Introduction

A new section 194Q, has been introduced in Finance Act, 2021, to the Income Tax Act, which requires a buyer to deduct TDS of seller, while purchasing of goods. This section will be applicable from 1st Jul, 2021. As we have seen, last year, a similar provision of section 206C(1H) was introduced, where seller needs to collect TCS from buyer on sale of goods.

Since almost all types of services are covered under TDS/TCS ambit, now Government is trying to cover all sale/purchase of goods related transactions under the purview of TDS/TCS. It seems government is trying to broadening the tax ambit.  Hence in the last one year, we have seen back to back two sections, where TDS/TCS provisions will be applicable on sale of goods.

Let’s see below the analysis of these two sections and criteria of applicability:

1. Section 194Q (Applicable from 1st July, 2021) :

1. Applicable on buyer of goods, where total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the previous financial year.

2. A buyer needs to deduct TDS at the rate of 0.1 per cent for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year.

3. TDS to be deducted when credited to any account/Suspense account or by any other name.

4. 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 applies.’

2. Section 206C (1H) (Applicable from 1st October, 2020) :

1. Applicable on seller of goods whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the previous financial year.

2. A seller needs to collect TCS at the rate of 0.1 per cent on receipts of sale consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees.

3. If PAN/Aadhaar has not been provided by the buyer 5% TCS need to be collected.

4. 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.

5. Exclusions of this

Illustration:

Sr. No. Buyers Turnover Sellers

Turnover

Transaction Value Taxable Amount Section Applicability Remarks
1 11 crore 5 crore 52 lakhs 2 lakhs 194 Q will be applicable Need to deduct TDS by buyer
2 5 crore 12 crore 53 lakhs 3 lakhs 206C(1H) Need to collect TCS by seller
3 15 crore 16 crore 53 lakhs 3 Lakhs 194 Q will be applicable Need to deduct TDS by buyer
4 5 crore 7 crore 52 lakhs NA Turnover is below taxable limit
5 12 crore 13 crore 45 lakhs NA Turnover is below taxable limit

Analysis:

1. Now before entering into transaction of Goods purchase/sale, buyer/seller should be well aware about the applicability of TDS/TCS provisions between them since both the section will interplay or in other words both sections are mutually exclusive. And his should be checked every year.

2. Since section 194Q will be applicable from 1st July, 2021, now question is whether ceiling limit of Rs 50 lakh should be taken from 1st July or from 1st Though there is no clarity provided but as a prudent measure is it should be taken from 1st April, 2021.

3. TDS/TCS will be applicable on amount exceeding of Rs 50 lakh in both sections. For example if purchases Rs 54 lakh, TDS would be applicable on Rs 4 lakh only.

Author Bio

Name: Sharad
Qualification: CA in Job / Business
Company: N/A
Location: Delhi, Delhi, India
Member Since: 15 May 2017 | Total Posts: 1
Hi I am a qualified Chartered Accountant (CA) from the Institute of Chartered Accountants of India (ICAI). Having experience of more than 13 years in different companies, including subsidiaries of Indian companies in the US/Singapore/UAE. Areas in which I have worked in the last 13 years include Fi View Full Profile

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One Comment

  1. ashok dhiman says:

    Sir
    plz clarify the new section 194Q applicable on PAN Based or TAN Based, we have multiple location with difference TAN but single PAN in india

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