Implementation of 194Q in line with 206C(1H) : W.E.F. 1st July, 2021

Section 194Q has been inserted in the Income Tax Act vide Finance Act 2021 with effect from 01.07.2021. As per Section tax is required to be deducted at source from purchase consideration paid / credited on or after 01.07.2021 by purchases made, in case total turnover during financial year 2020-21 has been more than Rs 10 Crores.

In case you are liable to deduct tax under section 194Q of the Act, tax will not be collectible by company under section 206C(1H) of the Act w.e.f. 01.07.2021. Based on that confirmation required to deduct tax at source under section 194Q of the Act from payment of purchase consideration to be made/ credited to the company. On receipt of confirmation, the company will not be required to take any action for collection of tax at source as per section 206C(1H) of the Act, otherwise the company will be required to collect tax as per above Section.

Here I attached a confirmation/declaration format (Annexure-A) which you requested.

(On the Letterhead of Company)

Annexure – A

Date:

Buyer,
Address

Dear Sir/Madam,

We, , having PAN hereby inform you that our total sales, gross receipts, or turnover from Business during FY 2020-21 has been more than Rs.10 Crore. Therefore, provisions of Section 206C(1H) are applicable for the purpose of collection of tax at source on receipt of sale consideration of goods purchased by you from our company during the current financial year on the amount exceeding Rs.50 lacs. In relation to compliance with above provisions we require following information/ declaration from you: –

1. Section 194Q has been inserted in the Income Tax Act vide Finance Act 2021 with effect from 01.07.2021 As per above Section tax is required to be deducted at source from purchase consideration paid / credited on or after 01.07.2021 by you against purchases made from us, in case your total turnover during financial year 2020-21 has been more than Rs 10 Crores. In case you are liable to deduct tax under section 194Q of the Act, tax will not be collectible by our company under section 206C(1H) of the Act w.e.f. 01.07.2021 Please confirm that you are liable to deduct tax at source under section 194Q of the Act from payment of purchase consideration to be made/ credited to us. On receipt of above confirmation, we will not be taking any action for collection of tax at source as per section 206C(1H) of the Act, otherwise we will be collecting tax from you as per above Section.

2. You are also requested to intimate to us your Permanent Account Number. In case you fail to provide your PAN, tax will be collected at the rate of 5 percent in terms of Section 206CC of the Act.

3. Further, you are also required to confirm that in your case amount of TDS/TCS was Rs.50,000/- or more in previous years relevant to Assessment Years 2019-20 and 2020-20 and you have filed your returns of income for these assessment years. Please also provide acknowledgement numbers for filing the same, otherwise tax is required to be deducted at the rate of 5 percent in terms of Section 206CCA of the Act.

You may send to us your declaration in the enclosed draft on or before 25.06.2021 to enable us to take note of same and modify our accounting software accordingly. In case your declaration is not received by us by the above date, we will modify our software to collect tax at the rate of 5 percent and it would be difficult for us to take corrective action to reduce the rate during the current financial year.
For Ltd.

Authorised Signatory

******

On the letter head of vender / buyer

The Ltd.
– .

Sub: Declaration/information for deduction of tax at source u/s 194Q of the Act.

Dear Sir,

This is with reference to your letter dated requiring our declaration/information in regard to Collection of tax at source u/s 206C(1H) of the Act.

The information is being provided hereunder:

1. Turnover of our company during Financial Year 2020-21 was more than Rs. 10 Crores. Therefore, our company is liable to deduct tax u/s 194Q of the Act @0.1% of sale consideration to be paid / credited to your company on or after 01.07.2021 by us on the amount exceeding Rs.50 lacs during the current financial year. Hence, we request you not to take any action to collect tax under section 206C(1H) of the Act.

Or

Turnover of our company during Financial Year 2020-21 was not more than Rs. 10 Crores. Therefore, our company is not liable to deduct tax u/s 194Q of the Act. You may, therefore, continue to comply with provisions of Section 206C(1H) of the Act to collect tax on the amount of sale consideration exceeding Rs. 50 lacs.

2.Permanent Account Number of our company is XXXXX1234X. Further we have duly filed our returns of income for Assessment Years 2019-20 and 2020-21 as per information given hereunder:

Please take note of above information and confirmation and collect tax at the appropriate rate taking cognizance of above information.