Compliance of TDS under section 194Q & TCS under section 206C(1H)

Income Tax03/07/2021 Source: Income Tax

TDS under Section 194Q:- Finance Act, 2021 inserted a new section 194Q in the Income-tax Act 1961  which takes effect from I st day of July, 2021. Section 194Q applies to 

(A)A buyer who is responsible for paying any sum to any resident seller for purchase of any goods.

(B)Where the value or aggregate of value of goods exceeding fifty lakh rupees in any previous year.

The buyer, at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier, is required to deduct an amount equal to 0.1 % of such sum exceeding fifty lakh rupees as income tax.

TCS under Section 206C(1H):- 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 subsection (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer , a sum equal to 0.1% of the sale consideration exceeding fifty lakh rupees as income-tax.

 

Particulars Section 194Q Section 206C(1H)
Threshold limit for Sale/ Purchase Purchases more than 50 Lakhs Sales more than 50 Lakhs
Time of Deduction/ Collection At the time of payment or credit whichever is earlier At the time of receipt
Rate of TDS/TCS

0.1%

5% (PAN not available)

0.1%

1% (PAN not available)

TAN Requirement

Yes

Yes

Certificate to be issued to seller/buyer

Form 16A

Form 27D

 

FAQ 1. Which person will be liable to deduct TDS under section 194Q ?

Ans. The buyer, at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier, is required to deduct TDS equal to 0.1 % of such sum exceeding fifty lakh rupees for purchase of any goods.

FAQ 2. Date of applicable of provision of section 194Q ?

Ans. The provisions of section 194Q shall be applicable from 1st July 2021.

FAQ 3. Person to whom Section 194Q is applicable ?

Ans. Section 194Q is applicable to those buyer whose total sales, gross receipts or turnover from the business carried on by him exceed Rs.10 crore during the financial year immediately preceding the financial year in which the purchase of goods is carried out.

FAQ 4. Who is liable to collect TCS u/s 206(1H) ?

Ans. As per Section 206(1H) sellers of goods whose total sales, gross receipts or turnover from the business carried on by it exceed 10 crore rupees during the financial year immediately preceding the financial year shall be liable to collect such TCS at a rate 0.1% on consideration received from a buyer in a previous year in excess of 50 lakh rupees. In non-PAN/ Aadhaar cases, the rate shall be 1%.

FAQ 5. If both sections become applicable, then whether TCS u/s 206C(1H) is to be collected on receipt of sales consideration above 50 Lakhs or TDS u/s 194Q is to be deducted by the buyer on purchase of goods exceeding Rs.50 Lakhs?

Ans. Section 206C(1H) shall not apply if the buyer is liable to deduct TDS under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Section 194Q shall not apply to a transaction on which––

(a) TDS under any of the provisions of this Act is deducted or

(b) TCS under the provisions of section 206C other than 206C(1H) applies.

So therefore section 194Q supersede section 206C(1H), thus primary responsibility to deduct TDS is of buyer but if buyer fails to deduct TDS then in this case Seller will liable for TCS.

FAQ 6. What if buyer fails to deduct TDS under section 194Q?

Ans. As per Section 40a(ia) – If buyer fails to deduct and deposit TDS then purchase expenditure to the extent of 30% will be disallowed and shall be subject to Income Tax at applicable tax rate.

FAQ 7. Whether section 194Q is also applicable on purchase of capital goods ?

Ans. “Goods” as per CGST Act 2017 means any kind of movable property other than services. So therefore the section 194Q is also applicable on purchase of capital goods.

FAQ 8. Whether section 194Q is also applicable on Import of goods ?

Ans. Section 194Q are applicable when a Buyer is responsible for paying any sum to any resident seller for purchase of any goods. So therefore the TDS under section 194Q is not to be deducted from Import of goods.

FAQ 9. What is the Adjustment for GST under section 194Q ?

Ans. (A) With respect to TDS under section 194Q of the Act, it is clarified that when tax is deducted at the time of credit of amount in the account of seller and in terms of the agreement or contract between the buyer and the seller, the component of GST comprised in the amount payable to the seller is indicated separately, tax shall be deducted under section 194Q of the Act on the amount credited without including such GST.

However, if the tax is deducted on payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identity that payment with GST component of the amount to be invoiced in future.

(B) Further, with respect to purchase return it is clarified that the tax is required to be deducted at the time of payment or credit, whichever is earlier. Thus, before purchase return happens, the tax must have already been deducted under section 194Q of the Act on that purchase. If that is the case and against this purchase return the money is refunded by the seller, then this tax deducted may be adjusted against the next purchase against the same seller.

However, No adjustment is required if the purchase return is replaced by the goods by the seller as in that case the purchase on which tax was deducted under section 194Q of the Act has been completed with goods replaced.