Regarding applicability of provisions of section 194Q and 206C(1H) of Income Tax Act, 1961 w.e.f 01.04.2022.
206C(1H):
Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F )or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent. of the sale consideration exceeding fifty lakh rupees as income-tax:
The sub-section prescribes that every person being a seller whose turnover in the previous financial year exceeds 10 crores, makes sales of goods whose value, in aggregate exceeds 50 lakhs, shall collect tax at source (TCS) at 0.1% on the value of sales consideration exceeding 50 lakhs from the buyer.
Key takeaways:
> Turnover of the Seller in previous financial year should be 10 crores or more.
> TCS at 0.1% is to be charged on consideration value in aggregate received from customer, exceeding 50 lakhs.
> Consideration upto 50 lakhs from a customer is exempt from the provisions of this sub-section.
> The collection is required to be made at the time of receipt of sale consideration but practically TCS is being charged on invoices at the time of sale, beyond 50 lakhs. In case of advance receipt, TCS should be collected at the time of such receipt.
> TCS is to be collected on value inclusive of GST.
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—
(a) tax is deductible under any of the provisions of this Act; and
(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.]
The above section applies to any buyer who is responsible for paying any sum to any resident seller for purchase of any goods of the value or aggregate of value exceeding fifty lakhs rupees in any previous year. The buyer, at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier, required to deduct an amount equal to 0.1% of such sum exceeding fifty lakh rupees as income tax.
Key takeaways:
> Turnover of the Buyer in previous financial year should be 10 crores or more.
> TDS at 0.1% is to be deducted on purchase value in aggregate exceeding 50 lakhs.
> Purchase or credit upto 50 lakhs is exempt from the provisions of this section.
> TDS is to be deducted on value excluding GST.
What is to be done in case of cross application of provisions of 206C(1H) and 194Q ?
1. Under second proviso to sub section (1H) of section 206C of the Act, the provisions of this sub-section shall not apply, if the buyer is liable to deduct TDS at source under any other provisions of this Act on the goods purchased by him from the seller and who has deducted such tax.
In other words, if a transaction is both within the purview of section 194Q as well as 206C(1H) of the Act, the tax is required to be deducted under section 194Q of the Act. The transaction shall come out of the purview of sub-section (1H) of section 206C, after the tax has been deducted by the buyer on that transaction.
| Scenario | Buyer’s turnover
in previous FY |
Seller’s
turnover in |
Who shall be the deductor/collector |
| 1. | 12 cr | 14 cr | Buyer(TDS) |
| 2. | 12 cr | 5 cr | Buyer(TDS) |
| 3. | 5 cr | 11 cr | Seller (TCS) |
| 4. | 7 cr | 6 cr | TCS/TDS
provisions not |
Course of action:
In respect of sales/customers:
Obtain declaration from customers, subject to 50 lakhs condition, requiring the following information:
| S.no. | Particulars | Please tick (as applicable) |
| 1. | The turnover of the entity exceeds Rs. 10 crore during FY 2021-22 and accordingly it shall deduct TDS u/s 194Q of Income Tax Act. | |
| 2. | The turnover of the entity is less than or equal to Rs. 10 crore during FY 2021-22. |
In case ‘option 1’ exercised by customer, it shall deduct TDS, hence TCS not to be collected by seller.
In case ‘option 2’ exercised by customer, seller shall collect TCS
In respect of purchase/suppliers
Provide declaration to supplier, subject to 50 lakhs condition, specifying the following:
‘That our turnover in previous financial year has exceeded 10 cr and we shall be deducting TDS on purchase made by us and request you to stop collecting TCS against supplies made by you’.
Declaration format for your kind reference.
DECLARATION FORM
I, ________________________________ (name of authorised signatory) on behalf of
M/s (name of the entity) (hereinafter
referred to as “theentity”) having PAN Number
and Business Partner number(s)*
authorised by the entity, do hereby make following declaration:
Declaration on Turnover of FY 2021-22 for applicability of TCS/TDS provisions for FY 2022-23
| S.No. | Particulars | Please tick
(As applicable) |
| 1. | The turnover of the entity exceeds Rs. 10 crore during FY 2021-22 and accordingly it shall deduct TDS u/s 194Q of Income Tax Act | |
| 2. | The turnover of the entity is less than or equal to Rs. 10 crore during FY 2021-22 |
Declaration on Filling of Income Tax Return
| S.No. | Financial Year | Assessment Year | Whether ITR Filed
(Yes/No) |
ITR Acknowledgement Number | Date of Filing |
| 1. | 2019-20 | 2020-21 | |||
| 2. | 2020-21 | 2021-22 |
The particulars of Income Tax Return and turnover as mentioned above are correct. If any statement is found untrue, I/we shall be liable to indemnify M/s _____________________(hereinafter referred to as “the Company”) for any demand/penalty/interest from Income Tax Authorities imposed on the Company for any non-compliance/ wrong compliance.
Declaration to be furnished on Company/Firm Letter head duly signed and stamped by authorised signatory.
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