Tax Collected at Source (TCS) on sale of goods Section 206C(1H) vs E-invoicing

India is a unique country where there is absolutely no coordination among various arms of Government. To take a simple example State Highways department lays roads and within one month Corporation team comes in and digs up the entire road to lay drainage pipes. Both these activities are budgeted by the respective divisions, tenders called and debated in the same council hall but no coordination whatsoever. This means we remain at the starting line or start and end up in shambles pretty soon. This is exactly what is happening with Direct and Indirect tax teams with TCS and e-invoicing. No coordination.

TCS under section 206C(1H) is being proposed to be levied by Government at the rate of 0.1% (0.075% due to Covid-19 till 31.3.21) on sale of goods under the pretext of collecting data for purposes of tracking transactions to ensure compliance with tax laws.   E-invoicing is proposed under GST laws to ensure tracking of transactions to be in compliance with tax laws.  TCS & e-invoicing will track the same data one through direct tax legislation and another through indirect tax legislation.   Is the intention of the Government to collect data or effectively use the data?  If objective is it to collect data then TCS and e-invoicing can co-exist but if the objective is for effective usage of data either one of the legislations should be scrapped most preferably TCS as it is more of a subordinate legislation having limited data scope whereas e-invoicing is a more broader scope legislation. 

Let us the industry be pragmatic and oppose TCS as its implementation will lead to unnecessary chaos for all practical purposes – charging an additional tax in the invoice (still debate is on whether to add GST for calculating TCS or not), collection from customers, depositing in customer PAN account, reconciling with 26AS (imagine companies having huge vendor base reconciling with 26AS will be a huge nightmare).   It may not be a surprise if a provision similar to 40(a)(ia) is also implemented for failure to collect and pay TCS creating more chaos in tax computation. 

Here I am reminded of the 3 “goods years” when we had the “Fringe Benefit Tax – FBT” which caused more pain than gain for both the industry and Government.    Similarly TCS will cause more pain than gain and it needs to be stopped ab-initio as it will create more work for business with little gain for them and creates one more spoke in much used phrase “ease of doing business”.