Complete Guide on Section 206C(1H), Section 194Q including TDS/TCS rate in case non Pan/ Non- filer?
An analysis of Section 206C(1H), Section 206CC, Section 206CCA, Section 194Q, Section 206AA and Section 206AB.
All about TCS on Goods
Various discussions are going on about the applicable rate of TCS and TDS on various forums in case of non-furnishing of PAN and/or non-filing of ITR despite TCS/TDS of more than 50k in each of the last two years. Whether TDS/TCS rate is 0.1% or 1% or 5% or 20%? I have tried to simplify it by this article.
To understand the applicable rate of tax we need to check below mentioned sections.
-Section 206C(1H) –TCS on sales of goods above 50 lakhs.
-Section 206CC – Requirement to furnish Permanent Account number by collectee.
-Section 206CCA – Special provision for collection of tax at source for non-filers of income-tax return.
-Section 194Q –TDS on Goods
-Section 206AA and Section 206AB – TDS in case non-furnishing of PAN and non-filing of ITR
As per section 206C(1H) Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:
Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent”, the words “one per cent” had been substituted:
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.
As per Section 206CC(1) Notwithstanding anything contained in any other provisions of this Act, any person paying any sum or amount, on which tax is collectible at source under Chapter XVII-BB (herein referred to as collectee) shall furnish his Permanent Account Number to the person responsible for collecting such tax (herein referred to as collector), failing which tax shall be collected at the higher of the following rates, namely:—
(i) at twice the rate specified in the relevant provision of this Act; or
(ii) at the rate of five per cent.
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As per the proviso to section 206C(1H), TCS rate in the case of non-PAN holder is capped at 1% and not @5% of the amount. However, Finance Act 2021 has introduced new section 206CCA which is as under:
As per Section 206CCA (1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum or amount received by a person (hereafter referred to as collectee) from a specified person, the tax shall be collected at the higher of the following two rates, namely:—
(i) at twice the rate specified in the relevant provision of the Act; or
(ii) at the rate of five per cent.
(2) If the provisions of section 206CC is applicable to a specified person, in addition to the provisions of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC.
(3) For the purposes of this section “specified person” means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be collected, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years:
That means in case the buyer does not have PAN then the TCS rate should be 1% [ as per proviso to section 206C(1H)]. Further, in case purchaser has not complied with section 206CCA i:e if in the ITR has not been filed for last two previous a year and the aggregate of tax deducted at source and tax collected at source is rupees fifty thousand or more in each of these two previous years then the TCS rate should be 5% and not 1% .
Conclusion:- Whenever TCS is to be collected seller needs to check whether PAN no is available if not available in such case TCS should be collected @ 1% and not @ 0.1%. Further, PAN is available or not further to comply with section 206CCA the seller needs to again check whether the purchaser has not filed the ITR for the last two previous years and the aggregate of tax deducted at source and tax collected at source is rupees fifty thousand or more in each of these two previous years if the purchaser has not filed ITR in such case TCS to be collected is @ 5% instead of 0.1%.
All about TDS on Goods
As per section 194Q (1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees 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 thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.
Explanation.—For the purposes of this sub-section, “buyer” means a person 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 in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.
(5) 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.]
Clause 5(b) of section 194Q, where transactions fall under both sections i:e under TCS on Goods [ Section 206C(1H) and TDS on Goods [ Section 194Q] in such case section 194 Q will be applicable and not section 206 C (1H). However, in case of buyer despite applicability of section 194Q defaults only in such case, seller needs to collect TCS [ as per 2nd proviso to section 206C(1H).
Now the question comes up whether TDS on goods is 0.1% or 5% or 20% in case of non-PAN or non-flier of ITR of last two years despite having TDS on more than 50,000 in each of the two years. To understand this we need to now refer to section 206AA and section 206AB.
Section 206AA talks about the requirement to furnish PAN. In the case of non- furnishing of PAN TDS will be higher of below rate:-
(i) at the rate specified in the relevant provision of this Act; or
(ii) at the rate or rates in force; or
(iii) at the rate of twenty per cent:
[Provided that where the tax is required to be deducted under section 194-O, the provisions of clause (iii) shall apply as if for the words “twenty per cent”, the words “five per cent” had been substituted:]
[Provided further that where the tax is required to be deducted under section 194Q, the provisions of clause (iii) shall apply as if for the words “twenty per cent”, the words “five per cent” had been substituted.]
As per section 206AA proviso, the TDS rate will be applicable at 5% instead of 20% in case of TDS on goods, if the PAN is not provided to the deductor.
Further, in the case of section 206AB i:e non-filers of income-tax return of immediately preceding TWO financial years within the time limit prescribed u/s 139(1) and aggregate of TDS deducted and TCS collected in his case is Rs.50,000 or more in each of the two preceding years in such case TDS rate will be higher of below:
(i) at twice the rate specified in the relevant provision of the Act; or
(ii) at twice the rate or rates in force; or
(iii) at the rate of five per cent.
Conclusion:-:- Combine reading of sections 194Q, section 206AA and Section 206AB gives us the impression that TDS Goods is 0.1% but in case of non- furnishing of PAN or non- filing of ITR of last two years despite of TDS deducted and TCS collected in his case is Rs.50,000 or more in each of the two preceding years TDS rate will be 5% instead of 0.1%.
TDS on Goods is to be deducted @ 0.1% and in case non-furnishing of PAN rate TDS on good will be @ 5% instead of 0.1% but if PAN is furnished but ITR of The previous two FY has not been filed despite TDS/TCS of more than 50k in both year in such case also rate TDS on goods will be 5% only and not 20%.
Normally TCS on goods is 0.1% in case of non-furnishing of PAN TCS on goods will be 1% but ITR of previous two FY has not been filed despite TDS/TCS of more than 50k in both years in such cases also TCS on goods will be 5% only
| Details | TDS on Goods | TCS on Goods |
| Normal rate of Tax | 0.1% | 0.1% |
| In case of Non PAN | 5% | 1% |
| In case of Non Filer of ITR | 5% | 5% |
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Thank you Sir for this easy explanation! But what if Sec. 194Q is applicable and both PAN not furnished and ITR default (Specified person)?
Please help.