The hot topic of discuss in all tax forums is deduction of tax on purchase of goods. Why is this provision in place now when already TCS was being collected by Suppliers from their buyers from October 2020? TCS all this while was applicable all sellers whose turnover was above 10 Crores and the responsibility of collecting tax from the buyer was with the supplier.
Out of the entire population, only 1.6% of the population pays tax and rest the percentage says it all. The government wants to bring in as many taxpayers possible into the tax net and hence the provisions have been made more stringent by deducting upfront 0.1% TDS on the purchase price paid to the supplier by the buyer. Hence the new TDS provision makes the buyer responsible for deducting taxes whereas the old TCS provisions makes the supplier responsible for collecting taxes
The common question posted is whether TCS and TDS shall be applicable on the same transaction?
TDS u/s 194Q overrides 206C(1H). Hence any transaction on which TDS shall be applicable TCS shall not be collected. Hence if TDS is deducted for a supplier, the respective supplier shall not charge TCS.
No. Govt has brought in this TDS provisions only for more than a medium sized buyer having turnover more than 10 Crore. Hence a buyer who doesn’t have a turnover of more than 10 crore, the supplier will still continue to collect TCS in his invoices.
Hence if a buyer doesn’t have more than 10Cr turnover the seller would be collecting TCS and if the buyer has more than 10 Cr turnover, the buyer would be charging TDS. Thereby covering all sellers and buyers under TCS and TDS itself. Now with this process, the government would be aware of the tax deductors and the tax credits of buyers and sellers thereby expanding the scope for bringing such taxpayers into tax net.
If the buyer/seller meets the two conditions:
Then such person is a specified person and TDS /TCS shall be deducted /collected at a higher rate of 5%
This is also a part of the initiative to make the non-compliant dealers compliant with Income Tax Laws.
Hence this TDS provision though may not be a welcoming provision in the industry as it involves a lot of change in the process and system amidst all the pandemic and shortage of manpower, in a long run it may help the government identify the transactions in a transparent way. On the revenue part of the government, it shall be a beneficial one as they receive upfront tax of every transaction at the time of transaction and does not have to wait till they file returns.
It may be a beneficial provision for the government 😉