PAYMENT TO SUPPLIER / CREDITORS ON TIME TO CLAIM DEDUCTION

Finance Act, 2023 incorporate a new clause (h) has been added to Section 43B to provide that any sum payable to a micro or small enterprise beyond the time limit specified in Section 15 of the MSMED Act 2006 shall be allowed as a deduction on a payment basis.

MICRO OR SMALL ENTERPRISE

After 14 years since the MSME Development Act came into existence in 2006, a revision in MSME definition was announced in the Atmnirbhar Bharat package on 13th May, 2020. As per this announcement, the definition of

• Micro manufacturing and services units was increased to Rs. 1 Crore of investment and Rs. 5 Crore of turnover.
• The limit of small unit was increased to Rs. 10 Crore of investment and Rs 50 Crore of turnover.

TIME LIMIT FOR MAKING PAYMENT TO CREDITORS (MICRO OR SMALL ENTERPRISE)

Section 15 of the MSMED Act 2006: Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day:

Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

From the above we can conclude that the payments to the MSME should be made maximum within 45 days and too after a format written agreement or else within 15 days.

NOTE:

• If the payment is due for more than 45 days or 15 days as specified but the payment is made before the end of the Financial Year – then in such case, the deduction of the expense will be available in the same year itself.
  
• If the payment is made after 45 days or 15 days as specified – then in that case the deduction will be available in the year in which the payment is made.

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Finance Act 2021 has introduced a new section 194Q TDS on purchases of Goods which shall be effective from the 1st day of July, 2021

WHO WILL DEDUCT TDS

Purchaser will be liable to deduct TDS if-

• His Turnover during last year exceeds Rs.10 crores.  

AND

• Purchaser purchases of goods of value exceeding Rs.50 Lakhs (Including GST) in the current year from a Seller (PAN-Wise).

AND

• Purchase is made from a Resident Supplier.

TIME OF DEDUCTION OF TDS

Tax to be deducted at the earliest of the following dates:

• At the time of credit of such sum to the account of the seller

or

• At the time of payment thereof by any mode,

RATE OF TDS

1. Buyer of all goods will be liable to deduct tax at source
2. @ 0.1% of sale consideration 
3. exceeding INR 50 Lakhs in a Financial Year

1. Tax to be deducted @ 5%
2. if the seller does not provide PAN

 NON-COMPLIANCE OF THIS SECTION

• If purchaser fails to deduct TDS, 30% of the expenditure will be disallowed.

NO REQUIREMENT OF TDS UNDER THIS SECTION

• if TDS is deductible under any other provision

or

• TCS is collectible under section 206C [excluding 206C(1H)]

TDS U/S 194Q or TCS 206C (1H)

• TDS u/s 194Q will apply

and

•  TCS u/s 206C(1H) will not apply

COMPARISON OF SEC 194Q AND 206C(1H) OF INCOME TAX ACT, 1961

https://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx

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https://ospgroups.com/wp-content/uploads/2021/02/Budget_Speech-1.pdf

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w.e.f. 1^st October, 2020

Finance Act, 2020 inserted sub-section (1 H) in section 206C of the Act which mandates that with effect from 1 st day of October, 2020 a seller receiving an amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year to collect tax from the buyer a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax. The collection is required to be made at the time of receipt of amount of sales consideration.

TCS u/s 206C (1H):

Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:

Rate of TCS under section 206C (1H)

Seller under the provisions of section 206C (1H)

“Seller” means a person whose Total Sales/Turnover/Gross Receipts from the business being carried out by him in preceding financial year exceeds Rs. 10 Crores.

Buyer under the provisions of section 206C (1H)

“Buyer” means a person who purchases any goods,

but does not include,—

(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B) a local authority as defined in the Explanation to clause (20) of section 10; or

(C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;

Goods under the provision of section 206C (1H)

The term “Goods” has not been defined in the Income tax act and hence reference is made to Section 2(7) of the Sale of Goods Act, 1930 which defines goods to

“mean every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale”.

For the purpose of Section 206C(1H), goods shall mean to include all goods as per above definition, however, the below goods shall be excluded since there are separate provisions u/s 206C for taxing these goods:

• Alcoholic Liquor for human consumption

• Tendu leaves

• Timber obtained under a forest lease

• Timber obtained by any mode other than under a forest lease

• Any other forest produce not being timber or tendu leaves

• Scrap

• Minerals, being coal or lignite or iron ore

• Motor vehicle (if value exceeds INR 10 Lakhs)

Apart from the above, even goods exported out of India shall be excluded.

Time of collection TCS

Section 206C (1H) specifically provides that the seller shall collect from the buyer a sum equals to 0.1% of the sales consideration at the time of receipt of such amount.

That means the liability to collect TCS will arise even in case of advance payment received though the goods will be physically delivered at a later date.

If Buyer has not provided the Permanent Account Number or the Aadhaar number to the seller

if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC  shall be read as if for the words “five per cent”, the words “one per cent” had been substituted i.e. (1%)

TCS will be charged either on CIF/ FOB amount

TCS has to be charged on Total Invoice Value after including all taxes, freight and other charges, hence TCS amount will be charged on a CIF basis.

TCS on Export of Goods

Goods exported outside India are not covered under this section. If the seller exports goods outside India then there will be not TCS. Also, if the seller sells goods and the buyer further exports goods outside India, then also TCS is not applicable. The only compliance here the seller has to complete is that the seller needs to obtain a declaration from the buyer that the goods will be exported.

Adjustment for sale return, discount or indirect taxes

No adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax under sub-section (IH) of section 206C of the Act since the collection is made with reference to receipt of amount of sale consideration.

Applicability of TDS/TCS

If the customer is deducting TDS under the Income Tax Act on the transaction, the seller will not be liable to collect TCS u/s 206C(1H).

Illustration

https://www.incometaxindia.gov.in/communications/circular/circular_17_2020.pdf

https://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx

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• no credit is taken twice,
• credit is reversed as per law, &
• tax on reverse charge basis is paid.

• Generated Form GSTR-2B consists of:
  • A summary of ITC available as on the date of its generation and is divided into credit that can be availed and credit that is to be reversed (Table 3)
  • A summary of ITC not available and is divided into ITC not available and ITC reversal (Table 4)

• It is a static statement, generated once on 12^th of following month.
  • It consists of all documents filed by suppliers/ISD in their Form GSTR-1, 5 & 6, between 00:00 hours on 12^th day of preceding month to 23:59 hours, on 11^th day of current month. Thus, statement generated on 12^th of August will contain data from 00:00 hours of 12^th July to 23:59 hours of 11^th.
  • The details filed in GSTR-1 & 5 (by supplier) & GSTR-6 (by ISD) would reflect in the next open GSTR-2B of the recipient irrespective of supplier’s/ISD’s date of filing. For e.g, if a supplier files a document INV-1 dt. 15.07.2020 on 11th August, it will get reflected in GSTR-2B of July (generated on 12th August). If the document is filed on 12th August, 2020 the document will be reflected in GSTR-2B of August (generated on 12th September).

• It also contains information on imports of goods from the ICEGATE system including data on imports from Special Economic Zones Units / Developers. (This will be made available in GSTR-2B from 12th September 2020 onwards). Reverse charge credit on import of services is not part of this statement and need to be entered by taxpayers in Table 4(A) (2) of FORM GSTR-3B.

• Steps to Download: Taxpayers can access their GSTR-2B through: 

Login to GST Portal > Returns Dashboard > Select Return period > GSTR-2B.

• Important features: Taxpayers can
  • View or download Summary Statement or Section wise details in excel or PDF format.
  • Taxpayers can view supplier wise summary or document wise details.
  • Email / SMS to taxpayer will be sent informing them about generation of GSTR-2B.

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• In case of intra-state supply – CGST is payable @0.05% and SGST is payable 0.05%
• In case of inter-state supply – IGST is payable @0.1%

CONDITIONS FOR AVAILING EXEMPTION

Following are the conditions to be satisfied for availing benefit of concessional rate of GST on supply to a merchant exporter:

• Supplier shall supply goods under a tax invoice
• Goods must be exported within a period of 90 days from the date of issue of tax invoice by the supplier. The exemption would not be available to the supplier if the merchant exporter fails to export the said goods within a period of 90 days from the date of issue of tax invoice
• Merchant exporter shall indicate the GSTIN of the supplier and tax invoice number issued by the supplier in the shipping bill/ bill of export
• Merchant exporter must be registered with an Export Promotion Council or a Commodity Board recognized by the Department of Commerce

PROCEDURE TO BE FOLLOWED IN CASE OF MERCHANT EXPORTS

AFTER THE GOODS ARE EXPORTED:

• Copy of shipping bill/ Bill of export (incorporating supplier’s GSTIN)
• Tax invoice provided by supplier
• Export General Manifest/ Export report

Circular No. 37/11/2018-GST Dated 15^th March, 2018:

SUPPLIES TO MERCHANT EXPORTERS:

Notification No. 40/2017 – Central Tax (Rate), dated 23rd October 2017 and notification No. 41/2017 – Integrated Tax (Rate) dated 23rd October 2017 provide for supplies for exports at a concessional rate of 0.05% and 0.1% respectively, subject to certain conditions specified in the said notifications.

It is clarified that the benefit of supplies at concessional rate is subject to certain conditions and the said benefit is optional. The option may or may not be availed by the supplier and / or the recipient and the goods may be procured at the normal applicable tax rate.

It is also clarified that the exporter will be eligible to take credit of the tax @ 0.05% / 0.1% paid by him. The supplier who supplies goods at the concessional rate is also eligible for refund on account of inverted tax structure as per the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act.

It may also be noted that the exporter of such goods can export the goods only under LUT / bond and cannot export on payment of integrated tax. In this connection, notification No. 3/2018-Central Tax, dated 23.01.2018 may be referred.

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