Background & Coverage of TCS on Sale of Goods

Tax Collection at Source (TCS) - Sale of Goods

Yes, it is going to be a reality from October 1, 2020 and hence this update would be of prime importance to 

you. Finance Act, 2020 has inserted clause (1H) in section 206C of the Income-tax Act, 1961 (“the Act”) 

expanding the scope of TCS provisions, whereby a seller of goods is now required to collect tax at source @ 

0.1% from a buyer of goods on receipt of consideration for sale of goods. 

“To widen and deepen the tax net”- is conveyed as the objective by the government for introduction of this 

provision. Considering that we already have GST on sale of goods (if not exempted) and CBDT has data sharing 

facility with GST department, how this objective would be achieved will remain a mystery considering that the 

threshold for TCS on sale of goods is Rs. 50 lakh, which in any case would capture taxpayers who otherwise 

undertake GST compliances. 

How would the new provision work? 

A seller of goods worth of Rs.1,00,000 will collect tax of Rs.100 in addition to sales consideration from a buyer. 

Such seller will deposit sum of Rs.100 with tax authority in the name of buyer and will issue certificate thereof 

to buyer. Based upon such certificate, such buyer will claim credit of TCS while filing his tax return. Now, such 

buyer needs to take care to compute advance tax liability after considering credit of TCS.

Since such provision, which though does not cost you but may block the working capital, has now been made 

a part of law, one needs to adhere to it unless one wishes to take a bold step of challenging the constitutional 

validity thereof.

Considering the applicability of such provision on transaction being sale of goods, it has vast implications on 

day to day business transactions and will increase the tax compliance and accounting burden. One may need 

to change or alter the accounting software to incorporate necessary changes for complying with such provision 

and its proper monitoring for tax and reporting purposes. Hence, it is necessary to understand the provision, 

its applicability and coverage, and its implications on various practical business transactions.