CA Mahesh Agarwal
TDS (Tax deduction at source) and TCS (Tax collection at source) are one of the major sources of regular and advance collection of Taxes by the Government. In this endeavor government has made various provisions in the Income Tax Act to cover vast economic activities for deduction or collection of taxes at the source income generation itself. These provisions of TDS/ TCS are also utilized by the Government for due tax compliances by various stakeholders.
Last year, in addition to various provisions for TDS and TCS that were operative for many years, Government, in the shape of Sec. 206C (1H), further brought sale transactions of all type of goods (other than those on which TCS was already applicable) under the TCS net with effect from 01/10/2020. The assessee sellers are still coping hard to comply with the requirements. This year, with effect from 01/07/2021, a reverse provision in the shape of Section 194Q is brought in also for the buyers of all such goods that were covered for TCS under section 206C (1H). Though in cases where seller and buyer both qualify for deduction, tax would be deducted only at one point i.e. by the buyer who is made prime responsible for deduction.
Similarly, through the TDS/TCS provisions, government has also tried to make the non PAN holders as well as non ITR filers as tax compliant by providing for higher rate of deduction. In this direction earlier, vide section 206AA, non PAN holders were made liable for higher TDS rates. On the same basis non filers of Returns are also made for higher TDS/TCS rate with effect from 01/07/2021 by introduction of section 206AB.
All these provisions, their applicability, compliance burden and consequences for defaults are quite cumbersome to understand by those who are made liable to comply with. In this write up an effort is made to clarify applicability of provisions and their interplay under different scenario.
COMPARATIVE ANALYSES OF SEC. 194Q AND 206C(1H)
| Issue | Sec 194 Q (On Buyer) | Sec. 206C (1H) – (On Seller) |
| From which date applicable | 01/07/2021 | 01/10/2020 |
| To Whom applicable | On Buyer of any goods other than Liquor or Timber etc. on which TCS is deducted by seller. | On Seller of any goods other than Liquor, Timber, Car or Jewelry etc. on which TCS is deducted by seller. |
| When Applicable | If turnover of buyer in the last year is more than 10 Crs and purchase during the year is more than 50 Lakhs | If turnover of seller in the last year is more than 10 Crs and receipts from the buyer during the year is more than 50 Lakhs |
| Exception to above | After 01/07/2021, if transaction also attract 206C(1H), only Buyer shall deduct under this section. He would be under primary obligation for deduction.
Also not applicable where TDS or TCS is deductible under any other section. |
After 01/07/2021, if transaction also attract 194Q, only Buyer shall deduct under that section and this section will not be applicable. |
| On which amount applicable | Will be applicable on over the threshold limit of 50 Lakh. This threshold is for whole year. Thus, if purchase made upto 30 June 2021 is Rs.35 Lac and from July onward it is 40 Lakh, TDS will be made on Rs.25 Lakh (35 + 40=75 – 50 threshold = 25 ) | Will be applicable on over the threshold limit of 50 Lakh. This threshold is for receipt of sale consideration during the whole year. Thus, if payment received is below 50 Lakh No TCS would be made and if payment received is more than 50 Lakh then only on excess over 50 Lakh TCS shall be made. Payment received for earlier year’s sale would also be considered. |
| When to deduct or Collect | At the time of payment or credit to sellers account which ever is earlier. It would include any sum credited to any account, whether called by name “suspense account” or by any other name. | At the time of receipt of any amount towards consideration for sale from the buyer |
| Rate of Deduction/collection | If seller furnished PAN @ 0.1% other wise 5%. Higher rate would also be applicable if the seller has not filed his ITR for immediately last 2 years and his total TDS and TCS was in each of those years was more than 50,000/-.(New Sec.206AB) | If buyer furnished PAN or Adhaar No @ 0.1% other wise 1%. |
| Whether applicable on purchase or sale of capital goods | Yes – It is applicable to ‘ any goods’ which means every kind of movable property | Yes – It is applicable to ‘any goods’ which means every kind of movable property |
| Whether value of transaction would include GST | TDS is to be made on the”sum credited” to the account of the seller which also include GST. Thus TDS would be made on whole amount. This also find support from CBDT Circular issued in relation to Sec.206C(1H). | Vide CBDT Circular No. 17, dated 29-09-2020 receipt was inclusive of GST and hence on total receipt TCS is applicable. |
| Whether applicable on Advance | Yes – since TDS is to be made earlier of payment or credit to account. | Yes – since TCS is on receipt for sale consideration.. |
| Consequences for failure to deduct or deposit to Govt | a)In both cases he would be deemed as assessee in default and tax may be recovered from him.
b) For non deduction intt. @ 1% p.m. shall be charged. c) For non deposit intt. @ 1.5% p.m. shall be charged. d) Penalty of equivalent amount may be levied U/s 221 e) Risk of prosecution U/s 276 BB and 276C. f)In addition 30% of purchase value may be disallowed U/s 40(a)(ia) |
Same as for 194Q except disallowance as mentioned at (f) |
Interplay of both the above sections is explained through illustration as follows –
| Case No |
Buyers Turnover during the year | Sellers Turnover during the year |
Transaction value during the yearIn the hands In the of seller hands of buyer |
Which Section is Applicable |
Person liable to deduct | Reasoning | |
| 1 | 9 Cr | 9 Cr | 60 Lakh | 60 Lakh | NA | None | As turnover of both is less than 10 Cr |
| 2 | 9 Cr | 11 Cr | 60 Lakh | 60 Lakh | 206C(1H) | Seller only | As only sellers turnover exceed 10 Cr |
| 3 | 11 Cr | 9 Cr | 60 Lakh | 60 Lakh | 194Q | Buyer only | As only buyers turnover exceed 10 Cr |
| 4 | 11 Cr | 11 Cr | 60 Lakh | 60 Lakh | 194Q | Buyer only | Though turnover of both exceeds 10 Cr, but in view of 194Q(5) only buyers is liable to deduct. |
| 5 | 11 Cr | 11 Cr | 45 Lakh | 45 Lakh | NA | None | Though turnover of both exceeds 10 Cr but the transa-ction value is below threshold limit of 50 Lakh. |
| 6 | 11 Cr | 11 Cr | 60 Lakhs | 45 Lakh | 206C(1H) | Seller only | Though turnover of both exceeds 10 Cr but the transaction value exceeds threshold limit of 50 Lakh only in the hands of seller. |
| NOTE – Threshold limit of 50 Lakhs is to be seen for each year separately. | |||||||
APPLICABILITY OF HIGHER RATE OF TDS OR TCS ON VARIOUS PAYMENTS GENERALLY MADE
| Nature of Transaction | U/s Section | Normal rate | Higher Rate | When Applicable | Section |
| Interest paid over Rs.5000/- | 194A | 10% | 20% | If PAN is not available – Further Form 15G/H would also be invalid and not entertained. | 206AA |
| Payment to Contractors | 194C | ||||
| – Paid to Individual/HUF | 1% | 20% | If PAN is not available | 206AA | |
| – Paid to Others | 2% | 20% | If PAN is not available | 206AA | |
| Payment of Commission / | 194H | 5% | 20% | If PAN is not available | 206AA |
| Brokerage | |||||
| Payment of Rent – | 194I | ||||
| For Machinery | 2% | 20% | If PAN is not available | 206AA | |
| For Land & Building | 10% | 20% | If PAN is not available | 206AA | |
| Payment for Professional or | 194 J | 10% | 20% | If PAN is not available | 206AA |
| Technical Services | |||||
| Sale of goods on which TCS is applicable – | 206C | ||||
| – Timber | 2.50% | 5% | If PAN is not available | 206CC | |
| – Scrap | 1.00% | 5% | If PAN is not available | 206CC | |
| – Motor Vehicle over 10 Lakh | 1.00% | 5% | If PAN is not available | 206CC | |
| Seller of other goods on receipt consideration over 50 Lakh | 206C (1H) | 0.10% | 1% | If PAN or Adhar No. of buyer is not available | Proviso to 206C (1H) |
| Buyer of other goods over the transaction value of 50 Lakh | 194Q | 0.10% | 5% | If PAN is not available | 206AA |
IMPACT OF SECTION 206AB APPLICABLE FROM 01/07/2021 –
Further Higher rate of TDS, as above, despite of availability of PAN shall also be applicable on all above sections if both the following two conditions exist –
1 If the deductor (Recipient of money) has not filed his ITR for immediately last 2 years for which time to file the return U/s 139(1) has expired., and
2 For each of these two years his total TDS and TCS was more than 50,000/- in each of the year.
This means that even in cases of payments for interest (194A), contract (194C), commission or brokerage (194H), rent (194 I) and professional fee (194 J), these conditions will have to be examined as these sections are not excluded under this new section 206AB
Illustration to Explain the above –
| Stipulated Conditions | Existence of Conditions in the case of | |||||||
| “A” | “B” | “C” | “D” | “E” | “F” | “G” | ||
| 1
|
ITR for FY 2018-19 | Filed | Filed | Filed | Not filed | Filed | Filed | Not Filed |
| ITR for FY 2019-20 | Filed | Filed | Not Filed | Not filed | Not Filed | Filed | Filed | |
| ITR for FY 2020-21
|
Still due
|
Still due
|
Still due
|
Still due
|
Still due
|
Not Filed (Due Date expired) | Not Filed (Due Date expired) | |
| 2
|
Total TDS & TCS in |
|
||||||
| ITR for FY 2018-19 | 55000 | 55000 | 52000 | 40000 | 52000 | 40000 | 40000 | |
| ITR for FY 2019-20 | 60000 | 40000 | 45000 | 45000 | 55000 | 55000 | 55000 | |
| ITR for FY 2020-21 | 52000 | 50000 | 55000 | 50000 | 60000 | 45000 | 60000 | |
| Applica-bility of Higher Rate
|
No | No | No | No | Yes | No | Yes | |
| As ITRs stand filed | As ITRs stand filed | As both the conditions cumula-tively not satisfied. | As TDS in both the qualifying years is below 50000/- | As TDS in both the qualifying years is higher but return for one year is not filed. | As cumulative conditions for FY 19-20 and 20-21 not satisfied. | As one of the conditions for FY 19-20 and 20-21 is satisfied. | ||
| Issue – How the deductor would satisfy with existence of stipulated conditions | Section puts onus, for higher deduction, on the deductor. Till such time any online facility to view the ITR filing and TDS/TCS of the deductee is not made available, the deductor should obtain a signed solemn declaration with the details of year wise position of ITRs filed (with Acknowledgment No) and amount of TDS and TCS deducted in his case. | |||||||
For any clarification may be contacted at info@maheshandco.com
The presentation is very excellent and is very clear to understand the new complex provisions.
On the whole the sellers are relived of their obligation with the insertion of Sec 194Q.
Under “Impact of Sec 206AB Applicable from 01/07/2021” and Para 1, it should have been “If the Deductee ….” and not “If the Deductor…”