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Guidelines on the provisions of Tax Collection at Source (TCS)

October 5, 2020 | Blogs, Latest Tax Update, MBG

Background
  • Finance Act, 2020 inserted a new Section 194O in the Income Tax Act 1961 (ITA) which mandates that with effect from 1 October, 2020, an e-commerce operator shall deduct income-tax at the rate of one per cent (subject to the provisions of proposed Section l97B of the ITA) of the gross amount of sale of goods or provision of service or both, facilitated through its digital or electronic facility or platform. However, exemption from the said deduction has been provided in case of certain individuals or Hindu Undivided Family (HUF) fulfilling specified conditions. This deduction is required to be made at the time of credit of amount of such sale or service or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant, whichever is earlier.
  • Finance Act, 2020 also inserted Section 206C(1 H) of the ITA which mandates that with effect from 1 October, 2020 a seller receiving an amount as consideration for sale of any goods of the value or aggregate of such value exceeding INR 5 Million in any previous year to collect tax from the buyer a sum equal to 0.1 per cent (subject to the provisions of proposed Section 206C(10A) of the ITA) of the sale consideration exceeding INR 5 Million as income-tax. The collection is required to be made at the time of receipt of amount of sales consideration.
  • The Central Board of Direct Taxes (CBDT) vide Circular No. 17 of 2020 dated 29 September 2020, issued following guidelines:

Guidelines

  • Applicability on transactions carried through various Exchanges

Considering the practical difficulties in implementing the provisions of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) contained in Section 194O and Section 206C(1H) of the ITA in case of certain exchanges and clearing corporations, it is provided that the provisions of Section 194O, and Section 206C(IH) of the ITA shall not be applicable in relation to:

  1. Transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre (IFSC);
  2. Transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the Central Electricity Regulatory Commission (CERC).
  • Applicability on payment gateway

In e-commerce transactions, the payments are generally facilitated by payment gateways. It is represented that in these transactions, there may be applicability of section 194O of the ITA twice i.e. once on e-main commerce operator who is facilitating sell of goods or provision of services or both and once on payment gateway who also happen to qualify as e-commerce operator for facilitating service.

Considering the same, it is provided that the payment gateway will not be required to deduct tax under Section 194O of the ITA on a transaction, if the tax has been deducted by the e- commerce operator under Section 194O of the ITA, on the same transaction.
  • Calculation of threshold for the financial year 2020-21 

Since both section 194O and Section 206C(IH) of the ITA would come into effect from 1 October, 2020, it was requested to clarify how the various thresholds specified under these sections shall be computed and whether the tax is required to be deducted/collected in respect of amounts received before 1 October, 2020.

It hereby clarified that:
  1. As the threshold of INR 0.5 Million for an Individual or HUF (being e- commerce participant who has furnished PAN/Aadhaar) is with respect to the previous year, calculation of amount of sale or services or both for triggering deduction under Section 194O of  the ITA shall be counted from 1 April, 2020. Hence, if the gross amount of sale or services or both facilitated during the previous year 2020-21 (including the period up to 30 September 2020) in relation to such an individual or HUF exceeds INR 0.5 Million, the provision of Section 194O of the ITA shall apply on any sum credited or paid on or after 1 October, 2020.
  2. As Section 206C(1H) of the ITA applies on receipt of sale consideration, the provision of this section shall not apply on any sale consideration received before 1 October 2020. Consequently it would apply on all sale consideration (including advance received for sale) received on or after 1 October 2020 even if the sale was carried out before 1 October 2020.
  3. As the threshold of INT 5 Million is with respect to the previous year, calculation of receipt of sale consideration for triggering TCS under Section 206C(1H) of the ITA shall be computed from 1 April, 2020. Hence, if a person being seller has already received INR 5 Million or more up to 30 September 2020 from a buyer, the TCS under Section 206C(IH) of the ITA shall apply on all receipt of sale consideration during the previous year, on or after 1 October 2020, from such buyer.
  • Applicability to sale of motor vehicle 

The provisions of Section 206C(1F) of the ITA apply to sale of motor vehicle of the value exceeding INR 1 Million. Section 206C(1H) of the ITA exclude from its applicability goods covered under Section 206C(IF) of the ITA. It has been requested to clarify that whether all motor vehicles are excluded from the applicability of Section 206C(1H) of the ITA.

In this regard it may be noted that the scope of Sections 206C(1H) and 206C(1 F) of the ITA are different. While Section 206C(1F) of the ITA is based on single sale of motor vehicle, Section 206C(1H) of the ITA is for receipt above INR 5 Million during the previous year against aggregate sale of good. While sub-section 206C(1F) of the ITA is for sale to consumer only and not to dealers, Section 206C(1H) of the ITA is for all sale above the threshold. Hence, in order to remove difficulty it is clarified that:

  1. Receipt of sale consideration from a dealer would be subjected to TCS under Section 206C(1H) of the ITA, if such sales are not subjected to TCS under Section 206C(1F) of the ITA.
  2. In case of sale to consumer, receipt of sale consideration for sale of motor vehicle of the value of INR 1 Million or less to a buyer would be subjected to TCS under Section 206C(lH) of the ITA, if the receipt of sale consideration for such vehicles during the previous year exceeds INR 5 Million during the previous year.
  3. In case of sale to consumer, receipt of sale consideration for sale of motor vehicle of the value exceeding INR 1 Million would not be subjected to TCS under Section 206C(IH) of the ITA if such sales are subjected to TCS under Section 206C(IF) of the ITA.
  • Adjustment for sale return, discount or indirect taxes
It is clarified that no adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax under Section 206C(1H) of the ITA since the collection is made with reference to receipt of amount of sale consideration.
  • Fuel supplied to non-resident airlines 
It is provided that the provisions of Section 206C(IH) of the ITA shall not apply on the sale consideration received for fuel supplied to non-resident airlines at airports in India. Himanshu Suryan Deputy Manager – Direct Tax MBG Corporate Services

Tag: Income Tax Dept, TCS Provision