Understanding Section 194Q – TDS on purchase of goods and Sections 206C(1H).- TCS on sale of goods

Introduction

After introduction of Section 206C(1H) - TCS on sales of goods in Finance act 2020 and introduction of Section 194Q - TDS on purchase of goods in Finance Act 2021, a confusion has been created in the taxpayers regarding applicability of these two sections on purchase of goods. In this article, we will understand both the sections in details and the applicability of these two sections in different scenarios.

Basic Provision

Section 206C(1H)

As per section 206C(1H) introduced in Finance Act 2020, if a seller (being a person whose turnover in immediately preceding FY exceeds Rs. 10 crore.) makes a sale of "goods" whose value individually or in aggregate exceeds Rs. 50 lac in a previous year, the seller shall be liable to collect tax at source @ 0.1% of transaction value exceeding Rs. 50 lac from the buyer.

For more details, read our article here : TCS on sale of all goods - Section 206C(1H)

Section 194Q

As per section 194Q introduced in Finance Act 2021(Applicable from 1st July 2021), if a person, being a buyer (whose turnover in immediately preceding FY exceeds Rs. 10 crore) makes purchases of goods from resident seller whose value individually or in aggregate exceeds Rs. 50 lac in a previous year, the buyer shall be liable to deduct Tax at source @ 0.1 % of the transcation value exceeding Rs. 50 Lacs at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode.

In non-PAN/ Aadhaar cases the rate shall be Five (5%) per cent.

Threshold of levy

The tax shall be deducted on the purchase value individually or in aggregate of more than one transaction exceeds Rs. 50 Lakhs in a financial year.

Purchase of goods from non-resident seller shall not covered under this section.

For example:-

1) Mr. A, buyer of goods, buys goods from Mr. B amounting to Rs. 60 lacs on 22nd July 2020. Only one transaction was made in a previous year. TCS @0.1% shall be levied on Rs. 10 lacs only.

2) Mr. A, buyer of goods, buys goods from Mr. B :-

On 31st May 2020 Rs. 25 lacs

On 15th August 2020 Rs. 10 lacs

On 12th Sep 2020 Rs. 25 lacs

TCS @ 0.1% shall be applicable on Rs. 10 lacs in the month of September.

Applicability

The above provisions shall apply with effect from 01.07.2021.

Amount will be deducted on earlier of following:-

• Payment Date

• Credit of such sum to the account of the seller

The provisions of this section shall not apply to a transaction in following cases:-

• tax is deductible under any of the provisions of this Act; and

• tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies (TCS).

As per Exclusion provision under Sec194Q, TCS and TDS both will applicable in case of transaction value between Seller and Buyer exceeding Rs.50 Lakhs , in any previous year, both having turnover more than 10 Crores in immediately preceding PY.

But as per proviso to Sec206C (1H), which specify that “Provided further that the provisions of this sub-section 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”.

Let understand with Illustration:-

Receipt or payment for sale or purchase of Goods in previous years – Rs. 60 lakhs

Amount on which tax is to be deducted – Rs. 10 Lakhs

PAN of both seller and buyer is available

Scenario 1

Turnover in immediately previous year of transaction :-

- Seller – Rs. 5 Crore

- Buyer – Rs. 16 Crore

Since, turnover of the seller is less than 10 Crores. Hence, section 206C(1H) is not applicable and hence no TCS shall be collected. TDS shall be deducted @ 0.1 % on Rs. 10 Lakhs.

Scenario 2

Turnover in immediately previous year of transaction :-

- Seller – Rs. 16 Crore

- Buyer – Rs. 5 Crore

Since, turnover of the buyer is less than 10 Crores. Hence, section 194Q is not applicable and hence no TDS shall be deducted. TCS shall be collected @ 0.1 % on Rs. 10 Lakhs.

Scenario 3

Turnover in immediately previous year of transaction :-

- Seller – Rs. 16 Crore

- Buyer – Rs. 15 Crore

Since, turnover of both buyer and seller is more than 10 Crores. Hence, it seems that both section 194Q and section 206C(1H) is applicable but as per proviso of section 206C(1H) which provides that “ TCS shall not be applicable 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.

Hence, TDS shall be deducted @ 0.1 % on Rs. 10 Lakhs.

Summary : -

Section 194Q of Income tax Act , 1961 (Text for reference)

(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 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 per cent. 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 ten crore rupees 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 for the purpose of removing 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.

(5) The provisions of this section shall not apply to a transaction on which––

(a) tax is deductible under any of the provisions of this Act; and

(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.’.