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Tax Collection at Source

SAP S/4HANA and ECC

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Digital Transformation of Tax

Digital Transformation of Tax on SAP S/4HANA and ECC complying with new rules for TCS on Goods Sold effective from 1’st October 2020

Tax Collection

Tax Collection at Source (TCS) - Income Tax

  • Govt of India has been strengthening its tax Collection capabilities by implementing measures to collect tax at source
  • TDS or Tax Deduction at Source provisions of income tax cover payments such as rent, commission, professional fees, salary, interest etc. Persons making such payments deducts income tax and makes net payment
  • New TCS provisions make the seller of any goods liable to collect TCS from the buyer
  • While TDS establishes tax trail on recipient’s income(primarily services), TCS aims at tax trail/recovery on buyer’s spend(on goods)

TCS Applicability

  • Finance Act 2020 introduced a new provision under Section 206C (1H) for the Tax Collected at Source (TCS) on Goods With effect from 1st of October 2020
  • Seller of any goods with turnover above Rs. 10 Crore is liable to collect TCS @ 0.1% of the sale value from the buyer if the buyer purchase goods for the value exceeding Rs. 50 Lacs
  • TCS is applicable for sale value over and above Rs.50 lakhs to a buyer
  • If the Buyer did not provide his PAN or Aadhar Number then the rate of TCS shall be 1% instead of 0.1%
  • TCS is NOT applicable for Export Sales or Goods that are liable to TDS provisions
  • Seller is liable to deposit the TCS amount with the govt. on the receipt of payment from buyer

Complying with Tax laws DIGITALLY

  • Get your SAP ready to comply with TCS provisions and prevent business disruptions due to manual processes
  • Customizing your smartforms to reflect TCS, configuring new pricing procedures, new TCS tax rates and codes
  • Enabling and validating customer master for PAN and Aadhaar Number
  • Enabling mechanism for keeping track of threshold limit Rs.50 Lakhs for each buyer based on PAN number
  • Process for determining and accounting TCS liability based on receipt of payment from customer.
  • Identifying and application of relevant SAP notes.
  • Customized TCS Report.
Digital Transformation on New Tax TCS

Complying with new TCS Tax rules on Goods Sold effective from 1-October-2020

Govt of India has been strengthening its tax Collection capabilities by implementing measures to collect tax at source. TDS or Tax Deduction at Source provisions of income tax cover payments such as rent, commission, professional fees, salary, interest etc. Persons making such payments deducts income tax and makes net payment.

INR 90000

    Project Cost

10 Days

    Project Duration

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Sample Customer Expectations - Automation Points

FOR SALES

  • Govt of India has been strengthening its tax Collection capabilities by implementing measures to collect tax at source
  • TDS or Tax Deduction at Source provisions of income tax cover payments such as rent, commission, professional fees, salary, interest etc. Persons making such payments deducts income tax and makes net payment
  • New TCS provisions make the seller of any goods liable to collect TCS from the buyer
  • While TDS establishes tax trail on recipient’s income(primarily services), TCS aims at tax trail/recovery on buyer’s spend(on goods)
  • All Quotations and Order Acceptance should include TCS
  • Configuration changes required to include TCS. It is 0.1% on the total Invoice Value
  • TCS shall be collected @ 0.1% at the time of receipt of amount or at such rate as may be prescribed under the Income Tax Act 1961"
  • Control required to ensure that TCS is charged ONLY WHEN THE TOTAL TURNOVER OF THE CUSTOMER CROSSESS RS.50 LACS.
  • Control required to ensure that TCS is not applicable on Govt Companies, Exports and Sale of Scrap
  • At the time of Invoicing TCS to be accounted in a GL Account “TCS on Sales Payable”. (Similar to current GST accounting)
  • TCS to be calculated on Debit Notes/ Credit Notes and adjusted in “TCS on Sales Payable”. (Configuration required)
  • REPORTS

FOR PURCHASES

  • All Purchase Orders to be configured to add TCS. (Configuration changes required)
  • New GL Account to be created as “TCS Receivable on Purchase”. (New GL Account)
  • At the time of parking of document, document parked will be with TCS. (Changes in current configuration)
  • At the time bill booking, user will check for TCS and book bill accordingly
  • At the time payment and knocking off TCS will automatically transfer from “TCS Receivable on Purchase” to “TCS to be received on Purchase” Account – new GL Account to be created. (Automation Required)
  • Every month end the taxation department will check “26AS” and transfer the amounts from “TCS to be received” Account to new GL Account “TCS Receivable on Purchase – NNNN” where NNNN stands for the year reflected in “26AS”. (Future Automation)
  • The Amount in the Account “TCS Receivable on Purchase – NNNN” will be used for filing return of Income Tax similar to the TDS Receivable Account
  • REPORTS

FAQ

  • What are the modules supported for TCS solution?

    1. SD (Sales and Distribution
    2. FI (Financials)

  • TCS for advance payments

    TCS on advance payments is not supported as of now. There is ambiguity on calculation of TCS at the time of advance payment receipt. TCS on advance is applicable on 206c(1H) goods but for goods under 206C others the rule says TCS is applicable at the time of advance payment/invoice whichever is earlier. Also Advance payment received can be adjusted against 206c(1H) goods, Services etc. Now if TCS is to be charged at the time of advance payment then what is the guarantee that the advance received will be adjusted against 206C(1H) goods only? So if the advance is cleared against any TCS invoice the liability will be picked up for payment due 7th of subsequent month.

  • TCS solution for Procurement/Buyer/Accounts payable side

    A3. It is Legally not required to capture TCS in the incoming side as the seller will be depositing the collected tax against PAN/Aadhar of the buyer and the same can be adjusted by the buyer against his/her income tax liability. Here there is no Tax credit adjustment against payable and receivables unlike GST. As per section 206C(4) of the IT Act, TCS collected by the seller and deposited with the Central Government is deemed to be tax paid on behalf of buyer and the tax so deposited is available as a credit to the buyer to set it off against its income-tax liability. Accordingly, since the TCS is in the nature of income-tax paid by the buyer, the buyer will not be allowed to claim deduction of this expenditure. Therefore, the buyer will not capture TCS on the purchase side and will book it as ‘Advance income-tax’ paid by it.

  • Are credit notes and Sales returns processes supported?

    A4. Yes credit notes and Sales return processes are supported

  • Is the exercise scenario supported?

    Yes the current solution supports TCS postings for excisable goods as well.

  • What is the condition type JTC2 for?

    JTC2 condition type is for TCS others like Sale of Alcoholic liquor, timber, tendu leaves etc. JTC2 if for goods other than 206c(1H) where threshold check of 50 Lacs is not required.

  • Why is Material tax classification required?

    As per the standard behaviour if tax category is introduced in OVK1 then the same will by default appear in customer tax classification and material tax classification. Customers tax classification option is used to identify whether TCS is applicable for the customer or not. TCS is not applicable for central government, state government, high commission, embassy, foreign customer so with this identifier TCS applicability will be considered. Material classification here has no significance but by default it will appear if the user creates a new material or changes existing material. In that case please maintain any of the given classification. This is not used in the TCS solution.

  • Why is Billing document with 2 step process(release to accounting via VF02 or VFX3) not supported?

    Accumulation table will get updated with the total accumulation/sales amount and TCS amount only once the posting hits accounting. If the billing document is posted and not released to accounting then tables J_1I_ACCUMHDR and J_1IG_ACCUMDTL will not be updated; meanwhile is subsequent documents are posted the accumulation would have been increased/decreased and if you now try to release the billing document to accounting at this point TCS will not be correct. So in order to have the right accumulation value and calculation of correct TCS amount, document should be posted to accounting. For any reason if the document could not be released to accounting because of some error then you will have to retrigger pricing before "Release to Accounting". This will ensure that correct TCS calculation will happen and accumulation tables will be updated correctly.

  • FB70/75 only supports TCS calculation on net amount and not gross amount?

    As per the rule for TCS, tax is to be collected only when the sale consideration has exceeded 50 Lacs. In order to achieve this, we accumulate the total sale value with the documents that are posted. If the gross amount is checked for tax calculation, then arriving at the correct tax base amount on which TCS has to be computed is not possible due to technical limitations. So currently FB70/75 only supports TCS calculation on net amount.

  • What are transaction codes supported for TCS?

    A10. VF01, VF11 ,VF04 , FB70, FB75 & FB08

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