This document covers the functionality of the Taxcollection at Source (TCS) on sale of goods. This feature describes how to dothe basic setup for TCS deduction onsale of goods transaction, calculate TCS on transactions from customer or ongroup of customer , TCS on transaction when customer do not have PAN numberetc.
As per section 206C (1H) TCS should be collectedat the time of receipt of payment from customer in view of this interimaccounting is introduced for this feature. Where TCS amount will be posted tointerim account and added to invoice value at the time of issuance of invoice and liability of TCS will be recordedin the books at the time of receipt of payment.
Another important aspectof this feature is that if multiple customer have same PAN number thanaccumulate transaction amount will be taken to compare with threshold limit todetermine the eligibility of transaction for TCS deduction.
Base amount for TCSdeduction:
No specificclarification is available regarding base amount for TCS deduction on sale ofgoods, in absence of any specific provision or circular or clarification byCBDT, it is unclear as to whether TCS will be levied on GST charged in invoiceor not.
There are two viewswhether TCS on Sales value including GST or excluding GST. Both views aresupported by different analysis. However, till the clarification by CBDT, itwill be more appropriate that TCS should be collected on Sales Value includingGST.
PAN based accumulation of transaction ofmultiple customers:
In case of TCS on “sale of goods” deduction of TCS will bemade based on PAN number. If multiple customers have same PAN number than alltransactions executed by different customers have same PAN will be accumulatedand compared against threshold limit prescribed by the government.
User has option to accumulate purchasethreshold based on PAN number of vendors like customers. However, accumulationwill take place based on vendor or customer within one legal entity. Interlegal entity accumulation will be out of scope.
Thepoint of collection of tax
As per the interpretation of TCS on sales of goods u/s 206C(1H), tax should be collected ‘at the time of receipt’ . It is clarified underlaw that TCS on sales of goods will be collected when actual payment isreceived by the seller.
However to collect TCS onsale of goods, the seller needs to raise sale invoice including the amountof TCS, account in the books as a TCS liability even in actual sense it isnot payable. Even though the TCS amount is debited to the buyer, the liabilityunder Section 206C (1H) does not arise until the time the amount is collected. Tocater this requirement new option “Tax liability on payment” is added under“Withholding tax group”.
On marking this optionsystem will activate “interim account” field under the withholding tax code. Atthe time of posting of sale of goods invoice Tax amount will be posted to“Interim TCS payable account” and debit to “customer account”. When userreceive payment from buyer at that time system generate “Related voucher” forposted invoice transaction to accrue TCS liability on payment.
TCS on Advance receipt of payment:
Every time the sellerreceives part of the sale consideration in advance, the seller is mandated todeduct TCS under Section 206C(1H). The difficulty arises in the calculation ofthe amount when TCS is deducted on multiple advance payment transaction andwhen payments transactions are adjusted against Invoice amount. Currently inthe system user must manually adjust the TCS amount computed on invoicetransaction to ensure that TCS amount on invoice is equal to TCS amount on payment.
Note : User need to install KB 4528707 before installing TCS feature
Steps to dosetup for TCS on sale of goods:
Please notethat it is mandatory for user to apply “Advance threshold” feature to enablededuction of TCS on sales of goods scenarios.
Create new withholding tax code “Saleof goods”:
General Ledger >Setup>withholdingtax code >Sale of goods
When user attach “withholding taxcomponent” of type “TCS” new field “Interim account” will enable.
Do not select any account until mark checkbox “Tax liability on payment” under “Withholding tax group.
Select “Enable threshold hierarchy”- “Yes”.
On selection of “Yes” “PAN basedaccumulation “option will enable
User can mark this option if dealing withcustomers have same PAN number.
Create new withholding tax group “Sale of goods.”
General Ledger>setup>withholdingtax group>Sale of goods
Create withholding tax group with tax type“TCS” and mark check box “Tax liability on payment”-Yes.
After this go back to withholding tax codeform and select “ “Interim TCS payableaccount” in the field “Interim account” created in the chart of account with posting type “India withholding tax(TCS)
Include GST tax component if part of TCSbase amount calculation under field “Include GST tax component for TDS or TCScalculation “
If charges are not part of TCS calculationselection “Yes” under field “Exclude charges for TDS or TCS calculation”
Click on “Designer” button on action paneand define TCS calculation formula.
Define Threshold definitions:
Navigateto General Ledger > Setup > Thresholddefinitions.
Define threshold definition for “Sale of goods.”
Two threshold slabs have to be defined.
TCS Threshold setup for “Sale ofgoods”
TCS on sales of goods apply on single customer ormultiple customers having same PAN number.
If customer PAN number is not available higher taxrate will apply after crossing the exempted turnover amount.
If customer have PAN number than lower tax rate willapply.
Users need to define threshold reference forcustomers:
Click on Threshold designer
Define two slabs with option:
- With PAN number
- Without PAN number
Define separate TCS rate for each option.
When defining calculation basis forexempted slab
- Calculate tax – No.
(Anotheroption Calculate tax – Yes and value – 0)
- Calculate previous non-tax transactions-No.
- Include in turnover base – Yes.
When defining calculation basis for Taxableslab
- Calculate tax – Yes.
- Calculate previous non-tax transactions-No.
- Include in turnover base – Yes.
Activate calculation of TCS forcustomer:
Accounts Receivable>Customers >All customers
Wheninvoice is posted, and the accumulated transaction cross the threshold limitfollowing accounting entry is posted:
TCS rate @0.1% (If PAN number is available )
Invoice isposted as below:
TCS liabilitywill arise on collection of payment.
When userreceive payment and attach Invoice with payment transaction, TCS amount iscomputed on full payment amount and reverse through related voucher. However,one more related voucher is generated with Invoice to show tax liabilityrecognition in books for eligible amount only.
Related voucher will generate as below:
One more related voucher will generate withposted sales Invoice to book actual TCS liability.
Users have to go to posted sales invoicevoucher and check the related voucher entry.
Note: In case of purchase transaction wherevendor is deducting TCS, user have to create new TCS withholding group
TCS on Purchase of goods deducted by vendor:
In case TCS is deducted against theorganization by the selling vendor, user must create separate withholding taxgroup “TCS on purchase of goods”. In the “Withholding tax group” under fieldgroup “Apply threshold” mark check box “PAN based accumulation “. User mustdefine threshold definition for vendor and attach withholding tax group withthe respective vendor. On posting purchase order TCS amount deducted by vendorposted to TCS recoverable account.
Every Organization will claim credit of TCSdeduction after reconciling the deduction with Form 26AS.
Go to GeneralLedger >Inquiries >India posted tax > Withholding tax >TCS.
User can select required column fields togenerate report.
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