Income Tax Taxation

Collection of tax on sale of goods (FAQs)

The Finance Act recently inserted sub-section (1H) in section 206 C. As per this provision, seller is required to collect tax at source from the amount obtained as consideration for the sale of goods in case it is more than 50 lakh rupees in previous year. In this article, we look to cover some of the frequently asked questions regarding the need for collection of tax on sale of goods.

Who is responsible for collection of tax on the sale of goods?

Tax should be collected by a person who carries on business and whose total sales, gross receipts or turnover is more than 10 crore rupees in the financial year immediately preceding the financial year of sale.

When does collection of tax take place?

The tax should be collected from a buyer on fulfilment of the following conditions:

• There is a sale of goods to such person;
• The seller gets any amount as consideration for the sale of any goods of the value or aggregate of the value beyond 50 lakh rupees in any previous year;
• The buyer shouldnt be in the list of persons excluded from provision of tax collection.

It is worth mentioning here that the tax would not be collected under this provision in case the goods are sold through export or the tax is deducted or collected under other provision.

Moreover, the tax will not be collected in case where the buyer is any of the following:

• Central government;
• State government;
• Local authority;
• A person importing goods into India;
• An embassy etc.
• Any other notified person.

What should be timing of collection of tax?

As per Section 206C (1H):

Every person being a seller who receives an amount as consideration for the sale of any goods of value or aggregate of value exceeding 50 lakh rupees in any previous year, other than those goods being exported out or goods covered under in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the instance of receipt of the amount, collect a sum equal to 0.1 % of the sale consideration beyond 50 lakh rupees as income tax from the buyer.

From this section, we can understand that:

• Tax to be collected when both amount of sale and the amount received as sale consideration exceeds 50 lakh rupees in the previous year;
• Tax to be collected when amount of sale exceeds 50 lakh rupees regardless of the amount of sale consideration obtained during the previous year;
• Tax to be collected when amount obtained as sale consideration exceeds 50 lakh rupees regardless of the amount of sale made in the previous year.

If the term goods is not defined, then what should be taken as a sale of goods?

Goods as a term is not defined in the Income Tax Act. However, this is a broad term. Anything that comes to the market can be treated as goods.

The term Goods is defined under the Sale of Goods Act as well as under the CGST Act 2017. Under Sale of Goods Act, goods means every sort of moveable property apart from actionable claims and money and include stock and shares, growing crops, things attached to and forming a part of the land that are agreed to severed prior to sale or under the sale contract.

Under CGST Act, goods has been defined as every kind of moveable property apart from money and securities but include actionable claims, growing crops, things attached to and forming a part of land which is agreed to be severed prior to supply or under the supply contract.

Therefore the goods definition can be taken from the sales of goods act for the purpose of Section 206C (1H).

Collection of tax on the sale of immovable property by a developer. Is it possible?

As stated above, goods refer to every kind of moveable property subject to some exceptions and inclusions. Therefore immovable property will not be treated as goods, and hence TCS would not be collected on the sale of immovable property by developer.

Collection of tax on sale of a motor vehicle. Is this a possibility?

It may be noted here that there is a specific provision under section 206 C (1F) for tax collection on the sale of a motor vehicle. As per this provision, tax would be collected from every buyer who pays any amount as consideration for motor vehicle purchase of value more than 10 lakh rupees.

The finance act introduced a general provision for collection of TCS on the sale of goods under Section 206 C (1H)^[1]. This excludes TCS on motor vehicle.

Under the new provision, the sale of motor vehicles to dealers not covered under Section 1(F) shall be subject to TCS. Further, sales to consumer where consideration for a vehicle is below 10 lakh rupees, but the aggregate value exceeds 50 lakh rupees during a previous year, it would be subject to TCS.

Can TCS be collected from the re-sale of goods?

As per Section 206C (1H), a person would be treated as seller in case the total sales, gross receipts or turnover of business exceeds the threshold limit.

When a person is qualified as seller, he will be liable for tax collection where the value or aggregate of the value of sale consideration obtained is more than 50 lakh rupees in any previous year, regardless of the fact that the sale is in course of the business or not.

What should be the rate of collection of tax?

The tax should be collected by the seller of goods at 0.1% rate of the sale consideration exceeding 50 lakh rupees if buyer produces the PAN or Aadhaar, else the tax would be collected at the rate of 1%.

It may be noted that the rate shall not be enhanced any further by Surcharge and Health and Education Cess if the amount is collected from resident person. However, the TCS rate will be enhanced by the applicable surcharge and health and education cess in case where the payee is a non-resident or a foreign company.

Does TCS has to be collected on the total invoice value, including the GST?

As per section 206C (1H), TCS has to be collected on the consideration for sale of any goods. Hence the price bargained for the goods can be regarded as consideration of goods. A question arises if GST shall form part of the consideration.

CBDT had earlier clarified that as the collection is made with reference to receipt of amount of sale consideration, no adjustment on account of indirect tax, including GST, has to be made for collection of tax under this provision. Therefore, TCS should be collected on the sale of consideration inclusive of GST.

Does the amount obtained as loan from the buyer come under the ambit of this provision?

Collection of TCS arises in case where the sale consideration received during the previous year exceeds the threshold. The collection should be made at the time of receipt of the consideration for the sale of goods. Considering the fact that the loan received from the buyers is not a consideration towards the sale of goods, it will remain outside the ambit of this provision. Therefore no need to collect TCS from loan received from buyers.

However, in future, such loan amount is settled against sales consideration, the liability of TCS collection will arise. Then tax will be collected on the date when parties agreed to adjust the loan amount against outstanding liability.

What will be the treatment of the credit note for TCS computation?

The adjustment made to the ledger of the buyer by the issuance of the credit note shall not have an impact on the tax to be collected as the tax should be computed on the consideration received from the buyer. The position will remain similar if, after the collection of tax, the seller repays some consideration to the buyer. In that case, the sale consideration amount received by the seller will not be reduced with the amount refunded for TCS calculation. 

Now let’s look at some other essential aspects of this topic.

Certificate for lower collection of Tax Collected at Source

An assessee may apply to the assessing officer to issue such a certificate. The certificate will be issued if existing and estimated tax liability of an assessee justifies tax collection at a lower rate.

However, Section 206C (9) of the IT Act doesn’t provide the benefit to apply for lower collection of TCS for section 206 C (1H). Therefore the assessee doesn’t have an option to reach out to the assessing officer to issue lower tax collection certificate for transactions under 206 C (1H).

Depositing TCS

A corporate assessee and other assesses will have to make payment of tax, including TCS, electronically via net banking facility or through debit cards. In order to deposit the tax, collector should fill Challan No. ITNS 281.

Other collectors may deposit the tax collected into any RBI branch or the branch of SBI, or any authorized bank.

Consequences of failure to pay or collect TCS

If a person, who is responsible for collection of tax at source, fails to collect the whole or any part of the tax or once collected fails to deposit it to the Central Government credit, shall be deemed to be in default.

In case where a collector fails to collect or once collected fails to deposit it to the Central Government credit, shall be liable to pay interest at 1% rate for every month or part thereof on amount of tax he failed to pay or collect.

The interest will be calculated for the period beginning from the date on which the tax had to be collected and ending on the date when tax is deposited. It may be noted that the interest should be paid before furnishing the TCS return.

Consequences of not filing TCS return

In case there is a delay in filing TCS return, then a late filing fee will be payable under section 234E. The fee for default in producing the TDS/TCS statement will be levied at 200 rupees rate per day, during which the failure continues.

However, the fee amount will not be more than the total amount deductible or collectable, as the case may be. The fee should be paid before the submission of the belated TCS/TDS statement.

In case a person fails to file the TCS return or fails to file it in the due dates, then he shall be liable for penalty under section 271H. The penalty under this section is also levied if inaccurate information is furnished under TCS return.

Conclusion

The aforementioned details explain some of the new provisos requiring collection of tax on the sale of goods. These have been put forth in a simple manner to help you gain knowledge on this matter.

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