Article explains provisions of Section 194Q TDS on purchase of goods (w.e.f. 1st July, 2021) and Section 206C(1H) TCS on Sale of goods (w.e.f  1 October, 2020). Article further explain the meaning of Deductor/Collector, Threshold Limit, Deductee/ Collectee, Time of  Deduction/Collection, Rate of Tax Deduction/Collection, Non Applicability,  From which date the threshold limit of Rs. 50 lakhs will be computed, treatment of debit /credit note for computation of TDS/TCS, Whether TDS/TCS is to be deducted Inclusive of GST, What Buyer Does not include, When to Deposit TDS/TCS, Quarterly statement to be filed, Certificate to be issued to seller/Buyer etc

Comparative study of Section 194Q and 206C(1H)

Section 194Q TDS on purchase of goods W.e.f  1 July,2021 Section 206C(1H) TCS on Sale of goods W.e.f  1 Oct, 2020
Deductor :- Buyer carrying on a business whose total sales, gross receipts or turnover from the business exceeds Rs. 10 crores during the financial year immediately preceding the financial year in which such goods are purchased Collector: – Seller whose total, gross receipts or turnover from the business exceeds exceeds Rs 10 crore during the financial year immediately preceding the financial year in which the sale of sale of goods is carried out.
Threshold Limit :- 50 Lakh  Threshold Limit :- 50 Lakh
Deductee:- Resident Seller Collectee :-Resident Buyer
Time of  Deduction:-At the time of Credit to the account of seller or Payment ,Whichever is Earlier. The tax shall be deducted even if the sum is credited to the ‘Suspense Account’. Time of Collection:- At the time of receipt of consideration from buyer  exceeding Rs. 50 Lakh
Rate of Tax:- TDS shall be collected 0.1 per cent of such sum exceeding 50 Lakh rupees if seller furnished his Pan/Aadhar, otherwise 5% Rate of Tax:- TCS shall be collected @0.1% of the amount in excess of Rs 50 lakh if purchaser furnished his Pan/Aadhar, otherwise 1%
Non Applicability:-

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.

c)  Amount of Purchase does not exceeds 50 Lakh

Non Applicability:-

a)  Tax is deductible under any of the provisions of this Act

b)  Amount of Sale Consideration received by seller from buyer does  not exceed 50 Lakh

From which date the threshold limit of Rs. 50 lakhs will be computed 

Threshold of Rs. 50 lakhs shall be computed from 01-04-2021. Thus, if a buyer has already purchased goods of value Rs. 50 lakhs or more up to 30-06-2021 from a seller, TDS under  194Q shall apply on all purchases on or after 01-07-2021.

From which date the threshold limit of Rs. 50 lakhs will be computed 

Section 206C(1H) was introduced by the Finance Act, 2020, with effect from 01-10-2020. threshold of Rs. 50 lakhs shall be computed from 01-04-2020. Thus, if Seller already received consideration of 50Lkh or more upto 30-9-20 from buyer, TCS under 206C(1H) shall apply on all consideration received on and after 1-10-2021

What shall be the treatment of debit /credit note for computation of TDS 

As the tax has to be computed on the purchase value, the adjustment made to the ledger of the seller by issuing the debit note will not have an impact on the tax to be deducted

What shall be the treatment of debit /credit note for computation of TCS 

No such requirement, because buyer will make payment after adjusting debit/credit note.

Whether TDS is to be deducted Inclusive of GST

No such clarification from CBDT, But if we take into account the old provisions of TDS like 194J & 194C ,if  component of GST comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source on the amount paid or payable exclusive of  GST component

Whether TCS is to be collected Inclusive of GST

YES,CBDT vide Circular No. 17, dated 29-09-2020, has clarified that TCS is to be collected inclusive of GST value, Since buyer always make payment inclusive of GST

Buyer does not includes 

a)  A person, as the Central Government may, by notification in the Official Gazette,

Buyer does not includes

a)  CG,SG,An Embassy,A High Commission and Consulate and the trade representation of a foreign state

b)  Local Authority

c)  A person importing goods into india

d) Buyer purchasing goods which was already covered by the provision of section 206C(sale of scrap) or cover under the provision of TDS

When to deposit

Tax so deducted shall be deposited with government by 7th day of subsequent month

When to deposit

Tax so collected shall be deposited with government by 7th day of subsequent month

Quarterly statement to be filed:- 26Q  Quarterly statement to be filed:-27EQ
Certificate to be issued to seller :- Form 16A  Certificate to be issued to buyer:- Form 27D
Can a Seller apply for the certificate for lower/Nil deduction of TDS :- NO Can a Buyer apply for the certificate for lower/Nil Collection of TCS :- NO
Consequences of  Non-Compliance of Section 194Q 

a)  As per section 40a(ia) of Income Tax Act 1961, dis-allowance to the extent of 30% of the value of transaction.

b) If TDS not deducted then Assessee shal liable to pay simple interest @1% per month or part of the month from the date on which the tax was to be deducted to the actual date of deduction

c) If after deduction fails to pay TDS then Assessee shal liable to pay simple interest @1.5% per month or part of the month from the date of deduction to date of actual payment. 

Consequences of  Non-Compliance of Section 206C(1H) 

a)  If the person responsible for collecting tax at source does not collect it or after collecting fails to pay it to the Government, he shall be liable to pay simple interest at the rate of 1% per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid and such interest shall be paid before furnishing the quarterly statement for each quarter

Preference to be given if transaction is covered by both the provisions (TDS u/s 194Q and TCS u/s 206C(1H) 

Purchaser is first liable to deduct the tax if the transaction could be subject to both provision

Preference to be given if transaction is covered by both the provisions provisions (TDS u/s 194Q and TCS u/s 206C(1H) 

Seller shall be liable to collect the tax only if the purchaser is not liable to deduct the tax or purchaser failed to deduct tax

ILLUSTATIONS

Case 1. Transaction Covered by Section 206C(1H)

Case 2. Transaction Covered by Section 194Q

Case 3. Transaction Covered by both the provision Section 194Q and 206C(1H) 

Particulars  Case -I Case-II Case-III
Turnover of Seller (In cr.) 15 9 15
Turnover of Buyer (In cr.) 9 15 15
Sale of goods (In cr.) 3 3 3
Sales consideration paid during the year (In cr.) 1.5 1.5 1.5
Who is liable to deduct or collect tax? Seller Buyer Buyer
Rate of Tax 0.1% 0.1% 0.1%
Amount on which tax to be deducted or collected (In Cr.) 1 2.5 2.5
Tax to be deducted or collected 10000 25000 25000

 Practical applicability of these section

If transaction is covered under both the section  i.e 194Q and 206C(1H) i.e Tunover of both buyer and seller exceeds 10 crore, Although first and formost liability to deduct tax is on buyer but seller didn’t know about buyer’s turnover whether buyer cross the limit of 10 crore in immediate preceding financial so in that case seller will take undertaking from buyer that if buyer turnover exceeds 10 cr in immediate financial year then liability to deduct tax u/s 194Q will be on buyer, otherwise, liability to collect TCS  under 206C(1H) will shifted to seller.

CA Sachin Sharma

ACA, B.com

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