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

The Finance Act 2020 introduced TCS on the sale of goods under the Income Tax Act with effect from 1st October 2020. This provision might impact the e-invoicing mandate under GST as well. Learn whether e-invoicing is mandated for your GSTIN or your supplier’s by a simple GST search using the government tool. The article covers this in detail. 

Latest Updates on e-Invoicing

10th May 2023
CBIC notified the 6th phase of e-invoicing. Hence, taxpayers with ₹5 Cr+ turnover in any financial year from 2017-18 shall issue e-invoices w.e.f 1st August 2023.

06th May 2023
The GST department has deferred the time limit of 7 days to report the old e-invoices on the IRP portals by three months. Further, the department is yet to announce the new implementation date.

13th April 2023
As per the GST Network's advisories dated 12th April 2023 and 13th April 2023, taxpayers with annual turnover equal to or more than Rs.100 crore must report tax invoices and credit-debit notes to IRP within 7 days of invoice date from 1st May 2023.

11th October 2022
The GST Council may implement the next phase of e-invoicing for businesses with an annual turnover of more than Rs.5 crore from 1st January 2023. The system may get extended to businesses with a turnover of over Rs.1 crore by the end of the next fiscal year.

1st August 2022 
The e-Invoicing system for B2B transactions has now been extended to those with an annual aggregate turnover of more than Rs.10 crore up to Rs.20 crore starting from 1st October 2022, vide notification no. 17/2022. 

24th February 2022
The e-Invoicing system will get extended to those annual aggregate turnover of more than Rs.20 crore up to Rs.50 crore starting from 1st April 2022, vide notification no. 1/2022.
 

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

The government has introduced a new section 206C(1H) through Finance Act 2020 to extend the TCS provisions to the seller of goods. As per this provision, a seller whose turnover is above Rs 10 crore is required to collect tax, when he receives more than Rs 50 lakh from one buyer during a financial year. It is to be noted that the TCS should be collected at the time of receipt of the 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 a 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).

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 seller ‘X’ receives Rs.45 lakh from 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 lakh – 50 lakh) at the rate of 0.075%.

Examples:

Format of TCS invoice

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

Due date of depositing TCS

The seller of goods is responsible for collecting TCS from the buyer and paying it to the government. The TCS is to be paid by the 7th of the following month.

For example, if you have received Rs 70 lakh from a buyer on 30th December 2021 and collected TCS of Rs 2,000 u/s 206C(1H). Then you have to deposit that liability by 7th January 2022.

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 was made applicable to all companies with a turnover greater than Rs.50 crore from 1st April 2021. Further, in the fourth phase, e-invoicing became applicable to businesses with more than Rs.20 crore as annual turnover in any previous years from 2017-18 to 2021-22. Later, department extended e-invoicing to businesses with a turnover of more than Rs.10 crore from 1st October 2022. Recently, CBIC mandated e-invoicing for businesses with more than Rs 5 crore turnover w.e.f 1st August 2023.

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, the 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

What is the impact of TCS on e-invoicing under GST?

TCS will not have any impact on e-invoicing.

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.

How is TCS calculated under section 206C(1H)?

The TCS is to be calculated on a buyer basis. The threshold limit u/s 206C(1H) is 50 lakh in a financial year. So, you have to collect @0.1% on over and above Rs 50 lakh.

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.

What is the due date to file TCS return?

Every tax collector shall submit a quarterly TCS return in Form 27EQ by the 15th of the month subsequent to the quarter. However, TCS return for the Jan-Mar quarter can be filed by 15th May of the following year.
 

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.