Finance Act 2021 introduced section 194Q which is applicable w.e.f. 1st July 2021. As per Section 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.’
In short, conditions to be satisfied for applicability of this section are:-
1. Goods must be purchase from a resident.
2. Goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in any previous year.
3. The turnover of the purchaser shall be more than INR 10 crores in the preceding Financial year. (i.e. to check the applicability of provisons of Section 194Q for FY 2021-22, turnover fo the purchaser during FY 2020-21 shall be more than INR 10 Crores.
4. TDS has not been deducted under any other provisions of the Income Tax Act 1961.
TDS under section 194Q shall be deducted 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. The tax shall be deducted even if the sum is credited to the ‘Suspense Account’.
Whereas Section 206C(IH) pertains to TCS provisions on sale of goods by a buyer. Thus, there may arise a conflict / a lot of doubts whether it will lead to double taxation or a either of the two section will supersede the another one. In this regards, Section 194Q clarifies that no tax is required to be deducted by a person under this provision if tax is deductible under any other provision or tax is collectable under section 206C. Further, second proviso to section 206C(1H) provides as under:-
“Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.”
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.
Now, considering limb of Equalization levy on such transactions, one may conclude that where an e-commerce operator sell goods to an Indian resident who qualifies all the conditions in relation to turnover, the buyer (Indian resident) shall be liable to deduct TDS on such transaction as well. In this regard, Section 194Q provides that a buyer is liable to deduct TDS only where the purchase of goods is made from a resident. So, an e-commerce being a non-resident, applicability of Section 194Q shall not be triggered in such a scenario and equalization levy shall be charged on this such transactions.
In practical scenario, insertion of this section shall pose a difficulty while executing purchase orders and sales. Generally, in order to execute a sale, first, a purchase order is made by the buyer, then the same is executed by seller and goods are delivered to the buyer. But payment by the buyer is not made instantly, in many cases a credit facility is also provided by the seller to buyer. Section 206C(1H) is applicable only at the time of receipt of payment whereas TDS under Section 194Q is applicable at the time of payment of credit in books of account, whichever is earlier.
In such a scenario, an ideal solution would be that a buyer shall deduct TDS at the time of making the purchase order, in case TCS provisions under section 206C(1H) and Section 194Q are applicable in single transaction.
If the turnover of both the seller and buyer exceeds INR 10crores in the preceding FY, but the sales made by seller in October 2021 exceeds INR 50lakhs and purchases made by buyer exceeds the threshold limit provided in the section in January 2021.
In this case, since the receipt of sales by seller exceeds INR 50 lakhs, the seller shall comply with the provisions of Section 206C(1H) and file the TCS return of Quarter 3, FY 2021-22 with TCS being collected on sale proceeds exceeding INR 50lakhs. On the other hand, the buyer shall be under obligation to deduct TDS from January onwards on purchase exceeding INR 50 lakhs. So, there arise a need for a declaration through which the buyer may declare that TDS has been deducted under section 194Q and vice versa for TCS collected by seller under section 206C(1H) so as to ensure that tax has not been deducted on the same transaction twice.
Comparison of Sec 194Q and 206C(1H) of Income Tax Act, 1961
|Purpose||Tax to be DEDUCTED||Tax to be COLLECTED|
|With effect from||01/07/2021||01/10/2020|
|When Deducted or collected||Payment or credit, whichever is earlier||At the time of receipt|
|Advances||TDS shall be deducted on advance
|TCS shall be collected on advance receipts|
|Rate of TDS/TCS||0.1%||0.1% (0.075% for FY 2020-21)|
|PAN not available||5%||1%|
|Triggering point||Turnover/Gross Receipts/Sales from the business of BUYER should exceed Rs.10cr during previous year (Excluding GST)
Purchase of goods of aggregate value exceeding Rs.50Lakhs in P.Y. (The value of goods includes GST)
|Turnover/Gross Receipts/Sales from the business of SELLER should exceed Rs.10cr during previous year (Excluding GST)
Sale consideration received exceeds Rs.50Lakhs in P.Y. (The value of goods includes GST)
|When to deposit/collect||Tax so deducted shall be deposited with government by 7th day of subsequent month||Tax so collected shall be deposited with government by 7th day of subsequent month|
|Quarterly statement to be filed||26Q||27EQ|