TDS (Section 194Q) v. TCS (Section 206C(1H)) – A fight between Right Hand v. Left Hand

With effect from 1st October 2020, Government had introduced Section 206C(1H) i.e. a seller having turnover of more than Rs. 10 Crores in the preceding financial year is required to collect TCS from the buyers from whom receipts exceeds Rs. 50 Lacs for sale of goods during the financial year.

This had already created lot of ambiguities due to the reasons that it was made applicable during the mid of the year, taxability was governed on collection and not on invoices etc.

To overcome this ambiguities, they have introduced another ambiguity called Section 194Q i.e. a buyer having turnover of more than Rs. 10 Crores in the preceding financial year is required to deduct TDS of the sellers from whom invoices or payments exceeds Rs. 50 Lacs for purchase of goods during the financial year

The lawmaker might have thought that by introducing another ambiguity, the earlier ambiguities will get resolved. Might be based on the concept of summation of minus and minus will be plus. Let the due course of time to decide whether it will or it will not.

Now let us understand the same in the detailed manner:

Applicability date:

01st July 2021.

Applicability with regards to Taxpayer:

Section 194Q is applicable only if in previous financial year (For present F Y 21-22, previous F Y will be 20-21), the total sales / gross receipts / turnover from the business excess Rs. 10 Crores. So if turnover in the previous financial year is equal to or less than Rs. 10 Cr then this provision is not applicable.

Kindly note that in both the sections i.e. Section 194Q and 206C(1H) the threshold limit with respect to applicability per se taxpayer is same. So if any taxpayer’s turnover is below this limit then he will be out of ambit of both the sections. And if the threshold limit is crossed then both the sections will be applicable.

Applicability with regards to Transaction:

Following are the exceptions wherein Section 194Q will not be applicable even if turnover in the previous financial year has crossed Rs. 10 Cr.

  • With respect to the individual buyer with whom the purchase of goods doesn’t exceeds Rs. 50 Lacs in the current financial year.
  • TDS is deductible under any other provisions of the Act. it means TDS will be deducted under that respective provision and not under this provision.
  • Tax is collectible under Section 206C except Section 206C(1H).

Who will win in case of fight between 194Q and 206C(1H)

It has been specified under sub section 5(b) that if TDS u/s 194Q is applicable then TCS u/s 206C(1H) will not be applicable. So TDS u/s 194Q will win the fight.

Process to be followed:

As a eligible buyer: – It will be your responsibility. So deduct TDS u/s 194Q.

As a eligible seller: Take a declaration from your buyers that they will deduct TDS u/s 194Q and comply the same, else you need to charge TCS if buyers are not eligible or no such declaration is received or no such treatment is given by your buyers.

Threshold limit of purchase transactions:

As explained above, even if turnover has exceeded Rs. 10 Cr in previous financial year, Section 194Q would not applicable for each purchase transactions in the current financial year.

This provision will be applicable only if purchase with the single buyer exceeds Rs. 50 Lacs in the current year and TDS will be applicable on the purchase amount in excess of Rs. 50 Lacs.

Rate of TDS:

Rate of TDS would be 0.1%.

When TDS is to be collected:

Payment or credit in books whichever is earlier i.e. like other normal TDS provisions.

When TDS is to be deposited with the Govt.

TDS is to be deposited up to 7th of the Next month i.e. for April – 7th May etc, for March – 30th April

When TDS return is to be filed with the Govt.

TDS return is to be filed within one month succeeding the quarter. i.e. for April to June – 31th July and so on.

Difference between TDS (Section 194Q) v. TCS (Section 206C(1H)

Particulars TDS TCS

 

Applicability on Purchase / Payment whichever is earlier Receipt
Return filing period 1 month after end of quarter (2 months after end of quarter for Q4) 15 days after end of quarter
Who will prevail if both applicable TDS will prevail TCS will NOT prevail

 

Difficulties:

After reading this article, it looks so simple. However, there will be lot many practical difficulties once it will become operational. Some issues highlighted below

  • Many taxpayers are charging TCS on invoice and also making the payment of the same on the basis of invoice. Legally it should be on receipt only.

Suppose, you have sales of Rs. 1 Crore to Mr. X, you have charged and paid TCS on Rs. 50 Lacs in F Y 20-21. Amount received only Rs. 30 Lacs. Balance received in F Y 21-22. So ideally, no TCS liability in F Y 20-21. In F Y 21-22 TCS liability will be on Rs. 20 Lacs only i.e. value exceeding Rs. 50 Lacs. So total TCS liability will be on Rs. 20 Lacs only and that to in F Y 21-22.

You have paid in excess in F Y 20-21 but unpaid in F Y 21-22. So what will be the course of action taken by the officer….

  • Now suppose, you are following correct method i.e. paying TCS on receipt only. Now assume balance of debtors is Rs. 60 Lacs as at March 2021.

In F Y 21-22, there is sales of Rs. 80 Lacs and receipt of Rs. 140 Lacs i.e. current sales plus earlier outstanding. And buyer is also liable for TDS u/s 194Q. So buyer will deduct TDS on Rs. 30 Lacs i.e. purchase of goods exceeding Rs. 50 Lacs. That’s fine.

However, as a seller, what will be responsibility.

  • Will it be on Rs. 90 Lacs (140 receipt – 50 threshold limit)?
  • Will it be on Rs. 60 Lacs (90 Lacs your liability (140 receipt less 50 threshold) less 30 liability of buyer)
  • Will it be on Rs. 30 Lacs (60 (140 receipt less liability on 80 by purchaser) less 30 actual liability of buyer)
  • Or any other combination

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Disclaimer: This write up is not intended to be a professional advice to anyone, therefore neither the Author nor the Organization accepts any responsibility whatsoever and hence no liability can arise for any losses, claims or due to the contents of this write up.

Author Bio

Name: Pinkesh
Qualification: CA in Practice
Company: P Chhajed And Co LLP
Location: Ahmedabad, Gujarat, India
Member Since: 07 May 2019 | Total Posts: 2
I have started my own practice immediately after completing the Chartered Accountancy course in the year 2011. Till 2017, it was the Proprietorship with the trade name as 'Pinkesh Chhajed And Co'. In the year 2017, it has been converted to P Chhajed And Co LLP. Since a decade we are prac View Full Profile

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4 Comments

  1. kiran kumar sahu says:

    TCS shall be collected on 90 lacs i.e. (140-50) because as per the provision TCS shall be collected on the amount recevied in excess of 50 lacs but after 01.10.2020.

  2. KARTHIK R says:

    My view, it should be on Rs. 10 lacs..

    140 lac – 80 lac = 60 lac ( receipt in the year pertaining to prev yr )

    60 lac – 50 lac(exemption u/s 206c(1H) = 10 lac.

    I am not sure.. Expert views are solicited.

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