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CBDT issued a clarification on new TCS Provisions applicable from 1st October 2020

CBDT on 30th September 2020 through press release has issued a clarification on doubts that were arising on account of New (Tax collection at Source) TCS Provisions that are applicable from 1st October 2020 introduced vide Finance Act, 2020.

Press release

clarification on doubts arising on account of new tcs provisions

Finance Act, 2020 has amended the TCS provisions with effect from 1st October 2020 to provide that:

Seller of goods shall collect tax @0.1%Condition: If the receipt of sale consideration from a buyer exceeds Rs.50 Lakh in the Financial Year

Further Relaxation: Tax to be collected only if his turnover exceeds Rs. 10 crores in the last Financial Year
Relaxation for FY 2020-21 in the TCS rate i.e. effective rate for FY 2020-21 – 0.075%
Note: Additional relaxation that has been given is that the export of goods is exempted from the applicability of these provisions.

Doubt No. 1: Amount before or after 1st October 2020

Doubts have arisen about the applicability of TCS provision on the amount received before 1st October 2020. CBDT has clarified that the provision of TCS shall be applicable only on the amount received on or after 1st October 2020.

Example: Suppose a seller (Say Mr. A) who has received Rs. 1 crore before 1st October 2020 from a particular buyer (say Mr. B) and receives Rs. 5 lakh after 1st October 2020. In that case, Mr. A would be required to collect the TCS on Rs. 5 Lakh instead of Rs. 55 lakh

ParticularsDateAmount (In Rs.)
Amount received from Mr. BBefore 1st October 20201 Crore
Amount received from Mr. BOn or after 1st October 20205 Lakh
Total Amount received from Mr. B 1.05 Crore
Less: Threshold limit 50 Lakh
Balance 55 Lakh
TCS provision not applicable on the amount received before 1st October 2020 50 Lakh
Taxable value for TCS purposeOn or after 1st October 20205 Lakh

Doubt No. 2: TCS on every transaction

Another doubt which has arisen is the applicability of TCS provision on every transaction. CBDT clarifies that TCS provision is applicable only in cases where the receipt of sale consideration exceeds Rs. 50 lakh in a financial year.

As the threshold is based on the yearly receipt, it may be noted that only for the purpose of calculation of the threshold limit of Rs. 50 lakh, the receipt from the beginning of the financial year i.e. from the 1st April 2020 shall be taken into the account.

 Example: Suppose a seller (Say Mr. A) who has received Rs. 1 crore before 1st October 2020 from a particular buyer (say Mr. B) and receives Rs. 5 lakh after 1st October 2020. In that case, Mr. A would be required to collect the TCS on Rs. 5 Lakh instead of Rs. 55 lakh

ParticularsDateAmount (In Rs.)
Amount received from Mr. BBefore 1st October 20201 Crore
Amount received from Mr. BOn or after 1st October 20205 Lakh
Total Amount received from Mr. B 1.05 Crore
Less: Threshold limit 50 Lakh
Balance 55 Lakh
TCS provision not applicable on the amount received before 1st October 2020 50 Lakh
Taxable value for TCS purposeOn or after 1st October 20205 Lakh

Considering the same example, the seller has to collect tax on the receipt of Rs. Lakh that has been received on or after 1st October 2020 only because of the reason that the annual receipt i.e. from 1st April 2020, the collected amount has crossed the threshold limit of Rs. 50 lakh.

Further, CBDT has clarified that in order to simplify the compliance, TCS provisions shall be applicable on the amount of “all sale consideration received on or after 1st October 2020 without making any adjustment for the amount received in respect of sales made before 1st October 2020”

Doubt No. 3: TCS is an additional Tax

It is certainly not an additional tax, rather it is in the nature of advance income-tax/TDS for which the buyer would get the credit against his actual income tax liability and if the amount of TCS is more than his income tax liability, the buyer would be entitled to refund of the excess amount along with interest.

Doubt No. 4: TCS is to be collected by every seller

TCS is made applicable to only those sellers whose business turnover exceeds Rs. 10 crores.

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