TDS and TCS on Goods – Analysis

The Finance Act, 2020 had introduced Section 206C (1H) for levy of Tax collected at source (TCS) on sale of goods by a seller from a buyer & thereafter the Finance Act, 2021 has introduced Section 194Q to provide for deduction of tax (TDS) by a buyer from the purchase of goods.

1. TDS on purchase of goods under Section 194Q (01/07/2021)

As per Section 194Q of the Income Tax Act, 1961, any person, being a buyer who is responsible for paying any sum to any resident for purchase of any goods of the value where aggregate of such value exceeds Rs. 50 Lacs 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 Rs. 50 Lacs as income-tax (TDS).

TDS and TCS on Goods – Analysis

Buyer means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs.10 crores during the financial year immediately preceding the financial year in which the purchase of goods is carried out.

Further it is clarified that where provisions of both TCS on sale of Goods u/s 206C(1H) and TDS on purchase of Goods u/s 194Q are applicable, provisions of TDS u/s 194Q shall prevail.

2. TCS on Sale of Goods under Section 206C(1H) (01/10/2020)

As per Section 206 C (1H) of the Income Tax Act, 1961, 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 (TCS)

Seller 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 sale of goods is carried out.

3. Comparison between Section 194Q and 206C(1H)

Basis of Distinction TDS on Purchase of Goods – Section 194Q TCS on Sale of Goods – Section 206C(1H)
Who is Liable Buyer is liable to deduct the tax Seller is liable to collect the tax
Effective Date 01/07/2021 01/10/2020
Turnover Limit T/o > 10 Cr during preceding FY T/o > 10 Cr during preceding FY
Threshold Limit Purchases from Seller > 50 Lacs during FY Sales to buyer > 50 Lacs during FY
Rate 0.1% of Purchase Value > 50 Lacs during FY 0.1% of Sales Receipts > 50 Lacs during FY
Time of deduction Credit or Payment – whichever is earlier At the time of receipt
PAN not available 5% 1%
Quarterly Statement to be filed 26Q 27EQ
Certificate to be Issued Form 16A Form 27D

4. Interplay between Section 194Q and 206C(1H)

*In the absence of PAN, section 206C(1H) read with section 206CC provides for TCS @1%. However, section 206CCA provides for TCS @5% duly considering provisions of section 206CC.

5. Points to Ponder & Compliance in Section 194Q / 206C(1H)

  • In case the buyer fails to comply with the tax deduction provisions covered under section 194Q, then, as per the provision of section 40a(ia), there would be disallowance of expenditure up to 30% of the value of the transaction.
  • No adjustment on account of sales returns, discounts or indirect taxes is required to be made as per CBDT circulars & press release.
  • Provisions of section 194Q apply to the purchase of both types of goods i.e. capital as well as revenue as not specifically mentioned.
  • Turnover details for vendors & customers has to be maintained for TDS / TCS.
  • Declaration has to be obtained from vendors / customers every year in respect of income tax return filing & TDS/TCS exceeding Rs. 50,000/- but as per latest Circular No. 11 of 2021 dated 21/06/2021 by CBDT these compliance burden has been reduced by new functionality called Compliance Check for Sections 206AB & 206CCAavailable at Income Tax Portal.
  • Accounting System / ERP has to be updated for every customer / vendor masters.

6. Applicability of Section with examples

Sr. No. Buyer T/O Seller T/O Transaction Value Taxable Amt Section Applicable Remarks
I 12 crore 9 crore 60 lacs 10 lacs 194Q
II 8 crore 13 crore 55 lacs 5 lacs 206C(1H)
III 14 crore 11 crore 52 lacs 2 lacs 194Q Section 194Q supersedes Section 206C(1H)
IV 6 crore 9 crore 60 lacs NA Since T/o is less than 10 Crore
V 15 crore 12 crore 40 lacs NA Since transaction value is less than 50 lacs

7. Declaration Format in respect of Section 206AB for deducting TDS u/s 194Q

Declaration in respect of section 206AB of the Income-tax Act, 1961 (“Act”) in order to deduct TDS u/s 194Q

Date:

To

Name of Buyer

Address of Buyer

We, “Name of Seller” having registered office at “Address of Seller” having PAN “PAN of Seller” and TAN “TAN of Seller” do hereby solemnly affirm and declare that:

Income-tax returns for the below mentioned financial years are duly filed by us as per the prescribed deadline under the Income-tax Act, 1961.

Financial Year Income-tax Return Acknowledgement Number Due date u/s 139(1) for your organization Date of filing of Income-tax return
FY 2018-19
FY 2019-20

We declare and certify that aggregate of tax deducted at source and tax collected at source in our case is Rs 50,000 or more in each of the above two Financial Years

We confirm that the above details are true and to the best of our knowledge and any deviation in the same shall be brought to the knowledge of “Name of Buyer” immediately.  Further, we would be responsible to “Name of Buyer” for payment of any additional taxes, interest or penalty in case the information is found to be incorrect.

Accordingly, we hereby request you to not deduct TDS as per provisions of section 206AB of the Act.

Yours Sincerely,

For Name of Seller,

Authorized Signatory

(Name & Designation of Authorized Signatory)

Author Bio

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Location: Mumbai, Maharashtra, India
Member Since: 05 Jun 2021 | Total Posts: 1

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9 Comments

  1. devendran48 says:

    THE GOVT.LIEVED ON TDS/TCS ON PURCHASE AUTO MATICALY EATABLE RATES INCRESING PLEASE INFORM TO THE TDC AND TCS IN DAILY NEWS PAPER

  2. Celeste says:

    Sir Buyer’s t/o is greater than 10cr.
    From 1.4.2021 onwards the purchases from supplier crossed rs. 50lac limit. Is tcs u/s 206c(1h) applicable for 1.4.2021 – 30-6-2021 and tds 194Q on 1.7.2021 – onward?

  3. SANJAY KUMAR AGARWAL says:

    SIR. WHAT IF ADVANCE PAYMENT WAS MADE IN JUNE 21, BUT GOODS SUPPLIED IN JULY. WHETHER TDS WILL BE DEDUCTED OR NOT. PL CLARIFY. REGARDS

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