TDS/TCS on goods
FEBRUARY 22, 2021
By Jatin Kanabar, Manish Jain and Sameer Shah
I. Background
TCS on sale of goods
The Finance Act, 2020 had introduced the provisions of tax collected at source ("TCS") on sale of goods w.e.f. 1 October 2020 at 0.1% of such sum exceeding INR 50 lakhs as income-tax. The liability to collect TCS was on the seller from the buyer i.e. the compliance was required to be done by the seller and not the buyer, in case of a transaction for sale of goods.
TDS on purchase of goods
The Finance Bill 2021 ("the Bill") has proposed tax deducted at source ("TDS") on purchase of goods w.e.f. 1 July 2021. The Bill proposes TDS on purchase of goods at 0.1% of such sum exceeding INR 50 lakhs as income-tax. The liability to deduct TDS is on the buyer from the sum to be paid to the seller.
II. Intention behind introducing TDS on purchase of goods by the Bill
The intent behind the introduction of TDS on purchase of goods doesn't seem to be driven with the objective of collecting revenue. Rather it is with the objective of tracking transactions. Under TCS, there could have been instances wherein the seller can come out of the ambit of TCS even when the transaction value was greater than INR 50 lakhs if its turnover was less than INR 10 crores 1 (considering turnover of buyer is greater than INR 10 crores). It seems that the government in an attempt to plug this situation has introduced TDS on purchase of goods if the transaction value is greater than INR 50 lakhs and the turnover of the buyer is greater than INR 10 crores.
III. TCS and TDS provisions on sale / purchase of goods - At a glance
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Finance Act, 2020 - amendment w.e.f. 1 October 2020
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Bill - proposed amendment w.e.f. 1 July 2021
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TCS on sale of goods
The Finance Act, 2020 had introduced TCS at the rate of 0.1% of the sale (w.e.f. 1 October 2020) on consideration for sale of any goods exceeding INR 50 lakhs.
TCS to be collected by the seller from the buyer.
"Seller" means a person whose turnover from the business carried on by him exceeds INR 10 crores during the FY immediately preceding the FY in which the sale of goods is carried out.
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TDS on purchase of goods
The Bill provides for TDS at the rate of 0.1% (w.e.f. 1 July 2021) of sale consideration for purchase of any goods exceeding INR 50 lakhs. TDS to be deducted by the buyer from the seller.
"Buyer" means a person whose turnover from the business carried on by him exceeds INR 10 crores during the FY immediately preceding the FY in which the purchase of goods is carried out.
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No PAN or Aadhar Number of the buyer
If the buyer does not have a PAN or Aadhaar number, then the applicable rate of TCS shall be 1%.
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No PAN of seller
If the seller does not have a PAN, then the applicable rate of TCS shall be 5%.
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Assuming that the transaction value for sale of goods is more than INR 50 lakhs, one of the important criteria for the applicability of TDS is that the turnover of the buyer exceeds INR 10 crores whereas for the applicability of TCS, the turnover of the seller has to be more than INR 10 crores.
A question arises as to whether the provisions of TDS and TCS shall both apply if the turnover of the buyer as well as the seller is more than INR 10 crores. In this regard, the TCS provisions are clear as it specifies that the provisions of TCS shall not apply, if the buyer is liable to deduct tax at source under any other provision of Income-tax Act, 1961 on goods purchased by him from the seller and has deducted such amount
In view of the same, in case both the provisions (i.e. TDS and TCS on goods) apply, then such transaction shall be subject to TDS on purchase of goods .
IV. Illustration
The provisions of TDS and TCS as it applies to purchase and sale of goods is explained by way of illustrations, covering various scenarios below:
| Sr No. |
Scenario |
Value of purchase or sale of goods in any previous year (amounts in INR lakhs) |
Seller turnover (amounts in INR crores) |
Buyer turnover (amounts in INR crores) |
Amount on which rate of TDS / TCS is to be applied |
Seller PAN |
Buyer PAN |
TDS applicability w.e.f. 1 July 2021 |
TCS applicability w.e.f. 1 Oct 2020 |
Person liable to deduct / collect tax at source |
| A |
With PAN |
|
Turnover |
|
|
|
|
|
|
| 1 |
Seller turnover not exceeding INR 10 crores (with PAN) and buyer's turnover exceeding INR 10 crores |
51 |
2 |
12 |
1 (51-50) |
Available |
Not available |
Yes @0.1% |
Not applicable |
Buyer |
| 2 |
Seller turnover exceeding INR 10 crores and buyer's turnover not exceeding INR 10 crores (with PAN) |
52 |
11 |
3 |
2 (52-50) |
Not available |
Available |
Not applicable |
Yes @0.1% (0.075% upto 31 March 2021) |
Seller |
| B |
Without PAN |
|
|
|
|
|
|
|
|
|
| 3 |
Seller turnover not exceeding INR 10 crores and buyer's turnover exceeding INR 10 crores (with no PAN of seller) |
53 |
9 |
12 |
3 (53-50) |
Not Available |
Not Available |
Yes @5% |
Not applicable |
Buyer |
| 4 |
Seller turnover exceeding INR 10 crores and buyer's turnover not exceeding INR 10 crores (with no PAN of buyer) |
66 |
14 |
8 |
16 (66-50) |
Not Available |
Not Available |
Not applicable |
Yes @1% |
Seller |
| C |
With PAN |
|
|
|
|
|
|
|
|
|
| 5 |
Buyer and seller turnover both exceeding INR 10 crores |
58 |
12 |
13 |
8 (58-50) |
Available |
Available |
Yes @0.1% |
Not applicable |
Buyer |
| D |
Without PAN |
|
|
|
|
|
|
|
|
|
| 6 |
Buyer and seller turnover both exceeding INR 10 crores (no PAN of both buyer and seller) |
57 |
14 |
15 |
7 (57-50) |
Not Available |
Not Available |
Yes @5% |
Not applicable |
Buyer |
Thus, the taxpayers will have to take note of the above provisions in order to avoid default in compliances.
[Jatin Kanabar is a Partner, Manish Jain is a Senior Manager and Sameer Shah is a Deputy Manager with Deloitte Haskins and Sells LLP. The views expressed are strictly personal.]
1during the financial year ("FY") immediately preceding the FY in which the sale of goods is carried out
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