TDS and TCS under Income Tax- Section 194Q & Section 206(1H)

TDS and TCS are the government’s most important sources of revenue. It’s also critical for businesses to pay their taxes on time to avoid penalties and remain compliant.

With effect from 01/07/2021, Finance Act of 2021 inserted section 194Q to provide a deduction of tax on certain purchases. Section 194Q of the Income tax Act states that any person(“buyer”) purchases goods exceeding 50 lakhs rupees from a resident seller in any previous year. At the time of making the payment by any mode or making such credit to the seller’s account, whichever is earlier, the buyer shall deduct an amount of 0.1% from such amount as income tax.

Applicability Of Section 194Q

The tax deducted under section 194Q is applicable on businesses whose gross turnover or total sales exceed 10 crores in the given assessment year.

Conditions For Deducting TDS (Tax Deducted At Source)

For deducting TDS under section 194Q the conditions are:

• The seller should be citizen and resident of India
• The aggregate value of purchase should be more than 50 lakhs in the previous year
• The transaction should not be subject to section 206C (1H).

Transaction Where 194Q Not Applied

• Transaction in commodities and stocks, securities through recognized stock exchange.
• Transactions in Energy saving certificates & Renewable Energy certificates traded, Electricity in compliance with Regulation 21 of Central Regulatory Electricity Commission.

TCS Applicable On Sale Of Goods

The Finance Amendment Act of 2020 amends section 206C(1H) of the Income Tax Act of 1961, which requires sellers with a turnover of more than 10 crores in the previous financial year to collect TCS on amounts exceeding Rs. 50 lakhs.

Applicability Of Section 206 (1H)

Section 206 (1H) is applicable to businesses:

• Whose turnover exceeds Rs. 10 cores during the financial year.
• Whose gross receipts and total sales of goods ( except services) exceed Rs. 50 lakhs.

 Charging TCS On Selling Of Goods

Every sale consideration (including advanced payments) carried on or after the 1st of October 2020 exceeding 50 lakhs TCS should be collected on the receipt of the amount from the buyer.

Rate Of Collecting TCS

The tax shall be collected at the rate of 0.1 % of the sale consideration exceeding Rs. 50 lakhs. However if the individual fails to furnish Aadhaar or pan card the tax shall be collected at 1% ( 0.75% till 31. 03.2021)

Penalty

If a business or an individual fails to collect or pay the TCS on time, the taxpayer will be liable to pay interest of up to 1% per month or part thereof until the matter is resolved. To sum it all up;

TDS is a tax that is collected from a payment made to a company by an individual if the amount exceeds a particular threshold. TCS is a tax that sellers collect when selling something to a buyer.

TDS is deducted from payments such as salaries, rent, professional fees, brokerage commissions, etc.  TCS is deducted from the sale of certain items, such as scrap, mineral wood, and so on.

TDS is deducted only on payments that surpass a threshold. TCS applies to sale of  certain goods that do not include manufacturing or production materials.

The author, Sushant Gangurde is a legal analyst @Taxblock India private limited and aims to educate and inform the masses about various tax laws and financial planning.