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Impact of TCS under section 206(1H) of Finance Act, 2020 on e-invoicing

Updated on:  

08 min read

The Finance Act 2020 introduced TCS on the sale of goods under the Income Tax Act from 1st October 2020.  This provision will impact the e-invoicing mandate under GST as well. The article covers this in detail.  

What is the new TCS provision under section 206C (1H) of the Income Tax Act?

A new section 206C (1H) was introduced by Finance Act 2020 to extend the TCS provisions to the seller of goods. As per this provision, a seller is required to deduct tax at the source on the sale of goods if the aggregate value of such sale exceeds Rs.50 lakh during the relevant financial year. TCS should be deducted at the time of receipt of such an amount. 

Points to note:

  1. This provision applies only to a seller whose gross turnover exceeds Rs.10 crore during the financial year preceding the FY in which such sale is carried out.
  2. Goods do not include exports and goods covered under section 206C(1)- TCS on sale of alcohol, tendu leaves, forest produce and scrap; 206C(1F)- TCS on sale of motor vehicles and 206C(1G)- TCS on foreign remittance.
  3. TCS is not required to be deducted if the buyer is Central/State Government, Embassy, High Commission, Legation, Consulate, Trade Representation of Foreign State or any local authority.
  4. If the buyer is required to deduct TDS under any other provisions of the Income Tax Act on the goods purchased by him from the seller and has deducted such amount, then the seller is not required to collect TCS on such transactions.
  5. This provision does not apply to the import of goods to India.

Calculation of TCS and effective dates

This provision is applicable from 1st October 2020. A seller is required to collect tax at source at 0.1% on receipt of consideration of value exceeding Rs.50 lakh in a financial year from the buyer. (This rate is reduced to 0.075% till 31st March 2021 due to COVID-19). Let’s say that the seller receives Rs.60 lakh in the financial year. Then TCS should be deducted on Rs.10 lakh (60-50).

Suppose a supplier chooses to charge TCS in the invoice,

  1. Value of goods = Rs.1,00,00,000
  2. GST at 18% = Rs.18,00,000
  3. Total = Rs.1,18,00,000
  4. TCS on the total value = Rs.8,850
  5. Total invoice value will be = Rs.1,18,08,850

Also, the threshold of Rs.50 lakh is for the whole financial year. Thus, if the seller receives any sale consideration from the buyer from 1st April 2020 to 30th September 2020, the same will be considered for calculating the limit of Rs.50 lakh for that buyer.

For example, if a seller ‘X’ receives Rs.45 lakh from the buyer ‘Y’ from April 2020 to September 2020. But, later receives Rs.10 lakh on 10th October 2020, then TCS will be applicable and it shall be collected on Rs.5 lakh (55-50) at the rate of 0.075%.

How does the new TCS provision impact e-invoicing?

e-Invoicing is being implemented in a phased manner in India. e-Invoicing is a step taken by the government to avoid tax evasion by mandating every B2B invoice to be reported on the government portal. 

In the third phase, e-invoicing is made applicable to all companies with a turnover greater than Rs.50 crores from 1st April 2021. 

Under the current e-invoicing mandate, there is no separate provision for TCS under section 206C(1H). While generating the Invoice Reference Number, TCS included in the invoice value should be included in ‘other charges’, and thus, invoice value will be reported inclusive of TCS. Thus, automatically in GSTR-1 also, this amount will be included in the invoice value.

This new provision of TCS is applicable on a receipt basis and not a sale. So, the seller of goods is required to collect TCS on advances received and later adjusted against the invoice. Thus, it is advisable to collect TCS on a receipt basis rather than at the time of issue of the invoice. Also, if TCS is not present in the invoice then there will be no effect in e-invoicing.

Frequently Asked Questions

Should the GST amount be considered for calculating TCS?

As per Circular No. 17 of 2020 issued by CBDT, no GST adjustments should be made for calculating TCS due to indirect taxes or discounts as tax is deducted on receipt of consideration and not the sale.

Is TCS applicable to SEZ units?

Sales by an SEZ unit is considered as deemed export. Still, TCS is applicable on the same if the amount received from a buyer crosses Rs.50 lakh during the financial year.

Is the supply of services also covered under this provision?

This provision is made applicable only on the sale of goods. Thus, payments received against the supply of services are not covered under this provision.

What is the due date for the deposit of TCS collected from buyers?

It is the 7th day from the end of the month in which the supplier receives the payment. Every tax collector shall submit a quarterly TCS return, i.e., Form 27EQ, regarding the tax collected by him in a particular quarter.

What shall be the rate of TCS if the buyer fails to provide its PAN or Aadhaar?

In such cases, TCS shall be deducted at 1% of sale consideration. Section 206CC overrules section 206C(1H).

For calculating the supplier’s threshold limit of Rs.10 crore, whether the sale of services shall be considered?

Section 206C(1H) states that the total turnover of the business shall be considered. So, the sale of services shall also be considered for calculating the threshold limit of Rs.10 crore.

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