Understanding the changes in TCS from 1st Oct 2020

Effective from 1^st October 2020, certain important changes are being made to the Income tax law, some of which may affect you as a businessman or a consumer and therefore, we discuss them hereunder so that you can prepare yourself in a better manner.

TCS@0.1% on Sale of goods exceeding Rs. 50 lakhs in a financial year {Sec 206(1H)}

We have tried to reduce these changes in form of FAQ to help in a better understanding.

Q:      What is this new TCS provision?

Ans:   From 1^st October 2020, if you are a seller of goods and you are making sales exceeding Rs. 50 lakhs to a Single party in one Financial year then you would be liable to collect TCS@0.1% from your customer and deposit with the government.

Q:      What is the TCS Rate applicable?

Ans:   The applicable rate is 0.1%. However, for FY 2020-21, it is reduced by 25% to 0.075%.

Q:      Does this TCS apply to all sellers?

Ans:    No, this would only apply in case your turnover in previous FY was more than Rs. 10 crores. Therefore, if your sales were Rs. 9.8 crores in FY 2019-20, this does not apply to you.  Further, it will also not apply in following cases:

• Exports
• Sale of Motor vehicles (already 1% TCS applicable>10 lakhs sale)
• Sale of forex/tour package (already 5% TCS applicable from 1^st Oct)
• Sales made to Central/State Govt/local authority
• Sales of goods already covered under TCS (alchohol/timber/scrap etc.)
• If the buyer is making payment to you after deducting TDS

Q:      From when will the Rs. 50 lakhs limit be calculated?

Ans:    Since it talks about sale of more than 50 lakhs in a financial year, the limit of 50 lakhs would be seen from 1^st April. So if you have already made sales of more than 50 lakhs to a customer, you have to collect TCS@0.1% on your next sale to him after 1^st October 2020.

Q:      I am a service provider, will it also apply to me?

Ans:    No, the limit is only applicable in case of sale of goods.

Q:      Is there a different rate of TCS if my customer does not have PAN?

Ans:    In case customer does not have PAN, then TCS of 1% will apply in place of 0.1%

Q:      I made sales of Rs. 40 lakhs upto 1^st October to a customer, now I am making sale of 20 lakhs to him on 1^st October 2020, do I need to collect TCS on entire 60 lakhs?

Ans:    No. TCS will only apply on the amount in excess of 50 lakhs. Therefore, in your case, TCS should only be collected on 60-50 lakhs i.e. 10 lakhs.

Q:      I made sales of 55 lakhs to Mr. A in FY 2020-21 and would collect TCS now. But if I make sale of less than 50 lakhs next year, do I still need to collect TCS?

Ans:    No. TCS limit will need to be reviewed every year and until 50 lakhs sale every year, no TCS needs to be collected.

Q:      Will the 50 lakhs limit be calculated net or inclusive of GST?

Ans:    Section 206C(1H) clearly specifies that TCS is to be collected at the rate of 0.1% of the sale consideration and therefore in our opinion, limit of 50 lakhs will need to be computed without considering GST collected from buyer. However, no specific clarification has been issued by the tax department on this issue and greater clarity would be welcome.

Q:      I am a works contractor engaged in sale of both goods and services. Will I need to collect TCS from my customer also?

Ans:    The GST law specifically considers works contract services as supply of services. Therefore, in our view TCS should not apply. This is subject to further clarification from the government.

Q:      I am a real estate developer selling built up flats. Will TCS apply to me also?

Ans:    No, TCS would not apply as if customer is paying more than 50 lakhs, he is bound to deduct TDS.

Q:      What is the due date of deposit of TCS?

Ans:    TCS collected from buyers is to be deposited by 7^th day of next month.

Q:      What is the due date to file TCS Returns?

Ans:    Returns for respective quarters are due on 15^th July, Oct, Jan and May.

Other TCS Provisions {Sec 206C (1G)}

• TCS@5% on foreign currency remittance under LRS : Effective from 1^st Oct 2020, banks/authorized forex dealers will collect additional 5% TCS from you if you make foreign currency remittance exceeding Rs. 7 lakhs for other than foreign tour purposes. However, if payment is being remitted for foreign tour package, then limit of 7 lakhs would not apply and 5% will be collected on entire amount.

• TCS@5% on purchase of overseas tour programme:         Effective from 1^st Oct 2020, any payment made by you for purchase of a overseas tour programme from any seller for example SOTC, Make my Trip etc. would be liable for 5% extra TCS collection There is no limit on this and 5% will be calculated on entire amount.

Both of these TCS will reflect in your 26AS and refund can be claimed at time of filing ITR as per applicable provisions.

The above information is for discussion and education purposes only and in case of any further queries/discussions or legal advisory regarding the same, kindly click on the “Raise a Query” button and we shall get back soon.