are provisions for a higher rate in specific circumstances:

• If the buyer fails to provide their Permanent Account Number (PAN) or Aadhaar, the TCS rate will be 1% instead of 0.1%. This is in line with the provisions of Section 206CCA, which mandates a higher rate for non-filers of Income Tax Returns.

It's important to note that the consideration for the sale of goods generally includes any Goods and Services Tax (**GST**) component. Thus, TCS is calculated on the total invoice value (including GST) that exceeds the Rs. 50 lakh threshold.

When TCS is NOT Applicable under Section 206C(1H)

There are several scenarios where TCS under Section 206C(1H) is not required to be collected:

• Exports: Goods being exported out of India are exempt.
• Specified Goods under other TCS Sections: If the goods are already covered under other sub-sections of Section 206C, such as:
  • Section 206C(1): Alcoholic liquor for human consumption, tendu leaves, timber obtained under a forest lease or otherwise, other forest produce, scrap, and minerals (coal, lignite, iron ore).
  • Section 206C(1F): Sale of a motor vehicle of value exceeding Rs. 10 lakh.
  • Section 206C(1G): Overseas remittance under Liberalized Remittance Scheme (LRS) or overseas tour program packages.
• Buyer is Liable for TDS: If the buyer is liable to deduct Tax Deducted at Source (TDS) under any other provision of the Income Tax Act on the goods purchased from the seller, and has actually deducted such amount, then the seller is not required to collect TCS. Section 194Q (TDS on purchase of goods) is particularly relevant here; if it applies, TDS takes precedence over TCS 206C(1H).
• Certain Buyers: No TCS is to be collected from the Central Government, a State Government, a local authority, an embassy, High Commission, legation, consulate, trade representation of a foreign state, or any person importing goods into India.
• Personal Consumption: If the goods are purchased for personal consumption and not for business purposes.

Compliance Requirements for Section 206C(1H)

Sellers obligated to collect TCS under Section 206C(1H) must adhere to the following compliance norms:

1. Obtaining TAN:

• The seller must possess a Tax Collection and Deduction Account Number (**TAN**). If they already have one for TDS, a new one is not required.

2. Collection of TCS:

• TCS must be collected at the time of receipt of the consideration for the sale of goods. This is crucial as it operates on a cash basis, meaning even advance receipts are subject to TCS if they cross the threshold.

3. Deposit of TCS:

• The collected TCS must be deposited with the government by the 7th day of the month succeeding the month in which the tax was collected. For instance, TCS collected in July must be deposited by August 7th.
• However, for TCS collected in March, the due date for deposit is April 30th.

4. Filing of TCS Statement (Form 27EQ):

• Sellers are required to file a quarterly TCS statement in Form 27EQ. The due dates for filing are:
  • Quarter 1 (April - June): July 15th
  • Quarter 2 (July - September): October 15th
  • Quarter 3 (October - December): January 15th
  • Quarter 4 (January - March): May 15th

5. Issuance of TCS Certificate (Form 27D):

• A TCS certificate in Form 27D must be issued to the buyer within 15 days from the due date of filing the Form 27EQ statement. This certificate acts as proof of TCS collected, which the buyer can then claim as a credit against their own tax liability when filing their Income Tax Return.

Consequences of Non-Compliance

Failure to comply with the provisions of Section 206C(1H) can lead to various penalties and repercussions:

• Interest for Non-Collection/Short Collection/Non-Deposit: If a seller fails to collect TCS, collects a lower amount, or fails to deposit the collected TCS within the due date, interest at the rate of 1% per month or part of a month will be charged on the amount of TCS that was not collected or deposited.
• Penalty for Failure to Furnish Statements: A penalty of Rs. 200 per day can be levied under Section 234E for delay in filing the TCS statement (**Form 27EQ**), up to the amount of TCS collectible.
• Penalty for Failure to Issue Certificates: Failure to issue the TCS certificate (**Form 27D**) to the buyer within the prescribed time can also attract penalties.
• Disallowance of Expenses: In certain cases, non-compliance could lead to disallowance of expenditure for the buyer if the seller fails to remit TCS.

Interplay with Section 194Q (TDS on Purchase of Goods)

It is critical to understand the interaction between Section 206C(1H) (TCS by seller) and Section 194Q (TDS by buyer), both dealing with transactions related to the sale/purchase of goods. To avoid double taxation or confusion, the law stipulates that TDS under Section 194Q takes precedence over TCS under Section 206C(1H).

• If a buyer is liable to deduct TDS under Section 194Q on the purchase of goods, and they have indeed done so, then the seller is not required to collect TCS under Section 206C(1H) on that transaction.
• This means if both sections are technically applicable to a transaction, the buyer's obligation to deduct TDS will override the seller's obligation to collect TCS.

The introduction of Section 206C(1H) marked a significant shift in how high-value sales transactions are monitored and taxed in India. For businesses exceeding the specified turnover and dealing with sales over Rs. 50 lakh to individual buyers, proactive compliance is key. Maintaining robust accounting systems, regular reconciliation of receipts, and timely filing of statements are paramount to navigating these provisions seamlessly.