TDS, TCS on Goods – Section 194Q, 206C(1H), 206AB & 206CCA

Article discusses TDS on Purchase of Goods under section 194Q of Income Tax Act, 1961, TCS on Sale of Goods – Section 206C(1H), TCS on Scrap –  Section 206C(1), TCS on Sale of Motor Section 206C(1F), TDS on Non-filers of Income Tax Return u/s 206AB [Read with Section 206AA], TCS on Non-filers of Income Tax Return u/s 206CCA [Read with Section 206CC] and TDS/TCS Rate Chart Applicable from 01-July-2021.

TDS on Purchase of Goods under section 194Q

♦ Section 194Q provides that on or after 01 /Jul/2021 a BUYER (RESIDENT/NON-RESIDENT) shall deduct TDS on purchase of goods from a RESIDENT SELLER.

♦ Non-resident/ foreign buyer is NOT liable to TDS if the purchase is NOT effectively connected with PE in India from which business of non-resident is wholly or partly carried out. (Circular 13 of 2021)

♦ TDS will be deducted @ 0.1% of purchase value.

♦ In the absence of PAN No. of the seller, TDS will be deducted @ 5%. If the seller is a non-filer of income tax return in each of last 2 years, TDS will be deducted @ 5%.

♦ Time of deduction:

• booking of purchase expenses, or
• payment of purchase value (including advance), whichever is earlier. (Circular 13 of 2021)

♦ TDS will NOT be deducted on GST component if TDS is deduced at the time of booking of purchase provided GST component is separately indicated in the invoice/ agreement. If TDS is deducted on the basis of advance given before the purchase is accounted, GST will not be subject to TDS.

♦ No lower or No Nil deduction certificate is issued u/s 194Q.

♦ If there is a purchase return, TDS once deducted can not be refunded. However, in this case if purchase money is refunded back, TDS can be adjusted against the next purchase from the same seller. (Circular 13 of 2021)

♦ In case of short supply of material, above mentioned approach is advisable to be adopted.

♦ No adjustment in TDS should be on account of rebates/ discount given post purchase of goods. (Conservative approach taken since not clarified in Circular 13 of 2021)

♦ Buyer is not required to deduct TDS if the seller is FULLY (NOT PARTLY) exempt from income tax. Like Govt., RBI, Railways, Entities fully exempt from Income Tax under Section 10 and Entities created by special Acts and fully exempt. (Circular 13 of 2021)

♦ TDS shall be deposited by 7^th of the next month except for the month of March, TDS will be deposited by 30^th April.

♦ Quarterly TDS returns shall be filed in form 26Q (if seller is resident) /27Q (if seller is non-resident) and TDS certificates will be issued on quarterly basis.

♦ TDS is required to be deducted on all types of goods. Everything other than service and immovable property is a good like —

• Plant and Machinery, Furniture Fixtures and Computers
• One to one contract entered into any Commodity, Shares or
• Securities
• Electricity
• Agriculture produce
• Fuel like petrol/diesel, coal
• Motor vehicle of value of UPTO Rs.10 lac
• Jewellery or bullion
• Art or Drawings
• Sculptures
• Scraps not generated in the course of manufacturing process
• Software if TDS is not deducted u/s 194J
• Material portion of a Works Contact if TDS is not deducted u/s 194C

Every one is liable to TDS u/s 194Q?

♦ Only those Buyers are required to deduct TDS on purchase of goods from a resident seller whose business turnover in the last financial year is more than Rs. 10 Crore (excluding GST). Turnover will include all the business receipts from sale of goods and services both but receipts from non-business activities will be excluded. (Circular 13 of 2021)

♦ TDS will not be required to be deducted if purchase/ payment or advance given for purchase of goods from a resident seller in current financial year do not cross Rs. 50 lac. This limit of Rs. 50 lac will be considered from 1st April of the financial year. TDS will always be calculated after giving exemption of Rs. 50 lac. (Purchases booked + Advances – 50 lac = Amount Eligible for TDS)

♦ TDS is required to be deducted if either one event of accounting of purchase of goods or payment has happened by 30/June/2021. So, TDS is not applicable for the purchase entry posted in books upto 30/06/2021 even if payment for the same is made on or after 01/07/2021 and vice‑ versa (Circular 13 of 2021)

♦ Example: If a person has made purchases or paid / advance given for purchase of Rs 50 lac or above by 30^d1 June 2021, let’s say Rs. 60 lac, he will have to deduct TDS on all purchases made on or after 1^st July from the said party. It is to be noted that NO TDS is required to be deducted on Rs. 10 lac i.e. purchases made in excess of Rs 50 lac by 30^th June, 2021. (Circular 13 of 2021)

♦ TDS u/s 194Q is not required to be deducted, if TDS/TCS is applicable under any other section of the income tax act i.e. sections 194C, 194J, 206C(1) and 206C(1F) etc. have first priority of applicability over S.194Q.

♦ There is an exception to this rule. In case both the sections are applicable to a particular transaction i.e. TDS u/s 194Q from buyer side and TCS u/s 206(1H) from the seller side, in such a scenario TDS u/s 194Q will be deducted and TCS u/s 206(1H) will not be applicable.

♦ If in the above case, TCS u/s 206(1H) is first collected by the seller (before the buyer could deduct TDS u/s 194Q), the buyer is given relaxation to NOT to deduct TDS. But, repeated non-compliance may not be excused. (Circular 13 of 2021)

♦ If for any reason TDS u/s 194Q from buyer side is not applicable, seller is required to check the applicability of TCS provisions u/s 206(1H).

♦ Similarly, if TDS u/s 194Q from buyer side is applicable but buyer fails to deduct TDS u/s 194Q, seller is required to check the applicability of TCS provisions u/s 206(1H).

♦ Not Applicable to newly incorporated  buyer business entity in the year of incorporation (Circular 13 of 2021)

♦ TDS on upward price revision is advisable to be deducted (conservative approach taken since not clarified in Circular 13 of 2021)

♦ TDS is not required to be deducted if goods are purchased for personal use.

♦  lf a loan or deposit given to the seller is not paid back and the seller adjusts the sale price against the loan or deposit, the buyer will deduct TDS the moment such adjustment is made.

♦ Purchase of land or building is not liable to TDS under this section.

♦ Reimbursement of out-of-pocket expenses is NOT subject TDS only if:

• Separate invoice is raised for reimbursement;
• Original bills are also produced; and
• Item wise breakup of goods supplied is available on the original bills.

♦ Trading in electricity, energy / renewable certificates on registered power exchanges and trading in shares, securities and commodities on recognized exchanges is NOT subject to TDS. (Circular 13 of 2021)

TCS on Sale of Goods – Section 206C(1H)

♦ Sale of Goods (including sale of scrap not generated in the course of manufacturing process and motor vehicle of individual of value upto Rs. 10 lac

♦ Seller will collect TCS @ 0.1%.

♦ Applicable on collection of sale consideration of goods (including advance) + GST.

♦ TCS u/s 206C(1H) is not applicable on export/import of goods. SEZ supply is not export and hence TCS is applicable on supply of goods to SEZ. No lower deduction certificate is issued for TCS u/s 206C (1H).

♦ Seller is not required to collect TCS if buyer is FULLY (NOT PARTLY) exempt from income tax. Like Govt., RBI, Railways, Entities fully exempt from Income Tax under Section 10 and Entities created by special Acts and fully exempt. (Circular 13 of 2021)

♦ No adjustment in TCS is to be made for sales returns and discounts etc.

♦ TCS is not to be collected if buyer is Govt.

Seller	Buyer
Every person whose turnover in business exceeds Rs. 10 crore (excluding GST) in the immediately preceding financial year. Turnover will include all receipts including receipts from services and miscellaneous income. TCS is also applicable on goods sold by the non-resident seller provided it is not import of goods. Turnover from business activities will only be considered (interpretation).	TCS is required to be collected from a buyer only if receipts from him against the sale of goods in the current financial year exceed Rs. 50 lac (including GST). Thus, TCS will not be collected on first receipts of Rs. 50 lac (including GST) beginning with 1st day of current financial year.

TCS on Scrap –  Section 206C(1)

•  Sale of Scrap (generated in the course of manufacturing process in plant)
•  Seller will collect @ 1%.
• Applicable on Sale consideration + GST accounted or received, whichever is earlier.

Sale of Motor Section 206C(1F)

• Sale of any type of Motor vehicle (old/ new) of individual value exceeding Rs.10 lac.
•  Seller will collect @ 1%.
• Applicable on collection of Sale consideration of goods (including advance) + GST.

TDS on Non-filers of Income Tax Return u/s 206AB [Read with Section 206AA]

♦ Section 206AA provides  for higher rate  of TDS @ 20% (5%  for section 194O/ 194Q) for non-furnishing of PAN/ invalid PAN/Not‑ linked to AADHAAR.

♦ W. e.f. 01/07/2021, a new section 206AB is inserted to provide for higher rate for TDS @ TWICE THE APPLICABLE RATE (minimum 5%) in respect of non-filers of income-tax return.

♦ If both of the conditions are not met, TDS will be deducted at the rate higher of two.

♦ Like 206AA,  the new section 206AB shall be applicable on TDS payable under all the sections like 193, 194, 194A, 194C 194H, 1941, 1941A, 194J, 194Q  195, 196D etc. (except section 192, 192A, 194B, 194BB, 194LBC or 194N).

♦ Meaning of Non-Filer:

Where a TDS/ TCS is required to be deducted / collected under any section (except section 192, 192A, 194B, 194BB, 194LBC or 194N) and aggregate of TDS and TCS deducted and collected as appearing in the 26AS of the seller is Rs. 50 thousand or more in each  of the two previous years, for which due date prescribed u/s 139(1) is  expired, the buyer shall, before processing any transactions on or after 01/07/2021, be required to make sure that the below documents are collected from the seller –

• PAN card copy; and
• ITR acknowledgement of last 2 years for which due date prescribed u/s 139(1) is expired i.e. ITR of FY 2019-20 and 2018-19 in FY 2021-22 is required.

♦ Above criteria will be checked at the 1^st day of the financial year and will be applicable for full year. During the year, no new name will be added but if non-filer files the return during the year, his name will be removed from the non-filer category thereafter.

♦ Higher rate of TDS under this section is also applicable if on payment to non‑resident supplier/service provider, TDS is deductible provided that non-resident supplier/service provider has a PE in India.

TCS on Non-filers of Income Tax Return u/s 206CCA [Read with Section 206CC]

♦ Similarly,  section 206CC provides for higher rate of TCS at 5%  (1% for section 206C(1H)) for non-furnishing of PAN/Invalid/Non-linked PAN.

♦ W.e.f. 01/07/2021, a new section 206CCA is inserted to provide for higher rate TCS @ twice the applicable rate (minimum 5%) in respect of non-filers of income-tax return.

♦ If both of the conditions are not met, TCS will be collected at the rate higher of two.

♦ Like 206CC, the new section 206CCA shall be applicable on TCS payable under all the sections like 206C(1), 206C(1H) and 206C(1F) etc.

♦ Meaning of Non-Filer:

Where a TDS/ TCS is required to be deducted/collected under any section (except section 192, 192A, 194B, 194BB, 194LBC or 194N) and aggregate of TDS and TCS deducted and collected as appearing in the 26AS of the buyer is Rs. 50 thousand or more in each of the two previous years, for which due date prescribed u/s 139(1) is expired, the seller shall, before processing any transactions on or after 01/07/2021, be required to make sure that the below documents are collected from the buyer

• PAN card copy; and
• ITR acknowledgement of last 2 years for which due date  prescribed u/s 139(1) is expired i.e. ITR of FY 2019-20 and 2018-19 in FY 2021-22 is required.

♦ Above criteria will be checked at the 1^st day of the financial year and will be applicable for full year. During the year, no new name will be added but if non-filer files the return during the year, his name will be removed from the non-filer category thereafter.

♦ Higher rate of TCS is applicable if on sales to non-resident buyer, TCS is collectible and the non-resident buyer has a PE in India.

TDS/TCS Rate Chart Applicable from 01-July-2021