TCS/ TDS from 1st Oct: Compliance Would Be a Big Challenge amidst Confusing Clarification from CBDT
Moneylife Digital Team/ IANS 30 September 2020

The central board of direct taxes (CBDT) has issued a circular (No. 17) clarifying the tax deduction at source (TDS) and tax collection at source (TCS) provisions which will come into force from 1st October. However, tax practitioners from across the country are not happy with the clarification. They feel that the clarifications have given rise to more doubts and serious disappointment. Especially, the clarification says TCS would be applied on all sales receipt after 1 October 2020 even in respect of sales carried out earlier, but how will companies comply with this, one of them asks.
 

A well-known chartered accountant (CA) from Mumbai feels instead of providing clarification, the CBDT circular has raised more doubts. "Just read the second last item in the circular and see if you can make sense out of it. Even very senior CAs are divided on the interpretation of this clarification," he says.

The last two clarifications are on adjustment for sale return, discount or indirect taxes and fuel supplied to non-resident airlines. CBDT's clarification says, "It is requested to clarify that whether adjustment is required to be made for sales return, discount or indirect taxes including goods and service tax (GST) for the purpose of collection of tax under sub-section (lH) of section 206C of the Act. It is hereby clarified that no adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax under sub-section (IH) of section 206C of the Act since the collection is made with reference to receipt of amount of sale consideration."

Talking about fuel supplied to non-resident airlines, the circular states, "It is requested to clarify if the provisions of sub-section (IH) of section 206C of the Act shall apply on fuel supplied to non-resident airlines at airports in India. To remove difficulties, it is provided that the provisions of sub-section (1 H) of section 206C of the Act shall not apply on the sale consideration received for fuel supplied to non-resident airlines at airports in India."

 

"The clarifications issued with respect to the manner in which the thresholds are to be computed and the time period to be considered have made it very difficult to implement," says Ajay Rotti, partner at Dhruva Advisors, adding, "The industry has very little time to put systems in place to determine the cases where the provisions apply to consider sales date for a period before 1st October. This would be administratively difficult and the CBDT could have done better by making these provisions applicable only after 1st October in all respects."

 

Tax expert Ved Jain said that TCS is to be collected and paid on all payment received on or after 1st October, including the amount of goods and service tax (GST) and also sales made prior to 1 October 2020.
 
The threshold of Rs50 lakh is year based and, hence, payments received before 1st October are to be considered. However, applicability shall be on payment received on or after this date.
 
"Compliance of this new provision is going to be a big challenge for all the taxpayers whose sales in the previous year has exceeded Rs10 crore," Mr Jain said.
 
The CBDT made some clarifications citing the practical difficulties in implementing the provisions of TDS and TCS. The Finance Bill 2020 has introduced a new provision to mandate electronic commerce operators (ECOs) for deducting TDS in respect of the amount payable to the seller on any sale of goods and services. An ECO is liable to deduct TDS at 1%.
 
The CBDT says on e-commerce transaction there may be applicability of section 194-0 twice, once on main commerce operator, who is facilitating sale of goods or provision of services or both and once on payment gateway, who also happen to qualify as e-commerce operator for facilitating service.

"In order to remove this difficulty, it is provided that the payment gateway will not be required to deduct tax under Section 194-0 of the Act on a transaction, if the tax has been deducted by the ecommerce operator under Section 194-0 of the Act, on the same transaction," it says.
 
Since the threshold of Rs50 lakh is with respect to the previous year, calculation of receipt of sale consideration for triggering TCS under sub-section (1 H) of Section 206C shall be computed from 1 April 2020, the income-tax (I-T) department said.
 
In the case of sale of a motor vehicle to a consumer, receipt of sale consideration for sale of motor vehicle of the value of Rs10 lakh or less to a buyer would be subjected to TCS under sub-section (1 H) of Section 206C of the Act, if the receipt of sale consideration for such vehicle during the previous year exceeds Rs50 lakh. The provisions of sub-section (1F) of Section 206C of the Act apply to sale of motor vehicle of the value exceeding Rs10 lakh.
 
It added that since the threshold of Rs5 lakh for an individual or Hindu undivided family (being e-commerce participant who has furnished his PAN or Aadhaar) is with respect to the previous year, calculation of the amount of sale or services or both for triggering deduction under Section 194-0 of the Act shall be counted from 1 April 2020.
 
If the gross amount of sale or services or both facilitated during the previous year 2020-21 (including the period up to 30 September 2020) in relation to such an individual or Hindu undivided family exceeds Rs5 lakh, the provision of Section 194-0 shall apply on any sum credited or paid on or after 1 October 2020, it added.

The CBDT also clarified that if an insurance agent or aggregator is not involved in transactions between the insurer and buyer, he would not be liable to deduct tax under Section 194-O for those subsequent years. However, it says, the insurance company is required to deduct tax on commission payment, if any, made to the insurance agent of aggregator for those subsequent years.

Here is the clarification issued by CBDT...

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