Abolition of TCS on Sale of Goods under Section 206C(1H) – A Detailed Update

Overview

The provision of Tax Collected at Source (TCS) on sale of goods under Section 206C(1H) of the Income Tax Act, 1961 had created compliance responsibilities for sellers with high turnover. However, recent updates from the Income Tax Department have brought relief to many businesses by abolishing this requirement. This blog provides a detailed overview of this change, including its background, applicability, amendments, and final abolition.

🔷 Background of Section 206C(1H)

Section 206C(1H) was introduced through the Finance Act, 2020, and came into effect from 1st October 2020. The provision mandated:

• Applicability: A seller whose turnover exceeds ₹10 crore in the previous financial year.

• Collection: TCS @ 0.1% on sale consideration received from a buyer exceeding ₹50 lakh in a financial year.

• Rate: Initially 0.1% (reduced to 0.075% due to COVID relief for FY 2020-21).

• Buyer exceptions: TCS was not applicable if the buyer was:

  • Liable to deduct TDS under any other section.

  • The Central/State Government, local authority, embassy, etc.

🔷 Timeline of Key Developments

🔷 Impact of Abolition

With the removal of this provision:

• Sellers are no longer required to collect TCS on sales exceeding ₹50 lakh.

• Buyers won’t have to adjust this TCS while filing income tax returns.

• Businesses are relieved from the monthly compliance burden of filing TCS returns (Form 27EQ) in this regard.

🔷 What Businesses Should Do Now

1. Stop collecting TCS under Section 206C(1H) for sales.

2. Update accounting software and billing systems to remove automatic TCS calculations.

3. Inform customers about the change to maintain transparency.

4. Reconcile past TCS collections and ensure proper filings up to the abolition date.

🔷 FAQs

Q. Is TCS applicable on foreign remittances or overseas tour packages?
A. Yes, TCS under Section 206C(1G) is still applicable. Only 206C(1H) has been abolished.

Q. Do I need to revise past returns filed for 206C(1H)?
A. No revision is needed unless there was an error. The abolition is prospective.

Q. Will TCS on sale apply again in future?
A. As of now, there is no proposal to reintroduce it. Any change will be notified through the Finance Act or CBDT notification.

🔷 Conclusion

The abolition of TCS on sale under Section 206C(1H) is a welcome move for businesses. It simplifies compliance, reduces administrative overhead, and aligns with the government’s vision of easing business processes. Stay updated with the latest circulars and notifications to ensure your business remains compliant.