The concept of TCS (Tax Collection at Source) is not new and it has been in force since a long time. Recently the Finance Act, 2020 has expanded the provision to include sale of goods also under the purview of TCS. The new provision was earlier made applicable from 1st April 2020, but due to the unfortunate pandemic, it was deferred and now it is applicable with effect from 1st Oct 2020.
Simultaneously e-invoicing has also gone LIVE from 1st October 2020 for outward B2B invoices and certain other transactions. Hence, it becomes imperative to understand the effect of E-Invoicing on TCS transactions. However, in order to know the impact of this new provision of TCS transaction on e-invoicing let us first understand the provision itself.
24th Feb 2022: As per CGST Notification 01/2022 released on 24th Feb 2022, GST e-invoice has been made mandatory for entities with turnover of Rs. 20 Cr and above.
Section 206C(1H) of Finance Act for TCS states as below
Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding Rs. 50 lakhs in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent (0.075% up to 31.03.2021) of the sale consideration exceeding Rs. 50 lakhs as income-tax.
Thus, the amount so collected as income-tax from buyer is termed as Tax Collected at Source or TCS. There was a clarification issued with regards to the TCS. Based on the actual provision added and the clarifications issued, some important points to note about this new TCS provision are as below:
1. Threshold Limit for Seller:
This provision is applicable only to those sellers whose total sales, gross receipts or turnover exceed Rs. 10 crores during previous financial year.
2. Applicability for buyer and transactions:
TCS is applicable only when the receipts of total amount in the financial year from a buyer exceedsRs. 50 lakhs. Thus, actual sales during the year does not matter. If Sales during the year is say Rs. 60 lakhs, however actual receipts is only Rs. 40 lakhs during the year then TCS will not be applicable. Similarly, if there is only advance received during the year of Rs. 55 lakhs and no sales still TCS will be applicable on Rs. 5 lakhs (55 lakhs – 50 lakhs).
TCS is not applicable in following cases:
- Goods are exported outside India or imported in India;
- Buyer is liable to deduct tax at source (TDS) on such goods;
- Buyer is Central Government, State Government, Embassy, High Commission, Legation, or trade representation of a foreign state;
- Buyer is a local authority as per section 10(20) of the Act;
- The goods are already covered under the existing provisions of TCS (e.g. alcoholic liquor, scrap, motor vehicles, etc.)
3. Calculation of TCS:
The amount of TCS will be calculated on the amount over Rs. 50 lakhs only. If amount received during the year is Rs. 55 lakhs, then TCS will be collected only on Rs. 5 lakhs @0.1 %(0.075% up to 31.03.2021)
4. Effective Dates and calculation for current Fin Year:
This provision is applicable from 1st Oct 2020 i.e. TCS shall be applicable only on the amount received on or after 1st October, 2020. For example, if the seller has received Rs. 80 lakhs prior to 1st Oct 2020 from a buyer and Rs. 5 lakhs after 1st Oct 2020, then TCS will be applicable as total receipt from the buyer exceeds Rs. 50 lakhs. However, the TCS amount will be collected only on 5 lakhs.
5. TCS and E-invoicing:
E-invoicing under GST has been mandated for companies with turnover of more than Rs. 500 crores w.e.f. 1st Oct 2020.Lets understand the impact of new provision under TCS transaction on e-invoicing.
. In E-invoicing mandate, currently there is no provision made for a separate placeholder for above discussed TCS. It has been clarified in the FAQs that if the TCS is reported in invoice as a separate data point and included in the invoice value, then while generating IRN this TCS amount should be included in Other Charges at invoice level and thereby invoice value will also be reported inclusive of TCS. Thus, automatically in GSTR-1 also this amount will be included in invoice value as whatever invoice value is reported in e-invoicing should also be reported in GSTR-1.
There are already other specific TCS like TCS in scrap sale, TCS on car sale above a threshold. In all such cases the TCS is compulsorily included in the invoice and hence need to be reported in e-invoicing as well. Thus the above approach can be followed for the same.
Now as the amount to be collected as TCS under this new provision is on receipt basis and not on sales basis, it is not advisable to include TCS amount on invoices. There has to be various checks in place to determine buyer wise whether the Rs. 50 lakhs limit for receipts is crossed or not and thereby deciding as to on which invoices TCS charge is to be included. In order to ensure the compliance under this section many sellers have started tocharge/collect TCS on invoices raised to eligible buyers. Many sellers are still in doubt as to whether it is correct to charge TCS on invoice or issue debit note at the time of received money.
If we look at it in details, if the seller is collecting TCS on invoices and depositing the same with the department, then he is complying the provision of this section. However, he needs to also keep a check on advances received as the TCS is to be collected on receipts. TCS so collected on advances can be then adjusted against invoice issued at a later date. However, it is advisable to collect TCS on collection instead of invoice and accordingly include the same in various credit agreements with buyers in order to ensure smooth functioning of accounts receivables. Thus, if the TCS is not present in an invoice issued to the buyer then there will be no effect in e-invoicing i.e. while generating IRN also.
Let us have a look at some FAQs with regards to the new provision:
Q. Whether GST amount needs to be considered for calculating turnover, gross receipts for threshold limit of Rs.10 Crore?
a. There is no clarification from CBDT in this regard.However as per guidelines issued by ICAI turnover doesn’t include indirect taxes.
Q. Whether GST Amount need to consider for deducting TCS amount.
A. Yes, As per Circular No. 17 of 2020 issued by CBDT, no adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax under sub-section (1H) of section 206C of the Act since the collection is made with reference to receipt of amount of sale consideration.
Q. As definition of Goods is not available under Income tax act where we can refer definition of goods.
A. Where a definition of particulars things is not available under the respective act one can refer the same under other Act. As Indirect tax is closest to direct tax and in the GST definition of Goods Is available one can refer this definition.
Q. Whether TCS is applicable to Sales of SEZ Units as is deemed export under GST.
A. Yes, TCS is applicable to sales of SEZ Units if amount received crosses Rs. 50 Lakhs during financial year. If goods are being exported outside the country, only then there is an exemption.
Q. Whether TCS is applicable on HIGH Sea Sales.
A. TCS is not applicable for Importing of Goods. In High Sea sales there are two legs of transactions.One is original buyer who buys from foreign country and before reaching goods to IndianTerritory, sale is made to third party.In the second leg of transaction Third party filed bill of entry for home consumption.There is no clarification on this from CBDT but as per our understanding both the transaction are excluded from TCS Provision.
Q. Is software considered as goods? whether TCS provision applicable for software sales.
A. If it’s off the shelf then its goods and TCS provision applicable and if its customized and royalty or license fees paid every year then it’s a service and TCS provision is not applicable.
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