Analysis, Income Tax, Law & Society

iAnalyze: Section 206C (1H)

In this edition, Mr. Ramesh Khaitan Global Tax head, Lupin Limited shares his views on section 206C (1H) which has been recently introduced in the Income Tax act. He talks about challenges and Implications of TCS on Sale of Goods.

Would the addition of Section 206C (1H) to the Income Tax Act lead to more compliance work for tax professionals who deal with a lot of suppliers?

The new provision of Section 206C (1H) has been added with the intention to prevent evasion of tax for transactions above Rs. 50 lakhs. The GST law coupled with various TDS provisions have already brought in a lot of transparency in the system and taken care of various malpractices that would come into the picture.

The new provision requires an update in the infrastructure for corporate organisations for conducting compliances. The corporate sector is already burdened with too many compliance requirements, the new provision would only be an exercise in futility.

There are a lot of ambiguities with respect to the term “sale goods”, as there are various legislations that cover the definition of the term “sale of goods”. There is no clarity whether only tangible goods will be covered by the provision.

Do you see the provision come in the way of licensing and selling of intangible goods such as intellectual property?

The term “goods” has not been defined in the Income Tax Act. The term holds different definitions under different laws such as Sale of Goods Act, Intellectual Property Laws etc.

The way I see goods from a pharmaceutical company perspective, it would include tangible goods which are the pharmaceutical goods. However new provision also states that it won’t cover B2B transactions but this overlooks the case of staff sales as it does not come under the purview of B2B transactions. There is no clarification on such sales that happen.

How would you treat the advanced payments that form a part of transactions?

CBDT has clarified that TCS would be applicable to advanced payments. Let’s suppose an advanced payment for a year goes above Rs. 50 lakhs, it is liable for TCS. However, if the transaction is cancelled or there is any breach then the TCS amount is then stuck in assessment. There is no provision for the refund of the amount. There needs to be a clarification with respect to such an issue arising out of TCS.

Is the levy of TCS a way for the Government to generate revenue considering the present challenging economic position?

Burdening the tax payers with so many compliances makes it difficult for anyone to conduct their business. A trader or a businessman is always worried whether they must first tend to their compliances or their business. The addition of new provisions like these, makes it difficult for businesses to “Make In India”.





Final Thoughts

The increase in the provisions of the Income Tax Act, puts India as a country in a position to not attract investments. More than 95% of the tax payers are burdened with compliances. The ease of doing business comes from simpler taxation laws and compliances, adding to the current provisions makes our tax laws more draconian.

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