Analysis of Section 206C(1H) & Section 194Q of Income tax Act 1961

Understanding of section 206C(1H) of Income tax Act 1961-

Department introduced the TCS on sales of goods by introduction of section 206C(1H) w.e.f 1st Oct-2020.

Applicability of section 206C(1H) –

The tax shall be collected by the seller from buyer, on an amount received exceeding INR 50 Lakhs at the rate of 0.1% ,following conditions are satisfied:

a. If seller total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the current financial year.

b. There is a sale of goods.

c. The seller receives any amount as consideration for the sale of any goods of the value or aggregate of such value exceeding INR 50 lakhs in any previous year from such buyer.

If in Financial year 2021-22-

• If seller receives an amount exceeding INR 50 Lakhs from a buyer against sale of goods made, then seller shall be liable to collect TCS on an amount exceeding INR 50 Lakhs at the rate of 0.1% of the amount received.

Herein, amount received includes GST or any tax component.

• It can be done so by the seller by the way of issuing debit note to the buyer of such TCS amount OR
• Consider the amount received in excess of INR 50 lakhs as inclusive of TCS amount collected at 0.1 %.

Computation-

Supppose seller receives INR 60 Lakhs in a FY from a buyer.

Then TCS amount to deposited to government can be computed as follows –

INR 60 – 50 = INR 10 (inclusive of TCS) Lakhs.

TCS = INR (10,00,000/100.10*0.1) i.e. INR 999/-.

Or else, Consider, INR 10 (Exlusive of TCS) Lakhs.

TCS = INR (10,00,000*0.1/100) i.e. INR 1000/-

And issue debit note of such amount to buyer.

Non applicability of above provisions –

If the buyer of the goods comes under the following category-

a. the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State.

b. a local authority as defined in the Explanation to clause (20) of section 10.

c. Importer of goods.

Moreover, the above section shall not be applicable 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.

That means, buyer should be liable to deduct TDS and has deducted TDS on such transactions (say section 194Q), then the provisions of section 206C(1h) shall not apply.

Understanding of section 194Q of Income tax Act 1961

The Finance Act, 2021 has introduced new section 194Q which is effective from 1st July 2021. This section requires buyer of goods to deduct TDS on purchase of goods.

As per provisions of section 194Q of the Income Tax Act, TDS is deductible if-

a. The person, being buyer whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year

b. The buyer is responsible for making payment of a sum to the resident seller for the purchase of goods,

c. Such payment is to be done of the value/ aggregate of the value exceeding INR 50 Lakhs to the seller in a financial year.

That is to say, if purchase value exceeds INR 50 lakhs, TDS has to be deducted.

TDS shall be deducted-

At the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees.

Example, if seller have already issued invoice of worth INR 45 Lakhs, and again issuses invoice of INR 15 Lakhs, for the the sale of goods. The buyer shall deduct TDS and deposit the same to the government on an amount of INR 10 Lakhs i.e (45+15~50)*0.1% which is INR 1000.

Non applicability of above provisions-

The provisions of this section shall not apply to a transaction on which—

(a)  tax is deductible under any of the provisions of this Act; and

(b)  tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C
aaplies.

Comparision of Section 194Q and 206C(1h) of Income tax Act, 1961

Particulars TDS on purchase of goods (194Q) TCS on sale of goods (206C(1H)

Effective date 01-Jul-21 01-Oct-20

Responsibility to Deduct or collect Buyer to deduct Seller to collect

Turnover Limit Buyer turnover>10 CR in previous FY Seller turnover>10 CR in previous FY

Applicable Limit Purchases from a single seller > 50 lakhs during the FY Sale consideration received from single  buyer>50 lakhs during the F

Note –

Section 194Q would be prevailed over 206C(1H). If TDS is deducted under section 194Q then, TCS under 206C shall not be collected by the seller.