Tax Collected at Source (TCS) was originally introduced under Section 206C of the Income Tax Act, 1961. It was applicable on the sale of specific goods and on transactions between specific entities as defined by the act.
In the past year, the Government of India introduced new provisions for TCS under Section 206C as sub-section 1H in the Finance Act, 2020. According to the new provisions, sellers are required to collect TCS from their buyers on sales of goods from 1 October 2020.
Zoho Books is set up to help you handle TCS, including the new provisions. Using Zoho Books, you can record, track, and report TCS efficiently.
Understanding sellers and buyers
Before we dive deep into TCS and its implications, it is important to understand the terms seller and buyer. In the context of Section 206C(1H),
Seller refers to persons whose total sales, gross receipts, or annual turnover is more than 10 crore rupees during the financial year immediately preceding the current financial year in which the sale happens.
Buyer refers to persons whose purchase of goods from a seller in the current financial year has exceeded 50 lakh rupees. However, the following buyers are exempted from being charged TCS as mentioned in sub-section 1H: the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or a local authority as defined in the Explanation to clause (20) of section 10; or 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.
For the rest of the blog, when we use the term seller or buyer, we mean persons or businesses who fit the description above.
Who should collect TCS?
A seller (whose previous year’s turnover is greater than 10 crore rupees) must collect TCS from buyers once the seller’s total sales amount received in the current financial year exceeds 50 lakh rupees.
When should you start collecting TCS?
The GOI has directed sellers to collect TCS on payments received for sales starting 1 October 2020, if the total amount received from the buyer in the current financial year exceeds 50 lakh rupees. That means that for the first 50 lakh rupees that you receive in sales, you need not collect TCS. Also, if a sale occurred prior to 1 October 2020 but you’re receiving the sale amount on or after 1 October 2020, you are liable to charge TCS on that amount.
What is the applicable TCS rate?
Under Section 206C(1H), a seller must collect TCS at the rate of 0.1% of the sale amount (inclusive of taxes), provided the buyer furnishes their Permanent Account Number (PAN) or Aadhaar. If they don’t provide their PAN or Aadhaar, a TCS rate of 1% must be charged on the sale amount.
According to the press release from the Ministry of Finance, the TCS rates have been temporarily reduced from 0.1% to 0.075% until 31 March 2021.
Conditions under which you don’t have to collect TCS
As a seller, you don’t have to collect TCS under Section 206C(1H) in the following circumstances:
If you are collecting TCS based on the other provisions of Section 206C;
If the buyer is liable to deduct TDS or has deducted TDS;
When goods are imported into India; and
If the Government exempts a buyer or seller by notification in the Official Gazette.
Goods that are exempted from TCS
According to 206C(1H), you cannot collect TCS from buyers on the following goods:
Goods that are exported;
Goods that are covered under section 206C(1): (Scrap, Tendu leaves, Alcohol liquor for human consumption, Timber, Any other forest product, etc.)
Goods that are covered under section 206C(1F): (Motor vehicles)
Goods that are covered under section 206C(1G): (Authorised dealer for remittance of money outside India under Liberalised Remittance Scheme [LRS] of RBI)
Applying TCS on transactions
Zoho Books enables you to record TCS and track it easily. When you create an invoice for a sale, the TCS field will be shown in the section below the item table, where you can create a TCS tax rate and apply it to the transaction. Zoho Books will automatically calculate the TCS amount based on the invoice amount and the TCS rate.
If you’re recording a bill, you can select the applicable TCS rate in the transaction and the corresponding TCS amount will be calculated.
Depositing TCS and filing returns
After collecting TCS from buyers, a seller is required to deposit the TCS amount on a monthly basis with the Government of India by the 7th of the following month. For example, if you collect TCS during November 2020, you will have to deposit it with the Government by 7 December 2020.
While depositing the amount is a monthly process, the seller must file the TCS return using Form No. 27EQ on a quarterly basis. In Zoho Books, Form No. 27EQ is available under Taxes in the Reports module. Once you record a payment for a transaction involving TCS, it will be listed in the report. You can use this report to file TCS returns.
Learn more about how to record TCS in Zoho Books from our help document. If you need any assistance, feel free to reach out to us at firstname.lastname@example.org.