TCS on Sale of Goods -206C (1H)

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Full form of TDS is Tax Deducted at Source. If your are a businessman then you must be aware with TCS on Sale of Goods as per section 206C (1H) of Income Tax Act 1961

Section 206C (1H): Collection of tax at source on payment of certain sum for Sale of goods.

We are explaining section 206C (1H) here from the act as well as its interpretation in easy language as below:

Section 206C (1H): Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax

Applicability: Section 206C (1H) applies to every person, referred to as the seller, who receives any amount as consideration for the sale of goods exceeding Rs.50 Lakh in any previous year, 

excluding goods exported out of India or covered under specific provisions.

Rate of TCS: The seller is required to collect TCS at the rate of 0.1% of the sale consideration exceeding 50 lakh rupees at the time of receipt of such amount from the buyer.

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent”, the words “one per cent” had been substituted:

Non-Provision of PAN/Aadhaar: In cases where the buyer has not provided their Permanent Account Number (PAN) or Aadhaar number to the seller, the TCS rate increases to 1% instead of 0.1%.

Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Exemptions: The provisions of Section 206C (1H) do not apply if the buyer is liable to deduct tax at source (194Q) under any other provision of the Income Tax Act on the goods purchased and has deducted such amount. Read more about TDS on Purchase

Explanation.—For the purposes of this sub-section,—

(a) “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;

Buyer: The term "buyer" refers to a person who purchases any goods. 
However, it excludes certain entities such as:
-  the Central Government, 
- State Government, 
- local authorities, and 
- specified persons importing goods into India, subject to conditions specified by the Central Government.

(b) “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 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.

Seller: The term "seller" refers to a person whose total sales from the business exceed 10 crore rupees during the preceding financial year.

That means this section not applicable in case seller is having tunrover less than 10 Crore in preceding financial year

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Let’s Understand with an example:

Seller: XYZ Traders, a wholesale distributor of electronic goods.
Buyer: ABC Retail, a chain of retail stores purchasing electronic goods from XYZ Traders.

Transaction Details:

XYZ Traders sells electronic goods worth ₹60 lakh to ABC Retail during the financial year 2023-24.

Calculation of TCS Amount:

Total sale consideration = ₹60,00,000
Threshold limit (₹50 lakh) = ₹50,00,000
Amount exceeding threshold = Total sale consideration – Threshold limit = ₹60,00,000 – ₹50,00,000 = ₹10,00,000
TCS rate = 0.1%
TCS amount = 0.1% of ₹10,00,000 = ₹10,00

Collection of TCS:

XYZ Traders is required to collect TCS of ₹10,00 from ABC Retail at the time of receipt of the sale consideration exceeding fifty lakh rupees.

Payment to the Seller:

ABC Retail must pay Total amount of Rs.6000000 + Rs.1000 = Rs. 6001000 to XYZ Traders for the purchase of electronic goods.

Compliance:

XYZ Traders is responsible for depositing the collected TCS amount to the government within the specified due dates.
XYZ Traders must also file TCS returns and provide a TCS certificate to ABC Retail as proof of tax collection.

Read more about Due dates of TDS & TCS payment and return filing

Applicability to sale of motor vehicle:

The provisions of sub-section (1F) of section 206C of the Act apply to sale of motor vehicle of
the value exceeding ten lakh rupees. Sub-section (1H) of section 206C of the Act exclude from its
applicability goods covered under sub-section (IF). It has been requested to clarifY that whether all motor vehicles are excluded from the applicability of sub-section (I H) of section 206C of the Act.

It this regard it may be noted that the scope of sub-sections (IH) and (IF) are different. While
sub-section (1F) is based on single sale of motor vehicle, sub-section (1H) is for receipt above 50 lakh rupee during the previous year against aggregate sale of good. While sub-section (1F) is for sale to consumer only and not to dealers, sub-section (1H) is for all sale above the threshold. Hence, in order to remove difficulty it is clarified that,-

(i) Receipt of sale consideration from a dealer would be subjected to TCS under sub-section (I H)
of the Act, if such sales are not subjected to TCS under sub-section (1 F) of section 206C of the Act.

(ii) In case of sale to consumer, receipt of sale consideration for sale of motor vehicle of the value
of ten lakh rupees or less to a buyer would be subjected to TCS under sub-section (1 H) of section
206C of the Act, if the receipt of sale consideration for such vehicles during the previous year
exceeds fifty lakh rupees during the previous year.

(iii) In case of sale to consumer, receipt of sale consideration for sale of motor vehicle of the value
exceeding ten lakh rupees would not be subjected to TCS under sub-section (lH) of section 206C
of the Act if such sales are subjected to TCS under sub-section (IF) of section 206C of the Act,

Adjustment for sale return, discount or indirect taxes

It is requested to clarify that whether adjustment is required to be made for sales return, discount
or indirect taxes including GST for the purpose of collection of tax under sub-section (lH) of section 206C of the Act.

It is hereby 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 sub-section (IH) of section 206C of the Act since the collection is made with reference to receipt of amount of sale consideration.

Fuel supplied to non-resident airlines

It is requested to clarify if the provisions of sub-section (IH) of section 206C of the Act shall
apply on fuel supplied to non-resident airlines at airports in India.

To remove difficulties it is provided that the provisions of sub-section (1 H) of section 206C of the Act shall not apply on the sale consideration received for fuel supplied to non-resident airlines at airports in India.