Department introduced the TCS on sales of goods by introduction of section 206C(1H) w.e.f 1st Oct-2020. Thus bringing the goods under the ambit of TCS. They did not stopped here and went a step further and proposed to introduce TDS on goods by introduction of section 194Q w.e.f from 1st July-21. Thus drastically changing the TDS and TCS provision within a short period of 1 year.
Before we understand the sections 194Q & 206C(1H) and interplay between them lets understand the background of the TDS provision in the Income tax Act.
During the initial years of the Income tax Act, 1961 only few expenses (for the deductor) and income (for the deductee) like salary and interest were under the ambit of TDS under the income tax Act, 1961. This income/expense did not occupied a significant %age of ones P&L. However over a period of six decades a list of sections were introduced to cover almost all the items of P&L. However, except few goods (like scrap/ sale of motor car) purchase and sales were not covered under any of the provision of TDS/TCS. But with the introduction of the section 206C(1H) and 194Q almost all of the line items appearing in the P&L is brought into the ambit of TDS/TCS.
It is also important to understand the rationale why the department keeps on introducing the newer sections under TDS and TCS and expanding the ambit of TDS/TCS . It is relevant to note that out of total revenue from Direct tax ~45% of the tax collection comes from TDS/TCS provisions that to in the most efficient manner. Further, as per the statistics of tax payers in India, it is observed that out of total ~150 crore population the %age of people paying tax is very less. The rough estimate is that only 5% of the Indian population files income tax returns and out of them only 1% of them pays tax. More than 50% of the corporates report NIL tax return. The statistics is an area of concern for the department and in order to plug in the gaps of the tax evasion they came up with the provision of section 206C(1H) and 194Q.
Understanding the provisions
Section 206C(1H) [ w.e.f 1st Oct 2020]
1. Applicable to seller whose turnover >10cr during the preceding FY and sales to a buyer> 50 Lakhs during the current FY.
2. This section is applicable only in case of sale by a resident seller to a resident buyer.
3. TCS rate is collectible @ 0.1% of the sales >50 lakhs to a particular buyer during the current FY. In case buyer does not provide PAN/Aadhar TCS is collectible @1%.
4. TCS is collectible at the time of receipt towards the sale of goods.
5. This section is not applicable in the following cases:
In case of TCS – the value for computing the TCS would be on invoice value including GST or any other tax. Further in case the goods are returned we cannot reverse TCS. The buyer would claim refund in his income tax return. This rule is applicable for other TCS sections also like sale of Motor car.
Section 194Q [ w.e.f 1st July 2021]
1. Applicable to a buyer whose turnover >10Crs during the preceding FY and the purchases from a particular seller >50 lakhs during the current FY.
2. This section is applicable only in case we purchase only from a resident seller.
3. TDS rate is deductible @ 0.1% of the purchases >50 lakhs during the current FY. In case seller does not provide PAN TDS is deductible @ 5%.
4. TDS is deducted on credit or payment whichever is earlier.
5. TDS under section 194Q will not be applicable in cases where TDS/TCS is deducted or collected under any other section. Where any transaction pertaining to goods attract TDS and TCS both. TDS would be applicable
Having said so it appears that both section 206C(1H) & section 194Q is applicable in case of sale of goods. Hence, it becomes very important to understand the applicability and interplay between this 2 section. I have tried to explain the same via a table and flow chart. Please refer to the attachments
|TDS on purchase of goods (194Q)
|TCS on sale of goods (206C(1H)
|Responsibility to Deduct or collect
|Buyer to deduct
|Seller to collect
|Buyer turnover>10 CR in previous FY
|Seller turnover>10 CR in previous FY
|Purchases from a single seller > 50 lakhs during the FY
|Sales to a single buyer>50 lakhs during the FY
(Republished after amendments)