Understanding Section 206C: A Comprehensive Guide to Tax Collected at Source (TCS) on Sale of Goods

In the realm of taxation, Tax Collected at Source (TCS) plays a significant role in ensuring compliance and widening the tax base. Section 206C of the Income Tax Act, introduced through the Finance Act 2020, specifically addresses TCS on the sale of goods. This guide delves into the intricacies of Section 206C, providing a comprehensive understanding of its implications, calculation, and reporting requirements.

Applicability of Section 206C

Section 206C applies to sellers whose annual turnover exceeds ₹10 crores in the preceding financial year. The TCS liability arises when the seller receives an amount of ₹50 lakhs or more from a single buyer during a financial year.

Exclusions from Section 206C

The following transactions are excluded from the purview of Section 206C:

  • Exports
  • Sale of goods covered under Section 206C(1) (TCS on sale of alcohol, tendu leaves, forest produce, and scrap)
  • Sale of motor vehicles covered under Section 206C(1F)
  • Sale of foreign remittance covered under Section 206C(1G)
  • Transactions with Central/State Government, Embassy, High Commission, Legation, Consulate, Trade Representation of a Foreign State, or any local authority

TCS Rate and Calculation

The TCS rate under Section 206C is 0.1% (effective from April 1, 2021). The TCS is calculated on the amount received from the buyer that exceeds ₹50 lakhs in a financial year.

Example of TCS Calculation

Suppose a seller with an annual turnover of ₹12 crores receives ₹75 lakhs from a buyer in a financial year. The TCS liability in this case would be:

TCS = (Amount received - ₹50 lakhs) * TCS rateTCS = (₹75 lakhs - ₹50 lakhs) * 0.1%TCS = ₹2,500

Due Date for TCS Payment

The TCS collected from the buyer must be deposited with the government by the 7th day of the subsequent month.

Impact on E-Invoicing

TCS under Section 206C does not impact e-invoicing in any way. However, sellers are advised to include TCS as “other charges” in the invoice reference number to ensure accurate reporting in GSTR-1.

FAQs on Section 206C

Q: How is TCS calculated under Section 206C?
A: TCS is calculated on the amount received from the buyer that exceeds ₹50 lakhs in a financial year, at a rate of 0.1%.

Q: When is the TCS due date?
A: The TCS must be deposited with the government by the 7th day of the subsequent month.

Q: Is TCS applicable on GST?
A: No, TCS is not applicable on GST.

Q: Who is responsible for deducting TCS under Section 206C?
A: The seller is responsible for deducting TCS from the buyer when the conditions of Section 206C are met.

Q: What is the turnover limit for TCS under Section 206C?
A: The seller must have an annual turnover exceeding ₹10 crores in the preceding financial year to be liable for TCS under Section 206C.

Section 206C of the Income Tax Act plays a crucial role in ensuring compliance and widening the tax base. By understanding the applicability, calculation, and reporting requirements of Section 206C, sellers can fulfill their tax obligations accurately and avoid any potential penalties.

How to add tcs in e way bill?


How do I add TCS to my e invoice?

Connection of E-invoicing & TCS There is no separate provision for TCS under section 206C(1H) of the current e-invoicing mandate. TCS included in the invoice value should be included in ‘other charges’ when generating the Invoice Reference Number, so that the invoice value is reported inclusive of TCS.

How do I enable TCS?

Go to “Gateway of Tally.” — Select “F11: Features.” — Under “Statutory & Taxation,” set “Enable Tax Collected at Source (TCS)” to “Yes.”

How do I account for TCS on purchase?

Record TCS on Purchase of Taxable Stock Items As per the TCS rules, the TCS amount paid on purchases is not required to be shown in the TCS returns. Hence, while recording purchases made by paying TCS, you need to use the tax ledger created under Duties & Taxes, with Type of Duty/Tax as Others.

How can I add TCS to E Bill?

Since Government has clarified that TCS amount should be included in ‘Others’ while generating E-Invoice, taxpayers can take similar call for E-way Bill and GSTR-1 as well. Hence, taxpayers can report TCS amount in ‘ Other Charges’ on E-way Bill and ‘Total Invoice Value’ in GSTR-1.

What is tax collected at source (TCS)?

Tax collected at source (TCS) is the tax collected by the seller from the buyer on sale so that it can be deposited with the tax authorities. Section 206C of the Income-tax act governs the goods on which the seller has to collect tax from the buyers. Such persons must have the Tax Collection Account Number to be able to collect TCS.

What is TCS and how does it work?

The TCS will be collected by a dealer (which is usually a bank) at the time of receipt of the amount for remittance, or at the time of debiting the amount payable, whichever is earlier. TCS will apply only on the amount above Rs. 7 lakh in a financial year, instead of the total amount.

How is TCS collected in a motor vehicle sale?

In the case of the motor vehicle sale, the TCS is collected upon receipt of money or consideration for the motor vehicle from the buyer. If a buyer purchases a car from a showroom that is valued at Rs.11 lakh then an amount of Rs.11,000 is the TCS deposited by the showroom. So, the total amount to be collected from the buyer is Rs.11,11,000.

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