TCS @1% ON ROUNDING OFF AMOUNT

[PRUTHVI NARAYAN]

Hello sir/madam

1. We are buying IML from KSBCL, Karnataka and Retail sellers in Karnataka.

KSBCL is rounding off (AROED per unit) while fixing MRP. But KSBCL is not charging 1% TCS on AROED amount and the AROED amount is showing separately in the invoice.

Now, our question is whether the invoice raised by them excluding TCS on AROED amount is correct or not. Will it affect us at a later stage?

regards

PRUTHVI NARAYAN

[Ramanathan Seshan]

Dear sir,

Thank you for your detailed query regarding TCS on AROED (Additional Retailer Overhead and Expenses Discount) in invoices raised by KSBCL.

Summary of the Issue:

• KSBCL is rounding off the price using AROED to arrive at MRP.
• The AROED amount is shown separately on the invoice.
• KSBCL is not charging 1% TCS on the AROED amount.
• Your concern: Is this correct, and could it affect you later?

Analysis:

1. Applicability of TCS (Section 206C(1H) of Income Tax Act):

• TCS is applicable on sale of goods if the seller’s turnover exceeds ₹10 crores in the previous FY and the value of sale to a buyer exceeds ₹50 lakhs in a FY.
• TCS is levied on the "consideration received" — which typically includes all components of sale value.

2. What is AROED?

• AROED is an additional charge added by KSBCL to round off the price per unit and arrive at the MRP.
• Even if shown separately in the invoice, it still forms part of the total consideration paid by you.

3. Is TCS on AROED legally required?

• If AROED is part of the price paid to KSBCL, and not a reimbursable charge or third-party fee, it should be included in the TCS calculation.
• By excluding TCS on AROED, KSBCL might be undervaluing the consideration, leading to under-collection of TCS.

4. Will it affect you (the buyer)?

• You, as a buyer, are not liable to collect TCS, so no direct tax liability falls on you.
• However, if you claim TCS credit, and the seller (KSBCL) has under-reported the TCS, the TCS reflected in your Form 26AS may be lower than expected.
• This could affect your TCS credit claim during your income tax filing or invite a query from the Income Tax Department.

Conclusion:

• Technically, TCS should be calculated on the total consideration, which includes AROED.
• KSBCL's practice of not charging TCS on AROED is likely not correct, unless AROED is treated as an independent, non-taxable charge (which seems unlikely in your case).
• You should document and clarify this position with KSBCL in writing to avoid future disputes.
• This might affect your TCS credit claim later unless KSBCL adjusts its TCS reporting to include AROED in the consideration.
  
  Regards,
  S Ram

AI Summary

TCS on total consideration: excluding rounding off charges may cause under collection and affect buyer's tax credit. AROED, though shown separately to adjust MRP, forms part of the consideration received and therefore should be included in the computation of TCS. Excluding AROED from the TCS base risks under collection by the seller and may reduce the TCS credit reflected for the buyer, potentially prompting future queries; buyers should obtain written clarification from the seller to avoid disputes.