Law implemented without considering the administrative convenience to the taxpayers can never be a good law & is against the basic concept of providing ease of business. One such provision is with regard to recently introduced provision on Tax Collection at Source (TCS) which is effective from 01/10/2020. Now, every person whose turnover in the preceding financial year is more than 10 Cr shall be liable to do TCS if consideration received from any of its customers is more than 50 Lakh. As far as other TCS/TDS compliances are concerned, it is normally required at the time of payment/receipt or billing whichever is earlier. However, TCS liability u/s 206C(1H) is arising at the time of “Receipt of Sale Consideration” and not at the time of billing. The most important question arises as to how to implement this system. Here is a discussion on the mode of implementing the new TCS system by the Business houses.
TCS at the time of Receipt or Invoicing: Confusion & Clarifications
Law implemented without considering the administrative convenience to the taxpayers can never be a good law & is against the basic concept of providing ease of business. One such provision is with regard to recently introduced provision on Tax Collection at Source (TCS) which is effective from 01/10/2020. Now, every person whose turnover in the preceding financial year is more than 10 Cr shall be liable to do TCS if consideration received from any of its customers is more than 50 Lakh. The rate of TCS is 0.075% till 31/03/2021 & 0.10% after 01/04/2021. If the PAN/Aadhar of the buyer is not available, then the TCS rate shall be 1%. TCS is required only on amounts exceeding Rs. 50 Lakh.
As far as other TCS/TDS compliances are concerned, it is normally required at the time of payment/receipt or billing whichever is earlier. However, TCS liability u/s 206C(1H) is arising at the time of “Receipt of Sale Consideration” and not at the time of billing. The most important question arises as to how to implement this system. Business houses are exploring the two options for complying with the new TCS system now.
First Options:
At the time of each and every receipt, issue the debit notes to all the customers from whom receipt is exceeding Rs. 50 Lakh. Normally, buyers make the payment on the basis of invoice issued to them which may not be showing TCS in such cases. Though this option would be strictly in accordance with the provisions of the Act, it will be a cumbersome process as each and every debit note would be required to be communicated to the buyers who may not be knowing that TCS is payable by them. This system is ideally suited for those persons who have limited buyers with turnover/payment exceeding Rs. 50 Lakh.
Second Options:
For ease in implementation, business houses are looking for an alternative route by including the amount of TCS in the bill itself by adding a separate column for TCS. Since buyers make the payment on the basis of the invoice issued to them, these options look better, convenient & provides better reconciliation for the either side. It is more beneficial for the buyers as well since TCS on receipt basis means TCS would be reflected in the PAN of the buyer at the time of its payment to the seller whereas purchases would be forming the part of its financial statements at the time of billing. However, there are a few issues under this options, as under:
1. Liquidity Blockages:
It results in liquidity blockages as TCS liability gets shifted to the time of billing though the Act allows the same at the time of receipt. However, TCS is such a meager figure that it would be easy to pay the amount considering the convenience involved. Considering the ease it is offering in compliance, implementation of TCS by the seller on billing itself is advisable if the majority of the buyers have turnover exceeding Rs. 50 Lakh.
2. Threshold Limit of Rs. 50 Lakh:
TCS at the time of invoicing would mean that the TCS may be made applicable without considering even the threshold of Rs. 50 Lakh.
3. Bad Debts:
Non realization of Trade Receivable is likely to be more costlier as bad debts in such cases will be higher by 0.075%, 0.10% or 1% as the case may be.
4. Sales Return, Discount, etc:
If TCS is done on receipt basis, sales return, discount etc impact would not at all be there on either side. However, if the TCS is done at the time of invoicing, sales return/discount etc may not enable the reversal of the TCS amount if it is not done in the same month or quarter.
5. Whether Permissible as per Law:
Section 206C(1G) talks about the compliance with this TCS provision on receipt basis only. No choice option is given to opt it on invoicing basis. The provision is introduced with a view to deepen and widen the tax base. By levying TCS at the time of invoicing, the underlying aim is not getting defeated. Further, the interest of the Revenue is better served if the TCS provision is implemented by the seller at the time of invoicing and so there may not be any objections by the revenue on this methodology if consistently followed.
6. What about Balance already outstanding as on 30/09/2020:
Since, the amount will be receivable on or after 01/10/2020, it is advisable to pay the TCS on the entire balance outstanding as on 30/09/2020 so as to avoid the non compliance at a subsequent date. It may be noted that the limit of Rs. 50 Lakh is on a per annum basis. So even if the balance outstanding as on 30/09/2020 is less than Rs. 50 Lakh, receipt may exceed Rs. 50 Lakh on subsequent dates in the same financial year. So, as a precautionary measure, TCS should be paid on the entire amount outstanding as on 30/09/2020 without distinguishing between below and above Rs. 50 Lakh if the TCS on invoicing option is exercised.
7. Why is early clarification by CBDT required?
Though implementing TCS at the time of invoicing is in the interest of the Revenue, still it would be better if CBDT approves it. The primary reason is that, at present the applicable TCS rate is 0.075% whereas it would be 0.10% from 01/04/2020. Technically, if the invoicing is done in FY 2020-21 & payment is received in the subsequent financial years, effective TCS should have been @ 0.10% as against 0.075% done at the time of invoicing. It would result in slight variation and wrong compliance. The court normally in such cases held the view in favor of the taxpayers if the same is consistently followed. But it is always subject to certain levels of litigation and disputes. So, clarification from CBDT would certainly provide certain ease in its implementations.
I am of the strong view that no law should ever be implemented without considering the administrative trouble that it may pose. It would be in the interest of the trade & industries if CBDT takes note of all such issues and specifically allows the implementation of the TCS through invoicing mode to remove all the possible areas of controversies and litigation. Till CBDT approves the second option which is more convenient for the business houses to comply, the trouble would continue.
[Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
About the Author: CA Naresh Jakhotia is a practicing Chartered Accountant with more than 20 years of practical experience in the field of Direct Taxes. He is partner of M/s. SSRPN & Co and representing at all CIT (A) as well as before ITAT. He is regular columnist & author for various articles and columns in the newspaper and professional magazines. He is also a regular speaker in various tax planning seminar & conferences. He is a regular faculty at National Academy of Direct Taxes (NADT) and also in seminar by ICAI, various Industrial & trade Associations. He was the past secretary of Shri Maheshwari Yuwak Sangh and the Joint Secretary of Vidarbha Industries Association (VIA). He was the treasurer of the Nagpur Toastmaster Club and member of Direct Tax Committee of the WIRC of ICAI. He was also the Vice President of Orange City Jaycees. He is presently the treasurer of Vidarbha Industries Association. He is also the author of the renowned column “The Tax Talk” and in the Central India’s daily newspaper ‘The Hitavada”. Author is also one of the co-promoter of world’s renowned tax portal www.theTAXtalk.com. He has also authored the book titled “The Tax Talk – Ready Reckoner cum Guide”. Some of the lectures conceptualized & frequently taken by the author includes: - Personal Taxation: Planning & Precaution - Programme designed with an aim to plan the tax affairs for maximum tax benefit with few cautions to be observed. - Chhoti Chhoti Bate in Income Tax – Day to day precautions to be taken from Income Tax Perspective. - Making March Meaningful - Tax Precaution to be taken before March ends. -Role of Documentation & drafting in tax Planning - How to document and draft the optimum tax management - Union Budget Analysis – A session to understand the direct tax impact of proposal in union budget. Author is accessible at nareshjakhotia@gmail.com
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Posted on: October 30th, 2020
The said section is very catagoric : It’s applicable on all sales effected to a prospective buyer with specified conditions only and only after 1.10.2020 or whenever the limit of gross turnover from 1.4.2020 crosses benchmark of Rs. 50 lacs , if crossed after 30.9.2020.
Plz note the liability / nexus of TCS is directly co related to the gross amount of Sales – gross turnover – of goods.
Therefore it is not a correct interpretation that only on receipt of payments the liability to TCS crystallizes.
The unfortunate part of the provision is hard fact that : the payer is supposed/allowed to pay the TCS in proportion of the actual amount paid against that particular invoice . But the fact remains : the seller has to levy TCS in invoice only on the gross sales , irrespective of goods returned or credit note issued against that particular invoice.
In no way the seller is supposed to pay TCS on collection against the outstanding receivables as on 30.09.2020, even if the sales to that particular buyer had already crossed the threshold limit of Rs. 50 lacs.
No doubt the provision is absolutely chaotic .
What will happen to all the outstanding receivables as on 31.3.2021 ? In case the seller has opted to pay TCS on collection basis, is it really possible to bifurcate collection against all sales pre 31.3.2021 and on or after 1.4.2021 with differential rates of .075% or .1% and the same shall equally difficult- may be impossible – for buyers too and that too with specific AY.
In the law , in my opinion , there’s no bar on paying TCS earlier , on completion of a month , on the basis of total sales effected in that particular month , ignoring all future collections against the said sales of that month.That will be easier, even to explain the TCS officer in these days of FACELESS proceedings, then to submit collection wise reconciliation of TCS in future, where we usually find it extremely difficult even in normal circumstances.
One final note of caution: TCS AND TDS follow INCOME. Here also , it will be of great help if the seller pays TCS as per his Sales register instead of collection based , which may be spread over two or more financial years.
The one thing is certain: in this pandemic era where normal compliances are not possible , it was not at all expected to burden the taxpayers with additional and complicated workload.
It is really burden for businesses. In this pandemic we are not able to comply with normal procedure. This is additional burden to keep track of it.
If govt. wants to levy the taxes it can be implemented in the billing which is very easy to keep track of. As previously also they had implemented Cess and SHE cess in excise bill which was very clear and no problem we faced.