While the clarifications were much awaited, some of them may require immediate changes to business processes and the assessees have only one day before the provisions come into effect

The Central Board of Direct Taxes (CBDT) has clarified that 0.1 per cent Tax Collected at Source (TCS) on sale of goods and services worth more than Rs 50 lakh a year will be levied on the total sales consideration including the GST applied.

In a clarification issued, the tax department has said that no adjustments on account of sale returns, discounts or indirect taxes including GST is required to be made for collection of the TCS. The new TCS will comes into force from October 1, 2020.

Apart from the 0.1 per cent TCS on sales of goods and services above Rs 50 lakh a year, the government is also going to levy Tax Deducted at Source (TDS) of 1 per cent on payment made by e-commerce operators to e-commerce participants, starting October 1, 2020. While there are no thresholds for levying the TDS, for an individual or Hindu Undivided Family (HUF), TDS is applicable only if the payment made during the year exceeds Rs 5 lakh.

In the guidelines issued on Tuesday, the tax department also clarified that though the two levies come into effect from October 1, the respective thresholds for application of the two levies are based on sales/payments in the previous year, and hence the threshold would be calculated on the basis of sales from April 1, 2020. So, if a seller has already sold goods worth Rs 50 lakh till September 30, 2020, any sales from October 1 will attract 0.1 per cent TCS.

Dhaval Jariwala, a Mumbai-base chartered accountant, says while the clarifications issued by the tax department were much awaited, some of the clarifications may require immediate changes to business processes/ policies and the assessees have only one day before the provisions come into effect.

A recent survey conducted by EY and SAP India found that corporate India is not entirely prepared to deal with various tax implications of the TCS provisions.  According to the survey, 85 per cent of respondents acknowledged that their current tax function framework is not completely geared up to comply with the new TCS regime.

The tax department has also clarified that payments made for e-commerce purchases involve two transactions - one when the buyers makes the payment through the payment gateway, and one after the e-commerce platform receives the money through payment gateway. With payment gateway also qualifying for e-commerce platform, the department clarifies, that either the payment gateway or the e-commerce platform can deduct the TDS.

On sale of motor vehicles above Rs 10 lakh, which already attracts TCS of 1 per cent, the tax department has clarified that since TCS of 1 per cent on sale of motor vehicle with cost more than Rs 10 lakh is B2C sales, sales to dealers will be considered for triggering the new TCS. However, sales of motor vehicles worth Rs 10 lakh or less, which do not already attract a TCS of 1 per cent, will also be included for calculation of sales for levying 0.1 per cent TCS.

The guidelines also clarified that any transactions in securities, commodities through registered exchanges or electricity transaction, energy savings certificates, etc will be kept out of the ambit of these new TCS and TDS provisions.