TDS on Purchase or TCS on Sale: Hassle?

People generally refer hassle as an irritating inconvenience. And the taxpayers are facing a similar inconvenience to apprehend the applicability of the provisions of TDS on Purchase or TCS on Sale on a single transaction.

Last year in Finance Act 2020, Government has introduced Sub-Section (1H) in Section 206C which provide for the collection of Tax (TCS) by seller from the amount received as consideration for sale of goods exceeding Rs 50 Lacs in any previous year. Also, this section is applicable if the Turnover of seller exceeds Rs 10 crore in the financial year previous to the financial year in the transaction took place.

Similarly in Finance Act 2021, Section 194Q is introduced which provides for deduction of Tax (TDS) by purchaser on purchase of goods exceeding Rs 50 Lacs in any previous year. Section 194Q is applicable if the turnover of buyer exceeds Rs 10 crore in the financial year previous to the financial year in the transaction took place. This Section is applicable with effect from 1^st of July 2021.

Now the predicament arises when the turnover of both the buyer and seller exceeds Rs 10 crores and both are liable to comply under their respective provisions; as the sale and purchase are flipside of a transaction.

Section 194Q(5) clearly mentions that no tax is required to be deducted if tax has already been deductible under any other provision of this act or tax is collectible under Section 206C [other than a transaction on which tax is collectible under 206c(1H)]. Also, second proviso to Section 206C(1H) states that no tax is collectible under this sub section if the buyer is liable to deduct tax under any other provision of this act on the goods purchased by him from the seller and has deducted such amount.

Now if we explicate the two provisions mentioned in the above paragraph simultaneously, In Section 194Q(5) buyer is not excluded from deducting tax on a transaction on which seller is liable to collect tax under Section 206c(1H) but Section 206c(1H) clearly excludes a transaction on which tax has already been deducted under Section 194Q.

Thus, we can assuredly say that Buyer has the first and foremost liability to deduct tax on such transactions and no tax is required to be collected by the seller. But if in case the buyer defaults, the seller will be liable to collect tax on the such transaction.

If the buyer defaults in deducting the TDS and even if the seller comply in collecting the TCS, the buyer will certainly have to face disallowance under section 40(a)(ia) and penal consequences for non-deduction of TDS.

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The Author is a member of the Institute of Chartered Accountants of India. He can be reached at mahajangupta.ca@gmail.com & +91 87158 10000

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