The provisions for 194 Q are for purchase of Goods whereas Section 206C(1H) are for receipts of payments. Both sections increase the Compliance Burden of an Entity in already over crowded calendar.

Basic

Finance Bill has mandated TCS provisions under section 206C(1H)  for `Seller of Goods’ on Receipts and or advance on account of and from Sales of Goods, exceeding Rs. 50 Lakhs as  consideration, during a financial year. Further the “Seller” is defined as a Entity whose gross total sales, gross receipts or turnover from the business carried on by him exceeded  ten crore rupees during the Previous financial year immediately in which consideration / advance  exceeding Rs. 50 Lakh are received.

The Critical threshold criteria to be fulfilled or to be met is the turnover of Rs 10 crores in previous Financial year.

In case , where Seller Turnover is less than Rs 10 Crore but receipts from sales of goods to buyers exceed Rs. 50 Lakh , the turnover threshold being not met does not obligate the Seller to therefore, there was no obligation to collect TCS on seller. To resolve  this situation,  Government has come up with a similar type of provision for Purchaser(Buyer) via TDS applicability u/s 194Q.

Section 194 Q is applicable on purchase of goods only and not Services. 

Extract of the new section 194Q from Finance Act, 2021

 194Q. (1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent. of such sum exceeding fifty lakh rupees as income-tax.

Explanation –  For the purposes of this sub-section, “buyer” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.

(5) The provisions of this section shall not apply to a transaction on which –

  • tax is deductible under any of the provisions of this Act: and
  • tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.’.

Applicability :

TDS section 194Q has been introduced in Budget 2021 and will be applicable from 1st July, 2021.However for the purpose of calculation of threshold limit of Rs 50 Lakhs , the same has to be considered from 1st April 2021.

 TCS section 206C(1H) has been effected from 1st October, 2020

CBDT vide Circular No. 17, dated 29-09-2020, has clarified that since the threshold of Rs. 50 lakhs is with respect to the previous year, calculation of sale consideration for triggering TCS under this provision shall be computed from 01-04-2020.

If a buyer has already purchased goods of value Rs. 50 lakhs or more up to 30-06-2021 from a seller, TDS under this provision shall apply on all purchases on or after 01-07-2021 as the threshold limit is already exhausted.

 These Sections are applicable to :

i. Companies whose Turnover exceeds Rs 10 Crores

ii. and there has to be a Sale/Purchase transaction exceeding Rs 50 Lakhs by and between the Party during the current year.

iii. The threshold limit for turnover for 194 Q for the Company should be calculated for the F.Y 31.3.2021

iv. The threshold limit for turnover for 206C(1H) for the Company should be F.Y. 31.3.2020.

Applicability of both the sections 194Q and 206C (1H) to a transaction:

i. Both the sections are mutually exclusive i.e.; if one will apply other will not be applicable.

ii. Section 206C (1H) states that 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).

iii. The provisions of Section 194Q supersedes Section 206C (1H) and imposes primary liability on buyer to deduct tax. In such a situation, Buyer will have to convey to Seller to refrain from collecting TCS as Buyer will deduct TDS u/s 194Q.

Comparison of TDS under Section 194Q and TCS under Section 206C(1H)

SECTION 194Q SECTION 206C(1H)
Purpose TDS TCS
Who is liable to deduct /Collect Buyer / Purchaser Only Seller
Corresponding party Resident Seller Resident Buyer
Threshold Limit
  • Turnover / Gross Receipt/ Sales from the business of BUYER should exceed Rs 10 crore during the year (FY 20-21) (excluding GST)
  • Turnover/ Gross Receipt/ Sales from the business of SELLER should exceed Rs 10 crore during the year (FY 19-20) (excluding GST)
W.E.F 1st July, 2021 1st October, 2020
Timing of tax deduction Payment or credit whichever is earlier At the time of receipt
Advances TDS shall be deducted on advance payment made TCS shall be collected on advance receipts
Rates
  • 0.1%
  • 5% (If PAN not available)
  • on amount exceeding Rs 50 Lakhs.
  • 0.1% (0.075% for FY 2020-21)
  • 1% (If PAN not available)
  • On receipts / amount exceeding Rs 50 Lakhs
Not applicable to
  • Transactions on which TDS is applicable under other provisions of the act.
  • Transactions on which TCS is applicable under 206C other than 206C(1H)
  • Transaction on which TDS/TCS is applicable under other provisions of the act and the same has been complied with
  • Transactions subject to TDS u/s 194Q will out of ambit of provisions of this section.
Exclusion Yet to be notified by Government
  • If buyer is –
  • Importer of goods
  • Center/State Govt., Local Authority
  • An embassy, High Commission, consulate and trade representation of a foreign state
When to deposit/collect

 

  • Tax so deducted shall be deposited with government by 7th day of subsequent month
  • Tax so deducted shall be deposited with government by 7th day of subsequent month
Form 26Q 27EQ
Certificate to be issued to seller/buyer Form – 16A Form – 27D

 Position in various situation :

Sr No Buyer’s Turnover Seller’s Turnover Transaction Value Applicability of Section Remarks
1 7 Cr 12 Cr 65 Lakhs 206C(1H) Since the Seller’s turnover exceeds Rs 10 Crores and transaction value is exceeding Rs 65 Lakhs TCS is applicable
2 12 Cr 6 Cr 55 Lakhs 194Q The Buyer’s turnover exceeds Rs 10 crores and transaction value is exceeding Rs 50 lakhs TDS is applicable.
3 14 Cr 18 Cr 52 Lakhs 194Q In this case the transaction is applicable to both the parties but 194Q takes precedence over 206C(1H) and hence only deduction is under 194Q.
4 6 Cr 9 Cr 55 Lakhs NA Both the parties turnover is less than 10 crores and hence these provisions not applicable
5 15 Cr 20 Cr 42 Lakhs NA In this example the turnover of both the parties is in excess of Rs 10 crores but interse the transaction is less than Rs 50 Lakhs hence it is not applicable.
6 14 Cr 18 Cr
  •  Purchased goods of Rs 45 lakhs in previous Financial year
  •  Purchased goods of Rs 40 lakhs in another Financial year.
  • payment received Rs 75 lakhs in one year .
206C(1H) The Purchase threshold limit of Rs 50 lakhs is not achieved but the receipt of payment of Rs 75 lakhs in one year triggers provisions of 206C(1H).

Other Issues :

1. Freight , Out of Pocket Expenses :

TDS will be deducted from Purchase invoice which includes Freight , out of pocket expenses as well.  However, if the same is charged through a separate invoice and is on actuals basis, the it will not form part of purchase value for deduction of TDS and for computing the Rs. 50 lakh threshold limit.

2. TDS has to be deducted on advance payment made to the seller:

TDS is to be deducted from any Sum paid for “purchase of goods”. Advance payment is apportioned towards the bill raised for “purchase of goods”. Therefore, advance for payment of goods will also attract TDS.

3. Capital Goods

TDS is to be deducted on purchase of capital goods also. 

4. Service Industry Entity and TDS .

Explanation to provisions of Section 194 Q define a buyer as an entity  whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is made. If the Turnover criteria is met for an entity which is in Service Industry then it has to deduct TDs on Purchase of goods if it exceeds Rs 50 lakhs.

5. TDS is to be deducted on the total invoice value including the GST  

CBDT vide Circular No. 23/2017, dated 19-7-2017, has clarified in respect of GST on Service only and not on Goods, the component of ‘GST on services’ is included in the amount payable to a resident is indicated separately, tax shall be deducted at source on the amount paid or payable without including such ‘GST on services’ component.

However, in respect of Section 206C(1H), the CBDT vide Circular No. 17, dated 29-09-2020, has clarified that since the collection is made with reference to receipt of the amount of sale consideration, no adjustment on account of indirect taxes including GST is required to be made for the collection of tax under this provision.

Similarly, TDS under Section 194Q is to be made with reference to the purchase value, applying the same principle it can be inferred that GST is a part of the purchase value and liable to TDS.

6. TDS on Works Contract for a Consolidated Invoice.

Composite Work Contract involving supply of goods, labour and other services is now classified as a service under the GST Regulations. In case a single consolidated invoice is raised with no bifurcation into value of goods and services, TDS is deducted under provisions of Section 194C and hence as per Section 194Q(5)(a), in case a transaction is subject to TDS under any other provision of the Act then 194Q is not applicable.

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Company: Ajay B Garg
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