TCS on Goods Sold: Applicability of New

Section 206C(1H) w.e.f 1st October 2020

Introduction
Finance Act 2020 introduced a new provision under Section 206C (1H) for the Tax
Collected at Source (TCS) on Goods With effect from 1st of October 2020.
As per the new provision if any seller of any goods whose turnover in the preceding
FY exceeds Rs. 10 Crore then, from 1st of October 2020, he shall be liable to collect TCS
@ 0.1% (Rate will be 0.075% till 31.03.2021) of the sale value from the buyer if the buyer
purchase goods for the value exceeding Rs. 50 Lacs (Limit of Rs. 50 Lac shall be seen
for each buyer separately). In other words, till the limit of Rs. 50 Lac there is no
requirement to Collect TCS by the Seller however the moment purchases of the buyer
exceeds Rs. 50 Lac from the same seller then on such excess amount seller shall collect
the TCS. However, in the First year of implementation of this new provision Sale made
to buyers up to 30th September 2020 shall not be liable to collect the TCS.
Explanation of the Important Terms used in the Provision
Seller: Seller means a person whose total sales, gross receipts or turnover from the
business carried on by him exceed Ten Crore rupees during the financial year
immediately preceding the financial year in which the sale of goods (Sale of Services
is not covered) is carried out, not being a person as the Central Government may, by
notification in the Official Gazette, specify for this purpose, subject to such conditions
as may be specified therein.
Buyer: Buyer means a person who purchases any goods, but does not include,—
(A) the Central Government, a State Government, an embassy, a High Commission,
legation, commission, consulate and the trade representation of a foreign State; or
(B) a local authority as defined in the Explanation to clause (20) of section 10; or
(C) a person importing goods into India or any other person as the Central
Government may, by notification in the Official Gazette, specify for this purpose,
subject to such conditions as may be specified therein;
Goods: However the Goods have not been defined in the Income Tax Act, hence we
have to borrow the reference from other acts related to Goods like Sales of Goods Act,
1930 or Goods and Service Tax Act 2017. In the both Acts the Term “Goods” has been
defined as “Goods” means every kind of movable property other than money and securities
but includes actionable claims, growing crops, grass and things attached to or forming part of
the land which are agreed to be severed before supply or under a contract of supply .
So if any person deals in the goods covered under the above definition then he shall
be liable to Collect TCS under the newly inserted provisions.
However, Seller is not required to Collect TCS on all the Types of sales under Section
206C(1H), there are some exceptions give to this provision, these are listed below:
 – If the Goods are Exported out of India
– If the goods are of such type on which TDS is liable to be deducted by the buyer
(Like in case of Job Work, Composite Supply).
– If the Seller is liable to collect the TCS under any other clause of Section 206C. (Like
in case of Motor Vehicle dealer he shall collect the TCS on the motor vehicles if the
value of the vehicle exceeds Rs. 10 Lac)
It must be note that if the Buyer did not provide his PAN or Aadhar Number then the
rate of TCS shall be 1% instead of 0.1% (Rate will be 0.075% till 31.03.2021).
For better understanding let us take a look at the various scenarios:

Sr. Seller Year Year Buyer Selling till from 1st TCS u/s Remarks
No 19-20 20-21 30th Sep October 206C(1H)
.

1 Arun 12 Cr 9 Cr Tarun 24,00,000 65,00,000 3,900 on 39 Lac

(Being Excess
of Rs. 50 Lac)

2 Arun 9 Cr 12 Cr Tarun 24,00,000 65,00,000 NA As Turnover

in the FY
2019-20 not
exceeding Rs.
10 Crore

3 Arun 12 Cr 18 Cr Tarun 85,00,000 6,00,000 600 on Rs. 6 Lac

being
Turnover
after 30th
September

4 Arun 12 Cr 18 Cr Local 55,00,000 20,00,000 NA As this

Authority Clause not
(Municipal applicable if
Corporation buyer is Local
of Delhi) Authority

5 Arun 15 Cr 12 Cr Tarun (Who 30,00,000 35,00,000 NA As this

(Job is Liable to transaction is
Worker deduct TDS already
) on the covered by
Value of Job TDS
Work

6 Arun 20 Cr 15 Cr Tarun (Buy 0 15,00,000 NA As on this

(Auto A Car) transaction
Dealer) TCS shall be
Collect u/s
206C(1F)
Important Note:
– For the seller to collect the TCS on the selling of goods Rs. 10 Crore Limit shall be
Consider each year. If in the preceding FY Turnover exceed Rs. 10 Cr only then this
provision shall be applicable otherwise not.
– Same case with the buyer, the limit of Rs. 50 Lac shall be checked every year. Suppose
in the year 2020-21 Seller Arun collects the TCS from the buyer Tarun but in the next
year Tarun buys goods only for Rs. 25 Lacs from Arun, then it cannot be said that as
in the last year i.e. in the year 2020-21 TCS was Collected from Traun hence it has to
be collected in the succeeding years also irrespective of the amount of buying.
Some Practical Issues to be dealt with:
(A) Mis-Match of 26AS and Books:
Since under the section 206C(1H) liability to deposit the TCS amount with the govt.
will be arises on the receipt basis hence there may be instances where Buyer buys the
goods in one financial year and made payment in the next financial year and seller
will deposit the TCS on the receipt basis i.e. in the next financial year. This may lead
to mismatch in the buying as showing in the books of accounts and buying reflecting
in the Form 26AS.
(B) Cancellation of Sale Agreement:
In case where the seller received the advance for the selling the goods and he
deposited the TCS thereon however later on such deal stands cancelled in that case
what will be the consequences? Whether seller shall refund only amount pertaining
to sale of goods or refund the whole amount and subsequently revise the TCS return
and how the seller shall receive back such amount? These all the issues are to be looked
after by the board and issued the detailed guidelines over it.
(C) Not Liable to Collect TCS if Transaction Liable to TDS:
It is provided that if the buyer liable to deducts and also deducts it then seller is not
required to collect the TCS. In this regard it is to be note that in many cases the seller
is not aware about the fact that whether the buyer shall deduct TDS or not. What will
be the consequences then? Whether the seller firstly not charge the TCS in the invoice
assuming that buyer will deduct the TDS and later on when the seller received the
payment he comes to know that buyer has not deduct the TDS at that time whether
the seller will raise a Debit Note for the TCS Amount?
The above mentioned issues are a few and there may be other issues also in the
practical implementation of this provision. That’s why the Government has already
inserted the clause 206C(1-I) provided that “If any difficulty arises in giving effect to the
provisions of sub-section (1G) or sub-section (1H), the Board may, with the approval of the
Central Government, issue guidelines for the purpose of removing the difficulty.”