Last year the Budget 2020 came with an additional compliance on part of the sellers to collect TCS u/s 206C(1H) as was announced by the Hon. Finance Minister . Now with the rolling out of this Budget, the impetus has been shifted upon the buyer.
However, with the introduction of this New Section194Q, following questions might be lingering in the minds of the taxpayers:
Is the buyer only liable to deduct or can the seller can also be held liable to collect TCS if the buyer does not come under the purview of Section 194Q? What is the rate on which tax is to be deducted? What is the effective date of implementation? And lastly, how would the deductor/collector get to know about the ITR filing by the party they are dealing with?
All of these will be answered below sequentially:
Revisiting the TCS Provision as was rolled out from 1.10.2020
The provision of TCS had come into force with effect from 1 October 2020 and according to it if your turnover was more than Rs.10 crores in the previous financial year i.e. the year ended 31 March 2020, then you would have to collect and deposit TCS on your receipts from sale of goods from such buyers from whom you received more than Rs. 50 Lakhs as sale consideration during the Financial year. The TCS was payable on the amount of receipt which is greater than Rs.50 Lakhs and received after 1st. Oct. 2020. The rate of TCS was 0.1% and due to Corona Pandemic 25% discount had been given in this tax rate till 31 March 2021 and its effective rate was 0.075%.
Though, this Section 206C (1H) is still applicable it has been overridden by the new provisions of Section 194Q.
Quoting the extract from the Budget Memorandum 2021, Now as per the new provisions introduced,
“It is also proposed to provide that the provisions of Section 194Q shall not apply to,-
(i) a transaction on which tax is deductible under any provision of the Act; and
(ii) a transaction, on which tax is collectible under the provisions of section 206C other than transaction to which sub-section (1H) of section 206C applies.”
Now let us visit the newly introduced Section 194Q :
“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.”
Extract from the Budget Memorandum 2021
“It is proposed to provide for TDS by person responsible for paying any sum to any resident for purchase of goods. The rate of TDS is kept very low at 0.1%. To ensure that compliance burden is only on those who can comply with it, it is proposed that the tax is only required to be deducted by those person (i.e ―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 in which the purchase of goods is carried out. Tax is required to be deducted by such person, if the purchase of goods by him from the seller is of the value or aggregate of such value exceeding fifty lakh rupees in the previous year.”
This means, if on a transaction a TDS (Tax deducted at source) or TCS (Tax collection at source) is required to be carried out under any other provision, then it would not be subjected to TDS under this section. There is one exception to this general rule. If on a transaction TCS is required under sub-section (1H) of section 206C as well as TDS under this section, then on that transaction only TDS under this section shall be carried out. It in an important point to note here.
Thus below is the new rate of TDS u/s194Q as effective from 1st July 2021:
Rate of TDS u/s 194Q
|Where PAN has been provided||0.1%|
|Where PAN has not been provided||5%|
Example related to provision
Now let us try to understand the scope of this TDS provision with the help of an example. Assuming that your turnover for the Financial year ending with 31st March 2020 was more than 10 Crore and purchase of goods by you from the seller is of the value or aggregate of such value exceeding 50 lakhs in the previous year, TDS provisions as mentioned in Section 194Q are applicable on you and it is to be deducted @ 0.1%, where the PAN has been provided to you, and 5% in any other case.
Now let suppose, your turnover does not exceed 10 crore, Section 194Q would not be applicable to you. However if the seller’s turnover exceeds Rs.10crores, then he would become liable to collect TCS under Section 206(1H).
Now definitely, the buyer/seller need to be extra cautious in terms of levying TDS/TCS rates, as a new Section 206AB gives the power to deduct/collect TDS/TCS at higher rates in case the buyer/seller(as the case may be).
The proposed TDS rate in this section is higher of the followings rates:-
Proposed section 206AB of the Act would apply on any sum or income or amount paid, or payable or credited, by a person (herein referred to as deductee) to a “specified person”.
“Specified person” has been defined as a person who has not filed the returns of income for both of the 2 Assessment Years relevant to the 2 Previous Years which are immediately before the Previous year in which tax is required to be deducted or collected, as the case may be.
Further conditions which need to be checked are:
1) Time limit for filing tax return under sub-section (1) of Section 139 of the Act has expired for both these assessment years.
2) Aggregate of tax deducted at source and tax collected at source in his case is Rs.50,000 or more in each of these two previous years.
3) Specified person shall not include a non-resident who does not have a permanent establishment in India.
Also this section shall not apply where the tax is required to be deducted under sections 192, 192A, 194B, 194BB, 194LBC or 194N of the Act. This implies that a higher rate of TDS shall not be applicable on the following sections where full amount of tax is required to be deducted:
192: TDS on Salary
192A: TDS on Salary to Government employees
194B: TDS on Lottery
194BB: TDS on Horse Riding
194LBC: TDS on Income in respect of Investment in Securitization Trust
194N: TDS on Cash Withdrawal in excess of 1 crore.
The Government would provide a new utility on it is Income Tax Software wherein a deductor /collector, on entering the PAN of the buyer/seller, would get the details of his ITR Filing.
However, as a prudent practice the assesse should keep a copy of the supplier’s ITR for the preceding two Financial Years as a confirmation to accordingly deduct/ collect TDS/TCS as per the applicable rate.
This provision might be an additional burden on the taxpayer, however it is an additional step taken by the Government in order to catch people who do not file their ITRs even when their tax has been deducted/collected and is shown in 26AS.
Therefore, in view of the above provisions, if you are falling under the purview of Section 194Q(if you are a buyer of goods) or Section 206(1H)(if you are a seller of goods), in either case , from 1st July 2021, you need to check whether the counterparty has filed its ITR or not for the preceding 2 Financial Years (i.e since the applicability is from 1st July 2021 Financial Year 2019-20 & 2020-21) and if the aggregate of TDS/TCS is Rs.50,000 or more in each of the preceding 2 Financial Years , then TDS/TCS shall be charged at a higher rate u/s 206AB.(except for in Section192, 192A, 194B, 194BB, 194LBC or 194N of the Act).
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The views expressed and the analysis shown in the article solely belong to the author and might not necessarily reflect the official position..