MSMEs in a fix over CBDT’s recent circular

In the name of simplifying procedures and removing certain difficulties in the system, the Government is only complicating issues and making the process cumbersome, allege industry insiders, referring to the recent circular from the Income Tax Department.

The circular, dated September 29, on “Guidelines under section 194-0 (4) and section 206C (1-1) of the Income Tax Act” is already in force (with effect from October 1, 2020). “The guidelines have been issued with immediate effect. But how are we to implement the same? The software vendor has to incorporate the change; and coming as it does at a time when we have just started to stabilise on the growth front, it is becoming too much of a task. Should we focus on business or on such notifications and compliance matters?” asked an entrepreneur of a small-scale unit, preferring anonymity.

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While those in the know of the circular from the department voiced worry and confusion, others feigned ignorance, adding “our auditors will advise us accordingly.” Interestingly, auditors themselves seemed to be in a fix. The clock meanwhile has started to tick.

A cross-section of auditors this correspondent spoke to said that they were swamped by too many issues — GST returns, IT returns, taking cognisance of such notifications/changes in provisions. “There are bandwidth issues too,” said an audit professional.

Seeking clarity on some of the major issues, an industry source said, “the new clause inserted in section 206C (1 H) of the Income Tax Act mandates a seller receiving consideration (from sale of goods) in excess of ₹50 lakh in ‘any’ previous year to collect tax from the buyer at 0.1 per cent.”

“The word ‘any’ is vague,” the source said, seeking clarification, adding “is this 0.1 per cent inclusive of GST?” The department has clarified that since sec 206C (1H) applies only to receipt of sale consideration, and the threshold limit of ₹50 lakh is with respect to the previous year, the TCS would have to be computed from April 1, 2020. If a seller has already received ₹50 lakh or more up to September 30, 2020, from a buyer, the TCS would apply on all receipts during the previous year, from such buyer. The circular further said no adjustment on account of sale return or discount or indirect taxes including GST is required to be made for collection of tax under sec 206C (IH) as it is on receipt basis (receipt of amount of sale consideration).

‘Move in right direction’

An auditor in the know of the issue admitted there would be practical inconvenience, some administrative hassle, but it is not an impossible task. According to him, the possible reason for roll-out of such a clause could be “better tracking mechanism, and receipt of money upfront for the government.“The compliance burden is going to be quite high, but it is a move in the right direction,” he said, preferring anonymity.