Section 194Q- Businesses to have tougher luck in the world of compliances from 1st July, 2021

The world was already not a great place to live in for businessmen with all the compliances, and with introduction of yet another TDS Section 194Q, it surely has become worse.

The Income Tax Act, 1961 known for its volume is now all set to adopt 194Q from 1st July, 2021.

The section seems to be similar to Section 206C (1H) which was introduced on 1st October, 2020.

So, for a better understanding, let’s analyse the two sections in tandem.

Basis of Comparison 194Q 206C (1H)
Date of coming into effect 1st July, 2021 1st October, 2020
Casting liability on Buyer (Payer of money) Seller (Collector of money)
1st condition for applicability Turnover in preceding FY was more than 10 Crores
2ndcondition for applicability (to be checked Party-wise)(only when 1stcondition apply) Purchased goods worth more than 50 Lakhs in a FY (not applicable for any service) Sold goods worth more than 50Lakhsin a FY (not applicable for any service)
Over-riding effect The section is not applicable when TDS/TCS is applicable under any section except TCS u/S 206C (1H) i.e. the section is the weakest amongst all section but stronger than 206C (1H) The section is not applicable when TDS/TCS is applicable under any section i.e. the weakest section of all
Exemption When seller is :-

1. Non- resident i.e the buyer has imported goods

2. A person notified

When buyer is :-

1. An importer

2. A Central/ State Govt, Local Authority,Embassy, etc

3. A person notified

Rate of Tax and value on which to be calculated 0.1% of sum (over and above 50 lakhs with a party in FY)
On excluding GST amount On including GST amount
Rate of Tax (PAN not available) 5% of sum (over 50 lakhs) 1% of sum (over 50 lakhs)
GENERAL TDS/ TCS PRINCIPLES AND PROVISIONS –
Point of Taxation Date of Payment or Date of credit (Invoice) in the books of account, whichever is earlier Date of Receipt of Money (For convenience, may add with invoice itself – Date of Debit)
Due Date of Payment 7th day of the month succeeding the month to which relates (For March month – 30th April) 7th day of the month succeeding the month to which relates (No relaxation for March month)
Due Date of return filing 30th day of the month succeeding the quarter (For March Quarter – 31st May) 15th day of the month succeeding the quarter (For March Quarter – 15th May)
Interest and Late Fees Interest on late payment – 1.5% per month or part thereof Return Late Fees – Rs. 200 per day (Max upto TDS/ TCS Amount)

Let’s draw a synopsis with some examples:

T/O Buyer in preceding FY T/O Seller in preceding FY Total Value of Transaction in FY Applicability of Section Rate of Tax

< 10 Crores < 10 Crores Neither of them is applicable (since 1st condition of eligibility is not fulfilled)

> 10 Crores < 10 Crores < 50 Lakhs Neither of them is applicable (since 2nd condition is not fulfilled)
< 10 Crores > 10 Crores < 50 Lakhs Neither of them is applicable (since 2nd condition is not fulfilled)
< 10 Crores > 10 Crores 60 Lakhs 206C (1H) (since turnover of buyer is less than 10 crores and he is not liable to deduct TDS) 0.1% of (60-50)
> 10 Crores < 10 Crores 80 Lakhs 194Q (since the 1st and 2nd condition for eligibility to Section 194Q has been fulfilled) 0.1% of (80-50)
> 10 Crores > 10 Crores 90 Lakhs 194 Q (since the 1st and 2nd condition for eligibility to both Section 194Q and 206C(1H) has been fulfilled, 194Q overrides 206C (1H)) 0.1 % OF (90-50)

 

When Other TDS/ TCS Sections are also applicable:

Applicable Sections Prevailing Section
TCS 206C(1H) [Goods] and TCS 206C(1F) [Motor Vehicles] TCS 206C(1F)
TCS 206C(1H) [Goods] and TCS 206C(1F) [Motor Vehicles] and TDS 194Q TCS 206C(1F)
TDS 194Q and TCS 206C(1H) TDS 194Q
TDS 194Q and TDS 194O TDS 194O

Tentative Action Plan

1. Check whether you are “BIG” person – means your Turnover in previous FY was > 10 crore

2. If no, you don’t have to worry for these sections(others may deduct your TDS/ collect TCS)

3. Make a list of your suppliers with whom yearly purchases exceeds 50 lacs – You will have to deduct their TDS @ 0.1% – Tell them to stop adding TCS in the invoices as 206C(1H) not apply

4. Make a list of your buyers and ask them if they will start deducting your TDS @ 0.1% – If yes, don’t collect TCS from them. If no, then check if the yearly sales to them exceeds 50 lacs – you will have to collect TCS @0.1%

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Qualification: CA in Practice
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Location: Raipur, Chhattisgarh, IN
Member Since: 15 Mar 2019 | Total Posts: 3

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