Understand the interplay between TDS under section 194Q and TCS under section 206C(1H) in the Income Tax Act. Learn the basic provisions and applicability of these sections on both the purchase and sale of goods.
Finance Act, 2020 had inserted sub-section (1H) in section 206C of the Act relating to TCS on sale of goods whereas Finance Act, 2021 inserted a new section 194Q to the Income Tax Act relating to TDS on purchase of goods. Introduction of these standards have created a burden on the taxpayers as it impacts on both purchase and sale of goods. Therefore, it is important to understand the basic provisions and the applicability of both the sections.
Section 206C(1H)- TCS on Sale of Goods
According to this provision, a seller whose turnover is above Rs 10 crore is required to collect tax, when he receives an amount as consideration for the sale of any goods of the value or aggregate of such value exceeding Rs 50 lakh from one buyer in any previous year. The sum to be collected shall be equal to 0.1% of the sale consideration exceeding Rs. 50 lakhs rupees as income tax.
It is to be noted that the TCS should be collected at the time of receipt of the amount of sales consideration.
Note:
1. Seller is defined as the person whose total sales or gross receipts or turnover from the business carried on by him exceed Rs.10 Crore rupees during the financial year immediately preceding the financial year in which the sale of a good is carried out”.
2. No TCS applicable in the following cases:
- Buyer is Central/State Government, local authority, Embassy, High Commission, legation, Consulate of foreign state
- If TDS is deducted under any other provision on the said transaction.
Section 194Q- TDS on sale of Goods
According to this provision, any buyer who is responsible for paying any sum to any resident seller for the purchase of any goods of the value or aggregate of value exceeding Rs.50 lakh rupees in any previous year, then, he shall at the time of credit of such sum to the account of the seller or at the time of payment whichever is earlier, is required to deduct an amount equal to 0.1% of such sum exceeding Rs. 50 lakh rupees as income tax.
Note:
1. A buyer is defined to be a person whose total sales or gross receipts or turnover from the business carried on by him exceed 10 crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out.
2. No liability in following scenario:
- TDS is deducted under any other provisions or TCS is collectible except u/s 206C(1H)
- In relation to transactions involving purchase of immovable property If seller is Central/State Government, Reserve Bank of India, corporations established by Central Act which are exempt from Income Tax and Mutual Funds covered under section 10(23D)
- Any other person as Government may notify
As per Circular No. 13/2021, if, for any reason, TCS has been collected by the seller u/s 206C(1H) of the Act, before the buyer could deduct TDS u/s 194Q of the Act on the same transaction, such transaction would not be subjected to TDS again by the buyer. This concession is provided to remove difficulty, since rate of tax deduction and collection are same in both these sections.
Summary of Section 206C(1H) and 194Q of the Act
| Particulars | TCS u/s 206C(1H) | TDS u/s 194Q |
| Applicable if | Turnover during previous year exceeds Rs. 10 Crore | Turnover during previous year exceeds Rs. 10 Crore |
| Applicable to | Seller | Buyer |
| Applicable on | Sale of Goods | Purchase of Goods |
| Rate of Tax | 0.1% | 0.1% |
| Rate of Tax without PAN | 0.1% | 5% |
| Non-Applicability | TDS deducted under any other sections | – TDS deducted under any other sections
– TCS collected under Section 206C (except 206C(1H) |
| Time of Deduction/Collection | At the time of receipt | Payment or credit whichever is earlier |
| Due Date of Deposit | 7th of the Next Month | 7th of the Next Month
For the m/o March- 30th April |
| Certificate to be issued | Form 27D | Form 16A |
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