Tax Collected at Source (TCS) Configuration in D365

  

A.    TCS Applicability and Configuration in D365

1.    TCS Applicability

Tax Collected at Source (TCS) is an income tax, collected by the seller of specified goods, from the buyer. TCS is a concept where a person selling specific items is liable to collect tax from a buyer at a prescribed rate and deposit the same with the Government. Section 206C of Income Tax Act specifies the detailed list of goods that are liable for TCS tax.

Example to understand the concept of TCS:

Reyansh purchases jewelry from Ayansh for INR 7 lakh. Here, as per the provisions of TCS tax, Reyansh would be liable to pay INR 7,07,000 to Ayansh (INR 7 lakh for jewelry and INR 7,000 as TCS at the rate of 1%).

2.    Who needs to collect TCS (Tax Collected at Source)?

Every seller of specified goods shall collect TCS from the buyer of the goods. TCS will be collected:

a.     At the time of debiting the amount payable by the buyer or

b.     At the time of receipt of such amount from the buyer, whichever is earlier.

3.    Tax Collected at Source (TCS) Rates:

 

TCS tax is collected under Section 206C of Income Tax Act. Below is the list of specific goods on which TCS is applicable along with TCS Rates:

 

Collection Code	Nature of Payment	Threshold (INR)	TCS Rate
A	Alcoholic Liquor for Human Consumption	NA	1%
B	Timber obtained under a forest lease	NA	2.5%
C	Timber obtained by any mode other than under a forest lease	NA	2.5%
D	Any other forest produce not being timber or tendu leaves	NA	2.5%
E	Scrap	NA	1%
F, G	Grant of a license, lease, etc of the Parking lot and Toll Plaza respectively	NA	2%
H	Grant of Mining and Quarrying	NA	2%
I	Tendu Leaves	NA	5%
J	Minerals, being coal or lignite, or iron ore	NA	1%
K	Sale of Bullion	> 2 lakh	1%
L	Sale of the motor vehicle whether payment is received by cheque or by any other mode	> 10 lakh	1%
M	Sale in cash of any other goods except bullion & Jewelry	> 2 lakh	1%
N	Providing of any service (other than Ch-XVII-B)	> 2 lakh	1%
O	TCS for sale of overseas tour program package	NA	20%
P	TCS on remittance under LRS for an educational loan taken from a financial institution as mentioned in Section 80E	NA	0.5%
Q	Foreign remittance under LRS	-7 lakh in case of remittances for education and medical purpose -No limit in the case of other foreign remittance	-5% in case of education and medical remittance -20 %in case of other foreign remittances
R	TCS on sale of goods	NA	0.1% (1% in case of non-availability of PAN/Aadhar)

Notes

·       TCS must be collected if the seller is an individual or HUF having turnover > INR 1 Cr for business or turnover > INR 50L for the profession.

·       In case of unavailability of PAN or a resident who has not filed ITR in the last 2 AYs, the rate shall be higher of- Twice the rate in force or at the rate of 5%.

·       TCS must be collected if the seller is an individual or HUF is having a turnover of more than INR 10 crores in PY. And the buyer must deposit TCS if the purchasing value of the goods is greater than INR 50L in a year

Tax credit in Form 26AS would be available to the buyer. The buyer can claim this TCS at the time of filing ITR. The tax credit is only available once the seller deposits the tax to the IT Department and files the TCS Return.

4.    Who is the seller under Tax Collected at Source (TCS)?

Below is the list of sellers as per the provisions of TCS in Income Tax:

a.     The Central and State Governments

b.     Local authority

c.     Statutory corporation or Authority

d.     Company

e.     Partnership Firm

f.      Co-operative society

g.     Individual or Hindu undivided family (HUF) if covered under Section 44AB (mandatory Audit)

 

The seller/collector of TCS is responsible to file TCS Return/Statement. The seller needs to file Form 27EQ within the prescribed due dates.

5.    Who is the Buyer under Tax Collected at Source (TCS)?

According to the act, the buyer means a person or entity who obtains goods or possesses the right to receive the specified goods via sale, auction, tender or any other mode.

However, as per the provisions of TCS in Income Tax, the buyer does not include:

h.     Public sector companies

i.      Central/State Government

j.      Embassy, a High Commission, a legation, a consulate, and the trade representation of a foreign state

k.     A Club such as a social club, sports club, etc.

l.      A buyer in the retail sale of such goods purchased for personal consumption.

 

 

6.    Penalty of TCS

If the seller fails to collect the TCS and deposit the same to the Government, the seller will suffer a penalty of 1% of the total due amount.

7.    What is Lower Rate TCS?

 

The buyer of a specified product can apply to his Assessing Officer (AO) for collecting tax at a lower rate, by making an application in Form 13. The Assessing Officer (AO) will issue a lower-rate certificate. The certificate is valid until the time it is not canceled by the AO.

8.    Who is Exempt from TCS?

a.     TCS is not applicable if the buyer uses it for the purpose of manufacturing, processing, or production of goods/article or thing.

b.     In this case, buyer gives a declaration for the above use in duplicate in Form 27C to the seller.

c.     And the seller should deliver one copy of from 27C collected from the buyer to the Chief Commissioner/Commissioner of Income Tax.

 

 

B.    Configuration in D365

1.    Set up TCS on sales of goods on a collection-of-payment basis.

a.     Turn on the feature through Feature management.

To turn on the feature, go to Workspaces > Feature management, select the Enable TCS calculation on payment collection from customer basis feature, and then select Enable now.

Note- If the Liability on the payment check box is cleared, the system creates TCS liability on the Invoice. If the Enable TCS calculation on payment collection from customer basis feature isn't turned on, the system considers both the invoice and the payment amount for threshold determination.

2.    Define threshold definitions

a.     Go to Tax > Setup > Withholding Tax>Threshold definitions.

b.     Click on New, Provide Code and description.

c.     Click on save, then click on Threshold designer.

d.     Define two threshold slabs:

                                      i.     0-Max such as 0 to 50,00,000

                                    ii.     Max-0 such as 50,00,000 to unlimited i.e no max limit

3.    Create Withholding Tax Component Group

a.     Go to Tax > Setup > Withholding Tax Component Group.

b.     Click on New, Provide Code, Description and Section of ACT.

4.    Create Withholding Tax Component

a.     Go to Tax > Setup > Withholding Tax Component.

b.     Click on New, Provide Code and Select Withholding Tax ComponentGroup.

5.    Create a new withholding tax code

a.     Go to Tax > Indirect Tax> Withholding Tax > Withholding tax code.

b.     Click on New, Fill code, Description. In General tab select Tax Type as “TCS”, Main Account of TCS payable, Settlement Period, Withholding Tax Component, Interim account for TCS interim payable entries and Enable threshold limit.

Note- Posting type should be “India withholding tax (TCS)” on both Main Account.

c.     Click on “Threshold References” option available on action pane to link threshold limit and rate.

d.     Click on new, select Account Type as “Customer”, Account Code as “Table”, Account Number, and applicable Threshold.

e.     Click on Threshold designer, Select the slab and define the TCS rate against each slab.

 

6.    Create a new withholding tax group for sales of goods

a.     Go to Tax > Indirect Tax> Withholding Tax > Withholding tax group.

b.     Click on New, Fill code, Description. In General tab select Tax Type as “TCS” and set the Tax liability on payment option to Yes.

c.     If multiple customers have the same PAN, set the PAN based accumulation option to Yes.

d.     In the Include GST tax component for TDS or TCS calculation field, include the GST tax component if it's part of the calculation of the TCS base amount.

e.     If charges aren't part of the TCS calculation, in the Exclude charges for TDS or TCS calculation field, select Yes.

f.      In Setup, Click on add and select required withholding tax code from lookup.

g.     On the Action Pane, select Designer, and define the formula for TCS calculation.

 

7.    Activate the calculation of TCS for customers

a.     Go to Accounts receivable > Customers > All customers.

 

C.    Transaction

1.    Free Text Invoice

a.     Go to module>Account Receivable>Invoices>All free text invoices

b.     Click on new, select customer, select Main account in line, put quantity, put Amount.

c.     TCS group will come automatically from customer master, change if required.

d.     Click on withholding tax, to check the TCS amount and calculation.

e.     Close and Post the Invoice.

f.      After posting, click on “Invoice journal”

g.      Click on voucher.

Note- System Credited the interim main account i.e. “Tax Collected at Source Clearing.”

 

2.    Payment of Invoice

a.     Go to module>Account Receivable>Payments>Customer payment journal

b.     Click new, Select Journal, click on lines.

c.     Change the date if required, select customer number in account field, click on Settle Transaction option,

d.     Select the transaction applicable for payment and click on Ok.

e.     System will update the Invoice Number, and Amount. Select Bank as offset account type and bank account number.

 

f.      Check and post the transaction. After Posting of transaction click on voucher.

Note- System will reverse the Interim main account entries and transfer the balance to actual TCS payable GL Code.

3.    Report

a.     Go to Module>Tax>Inquiries and Reports>Withholding tax reports

 

 

Thank you for reading keep sharing in your network. I will be back with next part with some more scenarios.