TCS under Section 206C(1H) on e-Invoicing: Rate, Applicability, Due Date, Example

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. 

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, timber, forest produce, scrap, and minerals (i.e. coal, lignite or iron ore); 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.

Applicability of Section 206C(1H)

TCS provisions under Section 206(1H) apply to a seller whose turnover is above Rs 10 crore in the preceding financial year, and in cases where they receive payments in aggregate towards the sale of goods amounting to more than Rs 50 lakh from a buyer during a financial year. It is to be noted that the TCS should be collected at the time of receipt of the amount and is levied only on the amount exceeding Rs 50 lakh. 

Meaning of Buyer as per Section 206C(1H)

A buyer as per Section 206C(1H) refers to a person who purchases goods amounting to over Rs 50 lakh from a person required to deduct TCS under this section. However, it does not cover the buyer in the case of- 

• Exports, 
• Imports, 
• Goods covered under section 206C(1) i.e. TCS on sale of alcohol, tendu leaves, timber, forest produce, scrap, and minerals (i.e. coal, lignite or iron ore); 
• Goods covered under 206C(1F) i.e. TCS on sale of motor vehicles, 
• Goods covered under 206C(1G) i.e. TCS on foreign remittance,
• The buyer being the Central/State Government, Embassy, High Commission, Legation, Consulate, Trade Representation of Foreign State or any local authority.

Meaning of Seller as per Section 206C(1H)

As per Section 206C(1H), a seller includes a person whose total sales, gross receipts or turnover from the business carried on by them exceeds Rs 10 crore in immediate preceding the financial year. 

Rate of TCS as per Section 206C(1H)

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. However, if the buyer fails to provide their PAN or Aadhaar, TCS shall be deducted at 1% instead of 0.1%.

Compliance Requirements under Section 206C(1H)

The following compliance requirements must be met under Section 206C(1H)-

• The seller must have a Permanent Account Number (PANs) and Tax Deduction and Collection Account Number (TANs) to collect and deposit TCS under Section 206(1H)'
• The TCS must be collected at the time of receiving the payment from the buyer and deposited with the government it by the 7th of the following month.
• A quarterly TCS return using Form 27EQ must be filed as per the TCS due dates. This certificate has to be issued within 15 days from the date of filing the quarterly return.

Penalties for Non-Compliance with Section 206C(1H)

If TCS requirements under Section 206C(1H) are not complied with, the following penalties may apply-

Penalty for non-collection of TCS: Failing to collect TCS could lead to a penalty equal to the TCS amount due.

Penalty for not depositing TCS: If the seller does not deposit the TCS collected with the government, they will be liable to pay a penalty equal to the TCS amount that should have deposited.

Penalty for late payment of TCS: Delays in TCS remittance to the government incurs interest at 1% per month.

Penalty for delayed return filing: Missing the quarterly filing deadline for Form 27EQ could result in a fine of ₹100 per day.

Exemptions to Section 206C(1H)

The government has exempted certain categories of persons and transactions from being liable to the provisions of Section 206C(1H). Accordingly, TCS requirements under Section 206C(1H) will not apply where-

• Goods are being exported out of India, 
• The goods are covered under section 206C(1) i.e. TCS on sale of alcohol, tendu leaves, timber, forest produce, scrap, and minerals (i.e. coal, lignite or iron ore); 
• The goods are covered under 206C(1F) i.e. TCS on sale of motor vehicles, 
• The goods are covered under 206C(1G) i.e. TCS on foreign remittance,
• The buyer is the Central/State Government, Embassy, High Commission, Legation, Consulate, Trade Representation of Foreign State or any local authority.
• The person is importing goods into India,
• Any other person that the Central Government may notify in the Official Gazette.

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.

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 2024 to 31st March 2024, 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 2024 to September 2024. But, later receives Rs10 lakh on 10th October 2024, then TCS will be applicable and it shall be collected on Rs 5 lakh (Rs 55 lakh – Rs 50 lakh) at the rate of 0.1%.

Examples:

Format of a TCS invoice

If a supplier chooses to charge TCS in the invoice, then the calculation will be as follows:

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 = Rs11,800
5. Total invoice value will be = Rs1,18,11,800

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 August 2024 and collected TCS of Rs 2,000 u/s 206C(1H). Then you have to deposit that liability by 7th September 2024.

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. The 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.