The Finance Bill, 2021 has introduced section 194Q – TDS on purchase of goods which is having resemblance to section 206C(1H)- TCS on Sale of Goods brought in by Finance Bill, 2020. Let’s understand with it with very quick reading of both the section.

Section 194Q Vs 206C(1H): Any person, being a buyer (whose sales exceeds 10 crores in immediately preceding the financial year in which purchases are made) who is responsible for paying any sum to any resident for purchase of any goods of the value or aggregate of such value exceeding 50 lakhs in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment by any mode whichever is earlier deduct an amount equal to 0.1% of such sum exceeding 50 lakh as income tax u/s 194Q. However, TDS would not be deductible in S. 194Q in case TDS is deducted under any other section or TCS is collectible under provisions of s. 206C other than a transaction to which s. 206C(1H) applies. Where the tax is required to be deducted under section 194Q, if the deductee fails to provide PAN, the rate of TDS shall be 5%.

There is ambiguity regarding simultaneous applicability of Section 194Q and 206C(1H) to businesses, which can be clarified through below example:

Sr No. Buyers Turnover Sellers Turnover Transaction Value Section Applicable
1 7 Cr 15 Cr 56 Lakhs 206C(1H)
2 18 Cr 8Cr 54 Lakhs 194Q
3 14 Cr 18 Cr 53 Lakhs 194Q
4 8 Cr 9 Cr 59 Lakhs NA as threshold of Rs. 10 crore turnover not crossed
5 19 Cr 25 Cr 48 Lakhs NA because Rs. 50 lakhs Transaction Value threshold was not crossed.

A query may arise to all the readers that why section 194Q is applicable instead of 206C(1H), if the turnover of both buyer and seller exceeds Rs.10 Crore. The reason is Proviso to section 206C(1H) which states as under: “Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.” Therefore, if turnover of both buyer and seller exceeds Rs.10 Crore in the immediately preceding financial year, only buyer needs to deduct TDS and comply with section 194Q and section 206(1H) shall not be applicable.

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8 Comments

  1. CA MALLIKHARJUN says:

    Hi Ashok,

    As per me, Prima facie, Buyer only required to deduct TDS under section 194Q as the requisite conditions of the section are satisfied.

    However, the second proviso to Section 206C(1H) reads as follows:

    “Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.”

    If buyer is liable and has deducted the TDS, then only S. 206C(1H) is not applicable. If the buyer is not deducted though provision is applicable, then S. 206C(1H) will be applicable and seller has to collect TCS.

    Non-compliance provisions may be applicable to buyer as the TDS is not deducted by him.

  2. KARTHIK R says:

    Informative article sir, Point no 4 in the table requires a correction. The section is NA because the turnover has not crossed 10 crore and not Rs. 50 lacs

  3. sathyanarayanan says:

    pls refer table sr. no. section applicable->NA because Rs. 50 lakhs threshold was not crossed.. This should be look once again

  4. Ashok J says:

    Thanks for the article.
    My doubt – Example Our turnover is 12 crore for FY 20-21. Our seller turnover for FY 20-21 is 100 crore. In the current FY seller is already collecting 0.1% TCS u/s 206C (1H) since our purchase transaction value is approx 1 crore per month..I have to deduct TDS under 194Q right? Pls clarify

    1. abhishek89 says:

      Hello Ashok,

      till 30.06.2021 TCS u/s 206C(1H) will be applicable but w.e.f. 01.07.2021 buyer is required to deduct TDS and TCS will not be applicable.

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