Section 206C(1H) of Incoem Tax Act, 1961 is already applicable from 01-10-2020 and Section 194Q will be applicable from 01-07-2021 Article explains Section 206C(1H) and Section 194Q considering confusions prevailing currently in industry regarding TDS & TCS under both these sections. Article also contains PICTORIAL FLOW CHART OF INTERPLAY BETWEEN Section 194Q VS Section 206C(1H).
First let me tell you my experience with Section 206C(1H) related to TCS on Sale of Goods.
As per Section 206C(1H), A Seller, Having more than Rs. 10 Crores turnover in preceding financial year, is liable to collect TCS from Buyer on Sale of any goods; if amount received from buyer is crossing Rs. 50 lacs.
When TCS on sale of goods introduced u/s 206C (1H) from 1st October 2020, In Industry, There was so much Confusion & Havoc AS if It is completely new taxation introduced. From October -2020, I received calls like hundreds of calls daily just for asking “how to levy TCS? Whether in Invoice or In Debit Note? Whom it is applicable? How to practically implement it?? Trust me still confusion prevails. I am sure all consultants would have felt same. I am still receiving many calls for this.
As per provision, TCS was to be collected on “collection amount received over Rs 50 lacs”. But ALL the big companies started charging TCS on invoices issued from 1st October 2020 only. Even, Proper method would have been “Monthly Debit note” to collect it from Buyer but All Big companies started charging on Invoices. Remember, at year end, Total Amount of Invoices issued and Collection received from buyer will be different.
Even, currently there are numerous confusions amongst all Taxpayers having Turnover more than rupees 10cr
Some are charging on invoice, some are collecting by monthly debit note
Some started collecting from Day 1 (even in FY 21-22)
Some are waiting for collection to be crossing Rs. 50 lacs
Some are waiting Invoices total to be Rs. 50 lacs
Some are not even collecting and waiting for year ending to decide.
This confusion could have been avoided if Provision u/s 206C(1H) would have drafted giving emphasis on INVOICES amount (rather than COLLECTION amount) because all follow mercantile method of accounting and It would have been easy for us to reconcile with 26AS as 26AS would have shown Purchases amount that can be tallied easily with Ledger in books. But unfortunately, really bad drafting without any vision.
NOW, let’s talk about 194Q. From, 1-7-2021, again more confusion will be added in this because 194Q will be applicable.
As per 194Q, section 194Q, ‘buyer’ having turnover exceeding Rs. 10 Crores in the immediately preceding Financial Year require to deduct TDS on liable to deduct TDS at the rate of 0.1% of the purchase value above INR 50 Lakhs at the time of Payment or credit, whichever is earlier.
WHEN 194Q & 206C(1H) will be both simultaneously operational, there will be TOTAL MESS. It will such state that is most confusing for all and endless ping pong between Seller and buyer. It is Going to very messy.
Yes, As per provision, TDS 194Q will have priority over TCS 206C(1H) if on transaction both sections are applicable to buyer & seller respectively. It means that where a buyer is liable to deduct TDS on a purchase transaction under Section 194Q, the seller shall not collect TCS on same transaction on which buyer has already deducted TDS. In other words, the buyer shall have the primary and foremost obligation to deduct the tax.
In theory this is simplistic, But in Practical life, It will be first confusing amongst both to decide whether seller will collect TCS or whether buyer has to deduct TDS. Both need to communicate and convey their side of applicability status
Already TCS Has made mess. I really request Govt. to do away with section 194Q And make only 206C(1H) applicable or vice versa. Otherwise, Each buyer supplier wise, each transaction, you have to decide each time whether which provision will be applicable to whom. Liability will be shifted from one to other on case to case basis. There won’t be any straight way.