Introduction: The implementation of Sections 206C(1H) and 194Q of the Income Tax Act in India has raised questions about the applicable tax provisions for transactions exceeding 50 lakhs. While both sections deal with tax collection, understanding their nuances is crucial for compliance.
Whether TCS u/s 206C (1H) of Income Tax is to be collected on sales of goods above 50 lakhs (>50 Lakhs) or TDS u/s 194Q is to be deducted by the buyer on the purchase of Goods above 50 lakhs (>50 Lakhs)?
As we know that Section 206C(1H) is already introduced in the Budget 2020 and already implemented from 01-10-2020, Whereas Section 194Q was introduced in the Budget 2021 and applicable from 01-07-2021.
Section 206C(1H) of the Income Tax Act, 1961 deals with TCS on sales of goods above 50 lakhs @ 0.1% casts the responsibility of the seller of goods to collect TCS at the time of collection above 50 lakhs.
Section 206C(1H) as per the Act is as under: –
Section 206 C (1H) Every person, being a seller, who receives any amount as consideration for the 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 percent of the sale consideration exceeding fifty lakh rupees as income-tax:
Provided that if the buyer has not provided the Permanent Account Number or the Aadhar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five percent”, the words “one percent” had been substituted:
Provided further that the provisions of this subsection shall not apply if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.
Section 194Q as per Act is as under: –
‘194Q. (1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for the purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees 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 percent. of such sum exceeding fifty lakh rupees as income tax.
Explanation. For the purposes of this sub-section, “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, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines to remove the difficulty.
(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income tax authorities and the person liable to deduct tax.
Before Budget 2021 only one section 206C(1H) have been introduced by the Department and that enlarge the Responsibility on the Sellers only. There are lots of confusion about TCS provisions and their applicability among the Sellers. Before the proper understanding of the implementation from the sellers side, a new section 194Q was proposed in budget 2021 and made applicable from 01-07-2021.
Now the important question is which section is applicable, whether 206C1(H) or 194Q of the Income Tax Act,1921?
| general rule first-come-first was not applicable in this case. Even if Section 206C(1H) was introduced before Section 194Q. However, TDS provisions have the overriding effect which means TDS prevails over TCS. |
TDS 194Q will have priority over TCS 206C(1H) if on transaction both sections apply to buyer & seller respectively. It means that where a buyer is liable to deduct TDS on a purchase transaction under Section 194Q, the seller shall not collect TCS on the same transaction on which the buyer has already deducted TDS. In other words, the buyer shall have the primary obligation to deduct the tax as compared to sellers.
Summary of Section 194Q & 206C(1H)
Rate of TDS under section 194Q
i. Buyer of goods will be liable to deduct tax at source
> @ 1% of Purchase Value
> exceeding INR 50 Lakhs in a Financial Year
ii. Tax to be deducted @ 5%
> if the seller does not provide PAN/Aadhar
Responsibility to deduct TDS will be on buyers who have gross receipts/turnover exceeding INR 10 Crores in preceding financial year.
Rate of TCS under section 206C(1H)
i. Sellers of goods will be liable to collect tax at source
> @ 1% of Collection Amount
> exceeding INR 50 Lakhs in a Financial Year
ii. Tax to be collected @ 5%
> if the buyer does not provide PAN/Aadhar
Responsibility to collect TCS will be on sellers who have gross receipts/turnover exceeding INR 10 Crores in preceding financial year.
Comparison of Sec 194Q and 206C(1H)
| Particulars | 194Q | 206C(1H) |
| Nature | Tax to be DEDUCTED | Tax to be COLLECTED |
| Applicable to | Buyer/Purchaser | Seller |
| With effect from | 01/07/2021 | 01/10/2020 |
| Even of Taxation | Payment or credit, whichever is earlier | At the time of receipt |
| Advances | TDS shall be deducted on advance
payments made |
TCS shall be collected on advance receipts |
| Rate of TDS/TCS | 0.1% | 0.1% |
| PAN not available | 5% | 5% |
| Point of Taxation | Turnover/Gross Receipts/Sales from the business of BUYER should exceed Rs.10cr during previous year (Excluding GST)
Purchase of goods of aggregate value exceeding Rs.50Lakhs in P.Y. (The value of goods includes GST) |
Turnover/Gross Receipts/Sales from the business of SELLER should exceed Rs.10cr during previous year (Excluding GST)
Sale consideration received exceeds Rs.50Lakhs in P.Y. (The value of goods includes GST) |
| Exceptions | Not notified by Government till time | If Buyer is-
Importer of goods Central/State Government, Local Authority An embassy, High Commission, legation, commission, consulate and trade representation of a foreign state. |
| When to deposit/collect | Tax so deducted shall be deposited with government by 7th day of subsequent month | Tax so collected shall be deposited with government by 7th day of subsequent month |
| Quarterly statement to
be filed |
26Q | 27EQ |
| Certificate to be issued to seller/buyer | FORM 16A | FORM 27D |
Examples of Section 194Q and 206C(1H)
Turnover of Seller (in crore) |
Turnover of Buyer (in crore) |
Amt Received or paid for sale or purchase of Goods in the previous year (in lakhs) |
Taxable Amount |
Whether PAN is available |
TDS or TCS |
Liable Person |
Section |
Explanation |
11 |
9 |
55 |
5 |
Buyers PAN available |
TCS @0.1% |
Seller |
206C(1H) |
Buyer Turnover less than 10 Cr. |
11 |
9 |
55 |
5 |
Buyers PAN not available |
TCS@5% |
Seller |
206C(1H) |
Buyer Turnover less than 10 Cr. |
9 |
11 |
55 |
5 |
Sellers PAN available |
TDS @ 0.1% |
Buyer |
194Q |
Sellers Turnover less than 10 Cr |
9 |
11 |
55 |
5 |
Sellers PAN not available |
TDS @ 5% |
Buyer |
194Q and 206AA |
Sellers Turnover less than 10 Cr and PAN not available |
11 |
11 |
55 |
5 |
Sellers PAN available |
TDS @ 0.1% |
Buyer |
194Q |
Exclusion Provided under Sec 206C(1H) |
11 |
11 |
55 |
5 |
Sellers PAN not available |
TDS @ 5% |
Buyer |
194Q and 206AA |
Exclusion Provided under Sec 206C(1H) |
Conclusion: In navigating the complex landscape of tax compliance, clarity on whether TCS or TDS applies to transactions exceeding 50 lakhs is essential for both buyers and sellers. Section 194Q, introduced in 2021, prevails over Section 206C(1H), with TDS obligations on the buyer taking precedence. By comprehending the differences and implications of these provisions, businesses can ensure adherence to tax regulations and avoid penalties.
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Good Article. Thank you.