prpri Analysis of Section 194Q with section 206C(1H) of Income Tax Act Analysis of Section 194Q with section 206C(1H) of Income Tax Act

Every purchaser of goods, whose total sales, gross receipt or turnover from the business exceeds Rs. 10 crores in immediate preceding financial year. In such case, he is liable to deduct TDS under section 194Q @ 0.1% on the amount booked or paid (whichever is earlier) as consideration for the purchase of goods to a resident seller, if it excess of Rs. 50 lakhs on or after 1 July 2021.this section is similar to section 206C(1H) which is applicable for collection of tax at source.

Important Point for Section 194Q:-

1. The tax shall be deducted under this section by purchaser of goods whose total sales, gross receipt or turnover (exclusive of GST) from the business exceeds Rs. 10 crores in financial year 2020-21.

2. The seller should be resident of India, therefore, section are not covered import purchase.

3. The purchase shall deduct the tax at the rate of 0.1% of the purchase value exceeding Rs. 50 lakhs.

4. If tax is deductible on a transaction under any other provision of the Act, this section shall not apply.

5. When same transaction is qualifies for deduction of TDS as per provision of section 194Q and collection of TCS under section 206C(1H), In such case section 194Q will be prevail over section 206C(1H).

6. In case of non-furnishing of PAN by seller, the tax shall be deducted at the rate 5% under section 194Q read with section 206AA.

7. As per section 206AB mandates deduction of TDS at higher rate of twice the applicable rate or 5% whichever is higher, where the seller has not filed Income Tax Return in immediately two preceding financial years, for which time period for original return filing u/s 139(1) has expired, and the aggregate annual amount of TDS & TCS of such seller exceeds Rs. 50,000, in each of the two preceding financial years.

8. TDS will not be deducted if seller is a person who is exempt from Income Tax under the Act(like person exempt under section 10 or any other Act passed by parliament like RBI Act, ADB Act). However, if part of the income is exempt then TDS shall be deducted.

9. TDS u/s 194Q shall be deducted on the taxable value i.e. exclusive of the GST component. (Ref:Circular No 23 of 2017 dated 19th July 2017). However, on the amount paid as advance, TDS shall be deducted on entire amount since the GST component cannot be separately identified. However, TCS u/s 206C(1H) is to be collected on the receipt value i.e. inclusive of GST component.

Illustration of Applicability of section 194Q or 206C(1H)

Turnover of seller (In crore) Turnover of the buyer (in crore) Purchase/ sale before 01.07.2021 (In lakh) Purchase/ sale on or after 01.07.2021 (In lakh) Amount on which TDS shall be deducted (In lakh) Amount on which TCS shall be collected (In lakh) Applicable Section
12 8 65 25 0 40 206C(1H)
12 8 45 15 0 10 206C(1H)
8 12 65 25 25 0 194Q
8 12 45 15 10 0 194Q
12 11 65 25 25 15 206C(1H) before 01.07.2021 and 194Q on or after 01.07.2021
12 11 45 15 10 0 194Q
5 6 65 15 0 0 N.A.*

*Where turnover of both of the purchaser and seller is less than 10 crores in such case section of 194Q and 206C (1H) shall not applicable.

Comparison of Section 194Q and 206C(1H)

Particular 194Q (Deduction of Tax) 206C(1H) (Collection of Tax)
Applicable to Purchaser of goods Seller of goods
With effect from 01.07.2021 01.10.2020
Applicable for When purchaser turnover in immediate preceding F.Y from business > 10 crore. When seller turnover in immediate preceding F.Y from business > 10 crore.
Threshold limit  Rs, 50 lakhs per F.Y. Rs. 50 lakhs per F.Y.
Rate of TDS/TCS 0.1% on amount excess of Rs. 50 lakhs. 0.1% on amount excess of Rs. 50 lakhs.
Rate of TDS/TCS in case non furnishing PAN 5% on amount excess of Rs. 50 lakhs. 1% on amount excess of Rs. 50 lakhs.
When deduct or collect Payment or credit (whichever is earlier) including advance payment. At the time of receipt including advance receipt.
Due date of deposit of tax with government 7th day of subsequent month 7th day of subsequent month
Form to be filed 26Q 27EQ
Certificate to be issued to seller/purchaser Form 16A Form 27D

Some additional points to clarify better:-

1. Transaction in securities through stock exchange shall not be subject to TDS under section 194Q of the Act.

2. The TDS under section 194 Q shall not be deducted from the purchase of immovable property by a developer. Immovable property shall not be treated as goods.

3. As per clarification of CBDT the transaction in electricity, renewable energy certificates, and energy-saving certificates traded through power exchanges registered under Regulation 21 of the CERC shall be out of the scope of TDS under the provision of Section194Q of the Act. However, TDS is deductible on a transaction in electricity only when if it is direct purchase from the company engaged in electricity generation.

4. The threshold limit of Rs. 50 lakhs shall be computed in respect of each PAN or Aadhar number. In case seller have number of units in the same PAN or Aadhar then the amount paid or payable of all units shall be aggregated to compute the threshold limit of Rs. 50 lakhs.

5. The option to apply for the certificate for a lower deduction of TDS under section 194 Q and TCS under section 206C(1H) is not available.

6. Section 194 Q of the Act is applicable from 01.07.2021. However, CBDT has clarified that the threshold limit of Rs. 50 lakhs shall be computed from 01.04.02021.

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