The Article is meant to have a deep insight into the Provisions of Section 194Q vis a vis Section 206AB and Section 206CCA read with Sub Section (1H) of Section 206C of the Income Tax Act, 1961. The author has made a humble attempt to touch the relevant topics on the subject. But since the insertions are very new and will become effective on and from 1st July, 2021 only, clear legal impact of the provisions and stands to be taken by the Department on the basis of facts of each case is a matter to attain more clarity over time. The readers may please point out to the author any possible improvement in the materials taken into account by him.
SECTION 194Q, SUB SECTION 1: AS PER BARE ACT
‘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.’
As per Explanation to Section 194Q (1), “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”
Section 194Q has been inserted into the Statute Books by the Finance Act, 2021 to be effective from 1st July, 2021.
IMPACT:
The Section puts the burden of TDS on purchase upon the Buyer as defined in the Explanation to Sec 194Q (1). The TDS will be applicable if and only if the following conditions are fulfilled:
1. It is applicable to any person whether it is an Individual, Partnership, Company, Limited Liability Partnership or any other form of purchaser who satisfies the definition of a person and a Buyer under this Section.
2. The TDS referred to is applicable on purchase
3. The purchased item must be “Goods”, i.e., the purchased item must be used for resale or further processing into a further product for sale.
4. The aggregate value of purchase from the seller exceeds Rs. 50 lacs in any previous year.
5. TDS shall be deducted at the time of credit of such sum to the account of the seller or at the time of payment thereof in any mode, whichever is earlier.
6. Rate of TDS shall be 0.1% of such sum exceeding Rs. 50 lacs.
7. The aggregate sales, gross receipts or turnover from the business carried on by the buyer exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out.
IMPORTANT ISSUES:
Some important and pertinent issues cannot be ignored in this context:
1. TDS is applicable on purchase of goods. The word Goods have not been defined in the Section. So, a normal meaning of the word as defined in the Sale of Goods Act, 1930 may have to be relied upon. The said Act defines goods as every kind of moveable property. other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. It means if the Buyer is a dealer even in Securities (i.e., stocks and shares), then TDS shall become applicable if other parameters are met with even if the Integrated Goods and Services Act, 2017 exclude Securities from the definition of Goods.
2. Goods purchased not for sale or use in manufacture of saleable goods may not be covered under this Section like Capital Assets purchased for use in business like Office Accommodation, Plant and Machinery etc.
3. Payment for Services not involving purchase of goods shall not be covered under this Section for TDS. Like Services from a Contractor not involving purchase of goods.
NON-APPLICABILITY:
Transactions to which Section 194Q does not apply:
i. Where Tax is deductible under any provision of the Income Tax Act, 1961
ii. Where Tax is collectible under the provisions of Section 206C. However, this exemption does not apply in a case where a transaction is covered under Section 206C, Sub Section 1H of the Income Tax Act, 1961.
CASE OF NO PAN AND/OR NON-FILERS OF I T RETURN:
The Section 194Q must be read with the Section 206AA and 206AB of the Income Tax Act, 1961.
Section 206AA:
Section 206AA of the Indian Income–tax Act, 1961 (the Act) provides that if PAN is not furnished by the payee, the withholding tax rate would be 20% or the rate in force, whichever is higher. The mandatory requirement to furnish PAN poses an undue hindrance for non-residents. Where the Tax to be deducted under Section 194Q, the above rate of 20% will be deemed as replaced by 5%. This amendment as to 5% have come wef 1st July, 2021.
AMBIGUITY:
The words and phrases in the Section as “deduct an amount equal to 0.1% of such sum exceeding fifty lakh rupees” are a bit confusing as to whether the TDS will be applicable to entire sum of Rs. 50 Lacs or on the sum exceeding Rs. 50 Lacs i.e., the balance above Rs. 50 Lacs. This matter needs clarification. Pending clarification, for the purpose of safety, TDS should be applied to entire sum when it exceeds Rs. 50 lacs.
A simple format of declaration by Deductee under Section 206AA can be as under:
| NAME | TRADE NAME | ADDRESS | PAN |
SECTION 206AB (With effect from 1st July, 2021)
AS PER BARE ACT:
206AB. Special provision for deduction of tax at source for non-filers of income-tax return.
(1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192, 192A, 194B, 194BB, 194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person (hereafter referred to as deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely: —
(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.
(2) If the provisions of section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA.
(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 deducted, 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:
Provided that the specified person shall not include a non-resident, who does not have a permanent establishment in India.
Explanation. —For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.’.
KEY INTERPRETATIONS OF SECTION 206AB
1. The Section 206AB overrides any other provision of the Income Tax Act where tax is required to be deducted at source under the provisions of Chapter XVIIB excluding sections 192 (TDS on Salary), Section 192A (TDS on Withdrawal from PF), Section 194B (TDS on winning from Lottery, Cross Word Puzzle or Card Game), Section 194BB (TDS on Winnings from Horse Race), Section 194LBC (TDS on Income payable to a resident investor in respect of investment in a securitisation trust covered by Clause (d) of Explanation after Section 115TCA) or 194N (TDS on cash Withdrawals from Bank Account)
2. Where TDS becomes applicable under both Section 206AA and 206AB, the TDS shall be applicable at the higher of the rates as laid down in Section 206AA and Section 206AB. That means if a person in not filing any Return of Income for two latest assessment years for which due date of filing the returns U/S 139(1) has expired and the aggregate of TDS and TCS in his case was Rs 50000/- or more in each of those two assessment years and moreover the person also does not have a PAN or could not furnish his PAN to the deductor, than the rate of TDS will be governed by Section 206AA automatically and will be reckoned at 20% and not 5% in all cases where TDS should have been deducted under Chapter XVIIB without any exclusion.
Note: That means, if a person could not furnish PAN to the Collector but is filing Return of Income regularly, 206AA will become applicable, but however if he has furnished the PAN but not filing the Return of Income on regular basis as required U/S 206AB, Section 206AB will come into operation.
3. Specified Person means any person who has not filed his I T Return for two latest assessment years of which the time limit for filing the same U/S 139(1) has expired and the aggregate of TDS and TCS in his case was Rs 50000/- or more in each of those two assessment years.
Note: It means that a person will be considered as Specified Person under Section 206AB if and only if he fulfils both the negative criteria laid down under the Section at Sub Section 3. If he suffers from only one limitation under Sec 206AB Sub Section 3, he can claim immunity from higher TDS laid down under Section 206AB.
4. As per provision to Sub Section 3, Specified Person shall not include a Non-Resident who does not have a permanent establishment in India.
SECTION 206CC: Before we proceed to discuss about Section 206CCA, an analysis of Section 206CC will be very important. As per the Bare Act, the Section reads as under:
206CC. Requirement to furnish Permanent Account number by collectee.
(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.
(2) No declaration under sub-section (1A) of section 206C shall be valid unless the person furnishes his Permanent Account Number in such declaration.
(3) In case any declaration becomes invalid under sub-section (2), the collector shall collect the tax at source in accordance with the provisions of sub-section (1).
(4) No certificate under sub-section (9) of section 206C shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.
(5) The collectee shall furnish his Permanent Account Number to the collector and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other.
(6) Where the Permanent Account Number provided to the collector is invalid or does not belong to the collectee, it shall be deemed that the collectee has not furnished his Permanent Account Number to the collector and the provisions of sub-section (1) shall apply accordingly.
(7) The provisions of this section shall not apply to a non-resident who does not have permanent establishment in India.
Explanation. — For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.’
An insight into Section 206C (1H) also needs a recall at this moment:
A new section 206C (1H) was introduced by Finance Act 2020 to extend the TCS provisions to the seller of goods. As per this provision, a seller is required to deduct tax at the source on the sale of goods if the aggregate value of such sale exceeds Rs.50 lakh during the relevant financial year. TCS should be deducted at the time of receipt of such an amount. The rate of TCS was 0.1%. However, if the buyer does not provide his PAN or Aadhar No. to the Seller, then the provisions of sub section 1 of Section 206CC shall be read as 1% instead of 5%.
This Sub Section shall not be applicable if the buyer is liable to deduct tax at source under any other provision of the Act on the goods purchased by him from the seller and has deducted such amount. But in a case where the items are not “Goods” for the buyer but “Goods” for the seller, then since the Buyer will not be required to deduct TDS, TCS provisions under this Sub Section will again become applicable automatically. TCS under this Sub Section shall be on receipt basis and hence even on advances or part payments, TCS will be applicable if the related bill has not yet been recorded in the books of account.
SECTION 206CCA (With effect from 1st July, 2021): In line with Section 206AB, similar provisions have been made for Tax Collection at Source under Section 206CCA with effect from 1st July, 2021.
AS PER BARE ACT:
206CCA. Special provision for collection of tax at source for non-filers of income-tax return.
(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:
Provided that the specified person shall not include a non-resident, who does not have a permanent establishment in India.
Explanation. —For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.’.
KEY INTERPRETATIONS OF SECTION 206CCA
1. The Section 206CCA overrides any other provision of the Income Tax 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 (Tax Collector) from a specified person.
2. Where TCS becomes applicable under both Section 206CC and 206CCA, the TCS shall be applicable at the higher of the rates as laid down in Section 206CC and Section 206CCA. That means if a person in not filing any Return of Income for two latest assessment years for which due date of filing the returns U/S 139(1) has expired and the aggregate of TDS and TCS in his case was Rs 50000/- or more in each of those two assessment years and moreover the person also does not have a PAN or could not furnish his PAN to the collector, than the rate of TCS will be higher of the rates laid down in Section 206CC and 206CCA.
Note: That means, if a person could not furnish PAN to the Collector but is filing Return of Income regularly, 206CC will become applicable, but however if he has furnished the PAN but not filing the Return of Income on regular basis as required U/S 206CCA, Section 206CCA will come into operation.
3. Specified Person means any person who has not filed his I T Return for two latest assessment years of which the time limit for filing the same U/S 139(1) has expired and the aggregate of TDS and TCS in his case was Rs 50000/- or more in each of those two assessment years.
Note: It means that a person will be considered as Specified Person under Section 206CCA if and only if he fulfils both the negative criteria laid down under the Section at Sub Section 3. If he suffers from only one limitation under Sec 206CCA Sub Section 3, he can claim immunity from higher TCS laid down under Section 206CCA.
4. As per provision to Sub Section 3, Specified Person shall not include a Non-Resident who does not have a permanent establishment in India.
ONUS TO IDENTIFY ‘SPECIFIED PERSON’ PUT ON TAX DEDUCTORS/COLLECTORS
In view of the onus having been on the Tax Deductor or Tax Collector, they will have to bear an additional burden of identifying the SPECIFIED PERSON under Section 206AB and Section 206CCA of the Income Tax Act, 1961. The Central Board of Direct Taxes has already issued a Circular No. 11 of 2021 F. No. 3701331712021-TPL dated 21st June,2021 notifying the use of functionality under these two sections. A new functionality for COMPLIANCE CHECK FOR SECTION 206AB AND SEC 206CCA has been made available through the REPORTING PORTAL of the Income Tax Department. The address of the portal is https://report.insight.gov.in/reporting-webapp/portal
The tax deductor/collector can check from the functionality if any deductee/collectee is a specified person through the mechanism of PAN based search. Moreover, for additional safety, a declaration can be taken by the Deductor/Collector from the Deductee/Collectee about the applicability or non-applicability of relevant sections to them.
A customisable format of said self-declaration is appended below (to be taken on the letter head of the Deductee/Collectee)
| To,
The Officer in Charge ………………………………. (Name of Deductor/Collector) …………………………………. (Address) SUB.: SECTION 206AB AND 206CCA OF THE I T ACT, 1961 -CONFIRMATION OF FILING OF IT RETURN Dear Sir/Madam, This is in reference to Section 206AB and Section 206CCA of the Income Tax Act, 1961 coming into effect from 1st July, 2021 prescribing higher rate of TDS/TCS of the Act. We provide below the status of our Income Tax Return for two latest Assessment Years for which the due date of filing Return U/S 139(1) has already expired. On that basis, higher rate of TDS/TCS is Applicable/Not Applicable to us (strike out whichever is not applicable)
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In view of the various ifs and buts in all these provisions of the Act regarding TDS on Purchases or TCS on Sales, both the Buyer and the Seller will have to be very careful in applying the proper provisions of TDS/TCS as may be applicable under particular circumstances to avoid any future complications from the Department. They should also keep note of the fact that at times TDS under Section 194Q may not be applicable in case of buyer as Deductor but still TCS may be applicable on the Seller U/S 206CCA of the Act. The testimony of Goods must be fulfilled for TDS U/S 194Q in respect of the buyer but such is not the condition in respect of seller.
DISCLAIMER: The author is based in Guwahati and is a Practising Chartered Accountant. The information contained in this Article is merely to provide an independent analysis of the provisions in a nutshell to the reader. The reader should not consider it as any expert or legal opinion in any matter raised herein. The reader is always advised to seek independent professional advice from his respective consultant before taking any action on specific issues.
Contact No. +91-94350-10021, +91-78966-19967
Mail: suratanin@yahoo.co.in, suratanin1965@gmail.com
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