The Finance Act, 2020 has introduced new TCS Provisions On Sale Of Goods through Section 206C(1H) Of Income Tax Act, 1961, which are applicable with effect from October 1, 2020. In this article we shall discuss about applicability of GST on the TCS under provisions of Income Tax Act.
The provisions of TCS on sale of goods are applicable in following situations:
- There shall be the sale of goods exceeding Rs. 50 Lakhs with in India. This means provisions of this section shall not be applicable if there is export sale.
- Turnover of the seller during FY 2019-20 or FY 2020-21 shall be greater than Rs. 10 crore or expected to be greater than Rs 10 crores respectively.
- Consideration received from the buyer (in one transaction or aggregate) shall be greater than Rs. 50 lakhs.
- The provisions of this section shall not be applicable in case the buyer is Central Government / State Government / Embassy/ High Commission/ Legation/ Commission/ Consulate/ Trade representation of a foreign state/Local Authority/Importer/any other person as may be notified.
- If the transaction is already covered by TCS [under Section 206C(1), 206C(1F) and 206C(1G) or TDS provisions from buyer’s end then provision of section 206C(1H) i.e. TCS on sale of goods, shall not be applicable.
Applicable Rates of TCS:
| Rates | Applicability |
| 0.075% | From period 01.10.2020 to 31.03.2021 |
| 0.1% | From 31.03.2021 onwards |
| 1.00% | If buyer does not have PAN |
Whether the amount of TCS will be included for levy of GST:
The moot question in regard to GST, is whether the amount of TCS would be included in the value of supply of goods for the purpose of levy of GST.
For getting answer to above issue we need to fall back on the provisions of sec 15(2)(a) of the CGST Act, 2017, which mandate that the value of supply includes “any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier”.
If we strictly read above provision it emerges that only GST can be excluded from value of supply and as TCS is not GST and rather a levy of Income tax Act, such TCS will be included in value of supply.
Clarification in regard to levy of GST on TCS:
The CBIC has at para 5 of Circular no. 76/50/2018 – GST dated 31st December, 2018 clarified as under
What is the correct valuation methodology for ascertainment of GST on Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961?
Section 15(2) of CGST Act specifies that the value of supply shall include “any taxes, duties cesses, fees and charges levied under any law for the time being in force other than this Act, the SGST Act, the UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier.”
It is clarified that as per the above provisions, taxable value for the purposes of GST shall include the TCS amount collected under the provisions of the Income Tax Act since the value to be paid to the supplier by the buyer is inclusive of the said TCS.
Thus as per above clarification , GST was to be charged on TCS as well as it would form part of value of supply.
However subsequent upon issuance of above clarification there was a hue and cry and several representations were made by the stakeholders. Accordingly the CBIC re-examined the matter in consultation with the Central Board of Direct Taxes (CBDT). The CBDT clarified that TCS is not a tax on goods but an interim levy on the possible “income” arising from the sale of goods by the buyer and to be adjusted against the final income- tax liability of the buyer.
Considering the above, CBIC issued Corrigendum (dated 7th March, 2020) to Circular No. 76 / 50 / 2018-GST wherein the para 5 was substituted as under:
What is the correct valuation methodology for ascertainment of GST on Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961?
Section 15(2) of CGST Act specifies that the value of supply shall include “any taxes, duties cesses, fees and charges levied under any law for the time being in force other than this Act, the SGST Act, the UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier.”
For the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.
Concluding remarks:
In view of above deliberations the supplier of goods required to collect tax at source as per provisions of Income tax Act, 1961, while making payment of GST should not include such amount of TCS in the value of supply of goods.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
