The Tax Collected at Source (TCS) is applicable to only those sellers whose business turnover exceeds Rs. 10 crore. In other words, those having a turnover of less than Rs.10 crore will not be required to collect TCS. There are only around 3.5 lakh persons who have disclosed business turnover of more than Rs. 10 crore in 2018-19. There are around 18 lakh entities which already deal with TDS/TCS. Therefore, this TCS collection under these new provisions would be required to be made by persons who, in most of the cases, would already be complying with the other provisions of TDS/TCS, according to a report from the Income Tax Department.
Moreover, TCS is not an additional tax but is in the nature of advance income-tax/TDS for which the buyer would get the credit against his actual income tax liability and if the amount of TCS is more than his tax liability, the buyer would be entitled to refund of the excess amount along with interest.
The TCS shall be applicable only on the receipt exceeding Rs.50 lakh by a seller from a particular buyer. Therefore, on payment of Rs. 1 crore made by a buyer to a particular seller only Rs.5,000 (Rs. 3,750 this year) i.e. [0.1% of (Rs. 1 crore – Rs. 50 lakh)] shall be collected. Hence, in case of a person making payment of Rs.1 crore each to 10 different sellers, the total tax collected shall be only Rs.50,000 (Rs. 37,500 this year) i.e 10 x [0.1% of (Rs. 1 crore- Rs. 50 lakh)] on the total payment made for the purchase of Rs. 10 crore to ten different sellers.
It may be noted that only for the purpose of calculation of this threshold of Rs.50 lakh, the receipt from the beginning of the financial year i.e. from April 1, 2020, shall be taken into account. For example, in the above illustration, the seller has to collect tax on receipt of Rs.5 lakh after October 1, 2020, because of the receipts from April 1, 2020, i.e. Rs. 1.05 crore exceeded the specified threshold of Rs. 50 lakh.