CBDT clarifying doubts on the applicability of TCS [Key Points]

In this post, we will look into the key points in the press notes released by CBDT clarifying the doubts regarding the applicability of TCS on certain goods introduced vide Finance Act, 2020.

Key Points

  • TCS is applicable if receipt of sale consideration exceeds Rs. 50 lakh in an FY. The turnover from April 2020 to September 2020 will be considered for Threshold calculation.
  • It is only applicable to the amount of all sale consideration received on or after 1st October 2020.
  • It applies to only those sellers with a turnover of more than Rs. 10 crore.
  • TCS is not an additional tax but is like advance Income tax/TDS.
  • The export of goods is exempted from the TCS applicability.

Finance Act, 2020 amended TCS provisions with effect from 1st October 2020 where the seller will collect tax @ 0.1% (0.075 % up to 31.03.2021) if the receipt of sale consideration from a buyer is over Rs. 50 lakh in the FY.

This provision of TCS is made applicable only for the amount received on or after 1st October 2020. For e.g. If a seller receives Rs. 75 Lakh from a buyer before 1st Oct 2020 and Rs. 50 Lakh from the same buyer after 1st Oct 2020, then the seller is required to collect a tax on Rs. 50 Lakh only and not on Rs. 75 Lakh (Rs. 1.25 Cr – Rs. 50 Lakh (Threshold)).

As per the amended provision, TCS is applicable only where the receipt of sale consideration exceeds Rs. 50 Lakh in the FY.

As the Threshold limit is based on yearly receipt, for the purpose of calculating the threshold limit, the receipts from 1st April 2020 have to be taken into consideration. I.e. in the above example, the year to date receipt is considered for threshold whereas the tax is collected on the amount received after 1st October 2020.

TCS is not an additional tax but similar to Advance Income Tax/TDS. Therefore, the buyer can get a credit against his actual income tax liability. If the TCS amount is more than his tax liability, then the buyer will get the excess amount as a refund along with interest.

TCS is collected only on receipts exceeding Rs. 50 Lakh from a particular buyer.

Hence, if the payment of Rs.1 crore was made to 10 different sellers, the total tax collected shall be only Rs.50,000 (Rs. 37,500 this year) i.e. 10 x [0.1% of (Rs. 1 crore- Rs. 50 lakh)] on the total payment made for the purchase of Rs. 10 crore to ten different sellers.

“If the net profit on sale is 8%, his business income in respect of this payment of Rs. 10 crore made for purchase would be around Rs. 87 lakh. The income-tax liability on the income of Rs. 87 lakh for an individual in the new taxation regime would be around Rs. 27 lakh.”

So, the TCS amount Rs.50,000 (Rs. 37,500 this year) will be a small part of “his actual tax liability and it would be easily adjusted against his tax liability. If his “tax liability is less than Rs.50,000 (Rs. 37,500 this year)”, then he will get a “refund of excess TCS with interest.”

With that, we have come to the end of this post. Share your queries with us in the comments section below.

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