A new section 194Q (Deduction of tax at source on payment of certain sum for purchase of goods) is inserted by Finance Act – 2021 effective from 01/07/2021.
This new section 194Q has given rise to the question “Whether TCS u/s 206C (1H) of Income Tax is to be collected on receipt of sales consideration above 50 Lakhs or TDS u/s 194Q is to be deducted by the buyer on purchase of goods exceeding Rs.50 Lakhs?”
TCS section 206C(1H) (for brevity hereinafter referred to as TCS provision, unless specified otherwise) was inserted by Finance Act, 2020 and was made effective from 01/10/2020.
TCS provision was made applicable on `Seller of Goods’ who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding Rs.50 Lakhs during a financial year.
“Seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs.10 crore during the financial year immediately preceding the financial year in which the sale of goods is carried out.
It implies for FY 2020-21, Seller means person whose total sales, gross receipts or turnover from business exceeds Rs.10 crore in the FY 2019-20.
Due to limited scope of person falling within the definition of “Seller” U/s 206C(1H), there were instances where consideration received during the year exceeds Rs.50 Lakhs but TCS provision was not applicable because Sales / turnover / receipts from business was less than Rs.10 crore in last year.
Government had also visualize this situation and to bring those type of transactions within the ambit of tax collection / deduction, it introduced section 194Q by Finance Act, 2021.
This TDS section 194Q is very similar to TCS section 206C(1H). However both these sections are mutually exclusive i.e. if one section becomes applicable the other will not apply.
As per section 206C(1H), TCS will not be applicable if buyer is liable to deduct TDS under any other provisions of the Act. On the contrary, section 194Q does not create any such exception for the transactions on which tax is collectible under section 206C(1H).
The provisions of Section 194Q supersedes Section 206C(1H) and imposes primary liability on buyer to deduct tax.
As per section 194Q, Buyer who is responsible for paying any sum to any resident (Seller) for purchase of any goods of the value or aggregate of such value exceeding Rs.50 Lakhs during the year, shall deduct TDS @ 0.10%, on amount exceeding Rs.50 Lakhs.
“Buyer” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs.10 crore during the financial year immediately preceding the financial year in which the purchase of goods is carried out.
Which means for FY 2021-22, Buyer means person whose total sales, gross receipts or turnover from business exceeds Rs.10 crore in the FY 2020-21.
Attached herewith the PPT on Section 194Q and 206C(1H) for better understanding of the Income Tax provisions.