Tax Collected at Source (TCS) on Sale of Goods

TCS is a tax that the seller collects from the buyer at the time of sale of certain goods and services. The seller must charge tax, at a defined percentage, to the buyer and remit that to the government. The seller submits the TCS returns each quarter and hands over a copy to the buyer.

Accordingly, all the details of the goods in and out are captured in the TCS return. This is known as the E-filing process of the TCS. TCS is levied on jewellery that is above Rs 2 lakhs on cash sales, liquor with a license, bullion above Rs 2 lakhs, motor vehicle sales above Rs. 10 lakhs, sale of timber, scrap, etc.

The New TCS Rules

Tax Collected at Source (TCS) is another chapter in tax laws, wherein the government has attempted to increase the tax net. Under this provision, the seller of such prescribed goods and services shall have to charge tax from the buyer at a certain inflated percentage, and the amount collected of the same shall have to be deposited with the government. Hence, this balance is available to the buyer, which he can use to make his income tax payments.

The “goods” covered under:

Section 206C(1): Alcohol, tendu leaves, forest produce and scrap

Sub Section 206C(1F): Sale of motor vehicles

Section 206C(1G): Foreign remittance

Do not qualify as actual goods.

For the TCS on sale of goods provisions to be applicable, the requirements are the kind of goods sold, the turnover or gross receipts from the sales, and also the nature of the transaction.

The below should be satisfied for TCS on sale of goods provisions to apply:

The seller trades commodities, aside from the products to be exported, such as automobiles, lumber, scrap, and foreign remittances.
The seller's total revenue, gross receipts and business turnover of the seller should have crossed the Rs. 10 crore threshold in the previous financial year.
TCSThreshold limit above which TCS will be collected if the total sales consideration to be received by the seller for the goods sold exceeds 50 lakhs INR during a financial year

TCS on Sale of Goods Above 50 Lakhs

If more than Rs. 50 Lakhs is received from a buyer by the seller in the previous year, he is obligatory to collect tax at source (TCS) at 0.1% on the total amount of sale of goods with effect from October 1st, 2020 as per Section 206C(1H) of Income Tax Act.

For instance, if a seller receives Rs. 60 lakhs as total sale consideration (including GST of Rs. 10 lakhs) from a buyer in a financial year, he will have to collect TCS on the amount exceeding Rs. 50 lakhs, which is Rs. 10 lakhs. The TCS amount to be collected will be 0.1% of Rs. 10 lakhs, which is Rs. 10,000.

The TCS is applicable only on the amount exceeding this limit and the threshold of Rs. Fifty lakhs is calculated cumulatively from the beginning of the financial year. It is deposited by the seller to the government.

What are the goods and services that require TCS?

1. Intra-state supplies: 1% (0.5% CGST + 0.5% SGST) is TCS on sale of goods or services within the same state through e-commerce platforms. That means suppliers must collect this tax from buyers, in such transactions — and pay it to the government. It also ensures compliance with tax regulations and tracks transactions for tax-related purposes, thus improving the overall tax revenue collection process.

2. Interstate supplies: For goods and services sold interstate through the use of e-commerce websites, the rate is 1%. The seller collects the tax from the buyer and remits it to the government. Through an e-commerce platform, TCS will give sellers of goods and services assurance of ensuring that the compliances are followed, which is supported at the grassroots level. For this purpose, the provision enabled the government to make rules, as required.

3. Services provided by e-commerce aggregators: TCS applies to e-commerce operators such as those providing food delivery or cloud kitchens, except when the partnering restaurant’s accommodation charges exceed Rs.7,500 per day. This ensures that the collection of tax due on services made through e-commerce platforms is properly collected and remitted to the government as required by law, thus promoting tax compliance and revenue generation.

4. Passenger transport motor vehicles: TCS applies to services provided through platforms (aggregators), including taxi or cab aggregators, but not limited to them. TCS ensures that tax is collected at the source from any transaction involving a passenger transport motor vehicle, thereby helping in the submission of taxes as well as compliance measures in the transport sector also, the operation of collection of tax for such services through the e-commerce platform will be streamlined.

5. Goods sold through e-commerce platforms: E-commerce platforms are responsible for levying TCS on goods sold, collected at a rate of 0.1% on aggregate sales exceeding INR 50 lakhs, and 1% if the buyer does not quote a PAN/Aadhaar detail. The idea behind this mechanism is to regulate the sale of goods through digital channels, collect taxes that are already applicable on such supplies and get these taxes deposited to the government, and make the buyer who is buying goods through these platforms reveal his PAN/Aadhaar, if he has not, thereby creating a track of these transactions and also a compliance mechanism for these suppliers (mostly small). It also brings transparency and accountability to these online transactions.

TCS on Foreign Tours

Tax collected at source, (T.C.S.) is applicable on certain specified transactions, and one of the transactions is remittance under Liberalized Remittance Scheme (L.R.S.) and sale consideration of overseas tour program package. An overseas tour package is a tour package that offers a visit to a place outside India. The revised T.C.S. Rates for sale consideration of foreign tour packages vary based on the remittance amount and are 5% if the remittance made does not exceed one crore rupees or 20% if the remittance made exceeds one crore rupees. It is necessary to ensure compliance with the T.C.S. provision to avoid penalties.

All tour operators dealing in the sale of Overseas Tour Programme Packages will be required to collect TCS, regardless of their turnover. The rate of TCS would be 5%(10%, without PAN), and the same has to be deposited with the government within the stipulated deadlines. The scope of the ‘Overseas Tour Programme Package’ is broad and thus includes varied types of expenses related to travel. Purchase of mere air ticket, hotel booking, etc., would not be covered as an ‘Overseas Tour Package’ for TCS purposes. The good part is that TCS is adjustable in the income tax calculation and can be claimed or adjusted against any existing tax liability. These TCS provisions, in the long run, will promote financial transparency in foreign travel transactions and encourage tax filing for eligible tax credits or tax refunds.

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