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Understanding TCS on Goods Sale | Section 206C(1H) Explained

Written by Mohit Garg Dt. May 28th, 2020

Income Tax Act, 1961 (hereinafter referred as ‘Act’) provides various rules and regulation which mandates the collection of Tax at source to prevent the evasion of Tax.

As per Section 206C of the Act, person is required to collect tax at source on business of trading in alcohol, liquor, forest produce, scrap etc.

In Addition to this, as per section 206C(1) of the Act, which provides that “Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax”.
The details of different tax rates and specified goods are tabulated below:

S. No. Nature of Goods Percentage
1 Alcoholic Liquor for human Consumption 1
2 Tendu Leaves 5
3 Timber obtained under a forest lease 2.5
4 Timber obtained under any mode other than under forest lease 2.5
5 Any other forest produce not being timber or tendu leaves 2.5
6 Scrap 1
7 Minerals, being coal or lignite or iron ores 1

Meaning thereby that every person being seller (as define in section 206C) is required to collect tax at source from buyer of above specified goods at a specified rate as referred above at the time of booking the transaction in the books of accounts or at the time receipt of such amount from said buyer in cash or by cheque or draft or by any other mode, whichever is earlier.

Further, In order to widen and deepen the scope of tax net, Finance Act, 2020 has amended the Section 206C of the Act and levy the Tax collection at source on Sale of Goods on doing specified transaction.

The Above Provision can be understood by following points:

  • Every person being a “Seller” receives any amount of consideration for sale of any goods of the value exceeding 50 lakh rupees in any financial year is liable to deduct TCS at the rate of 0.1% on consideration received from buyer exceeding 50 lakh
    rupees. However, in case the buyer not provides the PAN or Aadhaar then TCS is liable to deduct at the rate of 1%.
  • As per section 206C(1H) “Seller” who is liable to deduct TCS is defined as, whose total sales, gross receipts or turnover from the business carried by him exceeds ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out.
  • Further, in case if the turnover of the person exceeds ten crore rupees during the current financial year in which the sale of goods is carried out and his turnover does not exceeds ten crores during previous financial year then, in this case he is not liable to deduct TCS on sale of goods.
  • This section shall not apply if the buyer of goods is liable to deduct TDS under any other section of the Act or the seller of goods is liable to deduct TCS under any other provision of section 206C of the Act and such amount has deducted.
  • Further, in case the buyer of goods is Central Government, a State Government and an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to conditions as prescribed in such notification, then in such case liability of TCS deduction on seller is not applicable.
  • In addition to this, Central Government may notify persons who shall not be liable to deduct TCS but it shall be subject to the conditions contained in such notification.

Further, such calculations, computations and compliance might be complex and intricate. Hence, consulting an Indian Chartered Accountants Firm may reduce the possibility of any defaults in complying with the TCS on sale of goods u/s 206C of the Act.

Written by
Mohit Garg
Articled Clerk

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