The Ministry of Finance has issued a clarification on the applicability of tax collection at source in the recently introduced provisions related to tax collection at source (TCS) on certain assets introduced in the Finance Law of 2020.
The Ministry of Finance said that there are reports in certain sections of the media in which certain doubts have been raised about the applicability of the provisions regarding the collection of taxes at the source (TCS) on certain goods introduced in the Law. of Finance 2020. This press release is being issued to clarify doubts about the applicability of these provisions.
The Finance Law of 2020 modified the provisions related to TCS with effect from October 1, 2020 to provide that the seller of goods will collect taxes at 0.1 percent (0.075% until 03.31.2021) if the receipt of the consideration A buyer’s sale exceeds Rs. 50 lakh in the financial year. Furthermore, to reduce the compliance burden, it is envisaged that a seller should collect tax only if their turnover exceeds Rs. Rs 10 crore in the last financial year. Furthermore, the export of goods has also been exempted from the applicability of these provisions.
It has been reported in the media that TCS has been made applicable to the amount received before October 1, 2020. It is clarified that this report is not correct. In this regard, it should be noted that this TCS will be applicable only on the amount received as of October 1, 2020. For example, a seller who has received Rs. 1 crore before Oct 1, 2020 from a particular buyer and receives Rs. 5 lakh would be required after Oct 1, 2020 to collect tax on Rs. 5 lakh only and not at Rs. 55 lakh [i.e Rs.1.05 crore – Rs. 50 lakh (threshold)] including the amount received before October 1, 2020.
It has also been reported in certain sections of the media that each transaction will attract this TCS. This report is not correct. It should be noted that this TCS applies only in cases where the receipt of the sale consideration exceeds Rs. 50 lakh in a financial year. As the threshold is based on the annual receipt it should be noted that only for the calculation of this threshold of Rs. 50 lakh, the receipt will be taken into account from the beginning of the financial year, that is, from April 1, 2020. For example, in the above illustration, the seller has to collect tax on receiving Rs. 5 lakh after Oct 1, 2020 because receipts from Apr 1, 2020 i.e. Rs. 1.05 crore exceeded the specified threshold of Rs. 50 lakh.
Furthermore, the seller in most cases maintains a buyer’s checking account in which payments are generally not tied to a particular bill of sale. Therefore, in order to simplify and facilitate compliance by the collector, it can be noted that this provision of TCS will be applied to the amount of all the sale consideration received as of October 1, 2020 without making any adjustment for the amount received with respect to sales made before October 1, 2020. Force the collector to identify and exclude the amount with respect to sales made until September 30, 2020 from the amount received on October 1, 2020 or after that date it would have resulted in an undue compliance burden for the collector and also litigation.
It has been reported in certain sections of the media that this TCS is an additional tax. Obviously this is not correct. In this regard, it should be noted that TCS is not an additional tax, but rather has the nature of an anticipated income tax / TDS whereby the buyer would obtain the credit against his actual income tax obligation and if the amount of TCS is more than its tax liability, the buyer would be entitled to a refund of the excess amount along with interest.
It should also be noted that this TCS will be applicable only on receipt exceeding Rs. 50 lakh for a seller from a particular buyer. Therefore, with the payment of Rs. 1 crore made by a buyer to a particular seller only Rs. 5,000 (Rs. 3,750 this year) ie [0.1% of (Rs. 1 crore – Rs. 50 lakh)] will be collected. Therefore, in case one person makes the payment of 1 million rupees each to 10 different sellers, the total tax collected will be only 50,000 rupees (37,500 rupees this year) [0.1% of (Rs. 1 crore- Rs. 50 lakh)] on the total payment made for the purchase of Rs. 10 crore to ten different vendors.
Assuming a net profit of 8% on sales, your business income regarding this payment of Rs. 10 crore made for purchase would be around Rs. 87 lakh. The income tax liability on income of Rs. 87 lakh for an individual in the new tax regime would be around Rs. 27 lakh. Therefore, the amount of TCS collected, ie Rs 50,000 (Rs 37,500 this year) would be a miniscule part of your actual tax liability and easily adjusted against your tax liability. In a rare case, if your tax liability is even less than Rs 50,000 (Rs 37,500 this year), you will be entitled to repayment of the excess TCS with interest.
It has also been reported in certain sections of the media that each seller will have to charge TCS. This is also not correct. In this context, it should be noted that to reduce the compliance burden, this TCS is made applicable only to those sellers whose turnover exceeds Rs. 10 crore. In other words, those who have a turnover of less than Rs. It will not take 10 crore to collect TCS. There are only around 3.5 lakh of people who have disclosed a turnover of more than Rs. 10 crore in fiscal year 2018-19. There are around 18 lakh entities already dealing with TDS / TCS. Therefore, this collection of TCS under these new provisions should be done by individuals who, in most cases, would already be complying with the other provisions of TDS / TCS.
