TDS u/s 194Q and TCS u/s 206C(1H)a
Introduction of Provisions – Section 194Q was introduced and inserted in the Income Tax Act, 1961 vide the Finance Act, 2021 and it is applied from 1st July, 2021. While Section 206C(1H) was introduced and inserted in the Income Tax Act, 1961 vide the Finance Act, 2020 and it is applied from 1st October, 2020.
Applicability of Section 194Q
It is applicable on buyer who is responsible to pay any sum to any resident seller for purchase of any goods including capital goods of the value or aggregate of such value is more than Rs. 50 lakhs in any previous year.
Buyer – For this section buyer will be the person whose total sales, gross receipts or turnover from the business carried on by the buyer is more than ten crore rupees in the immediately preceding financial year in which specified purchase of goods take place.
Time of Deducting TDS
TDS under this section will be deducted by the buyer within earlier of the following time provided below: –
TDS under this section will be deducted at the time of credit of such sum to the account of the seller, even if such sum is credited to the suspense account or any other account by any other name in the books of the person liable to pay such income
or at the time of payment of such sum by buyer by any mode
Rate of deduction of TDS
TDS shall be deducted by the buyer at 0.1% on amount in excess of Rs. 50 lakhs and in case PAN of seller is not available then buyer shall deduct tax at 5% rate on such some.
Exception to this section
The provisions of this section shall not be applicable on transactions on which TDS is deductible in any other provisions of Income Tax Act, 1961 and transactions on which TCS is collectable under section 206C. However, in case of transactions where TCS is collectable under section 206C(1H) provisions of section 194Q will override.
Example – Mr. Raju purchased goods worth Rs. 60 lakhs plus GST @5% from Mr. Darshan and credits the same in his books of account on 28-07-2021. Turnover of business carried on by Mr. Raju in FY 2020-21 was Rs. 12 crores. Compute TDS under section 194Q.
Case (1) Where Mr. Raju makes payment on 15-07-2021.
Case (2) Where section 206C(1H) is also applicable.
Case (3) Where section 194O is also applicable.
Case (4) Where Mr. Darshan is not furnishing his PAN.
Solution – Mr. Raju purchased goods worth Rs. 60 lakhs which exceeds Rs. 50 lakhs and turnover of business carried on by Mr. Raju is also more than Rs. 10 crores in previous year which satisfies both the conditions for applicability of section 194Q. TDS will be deducted on amount in excess of Rs. 50 lakhs, which is Rs. 10 lakhs. Therefore, TDS will be Rs. 1000.
Case (1) TDS will be deducted on 15-07-2021 because date on which such sum is credited in books of account or date of payment of such sum whichever is earlier will be the date of deduction of TDS.
Case (2) In case section 206C(1H) is also applicable, section 194Q will override.
Case (3) In case TDS is deductible in any other section as well except under section 206C(1H), TDS will be deducted in that other section. Therefore, TDS shall be deducted under section 194O.
Case (4) Where PAN of seller is not available TDS will be deducted @5%. In this case TDS shall be Rs. 50,000.
Applicability of Section 206C(1H)
It is applicable on seller for sale of any goods of value or aggregate of such value exceeding Rs. 50 lakhs in any previous year received as sale consideration from the buyer.
Seller – For this section seller will be the person whose total sales, gross receipts or turnover of the business carried on by him exceeds Rs. 10 crores during the financial year immediately preceding the financial year in which such sale of goods is carried out.
Buyer – For this purpose buyer means any person who purchases any goods, but does not include-
the Central Government, a state Government, an embassy, a High Commission, legislation, commission, consulate the trade representation of a foreign trade; or a local authority; or a person importing goods into India
Time of collecting TCS Here, TCS under this section shall be collected at the time of receipt of sale consideration from the buyer.
Rate of collection of TCS TCS shall be collected by the seller on a sum equal to 0.1% of the sale consideration exceeding Rs. 50 lakhs. However, if the buyer has not provided PAN or Aadhar number to the seller then TCS shall be collected at 1% under section 206CC.
Circular no. 20/2017 No adjustment is required to be made for sales return, discount or indirect taxes including GST for the purpose of collection of tax under this section. Exception to this section TCS will not be applicable in the following cases-
Goods being exported out of India Sale of goods under section 206C(1) – TCS on sale of tendu leaves, alcoholic liquor for human consumption, timber obtained under a forest lease, timber obtained by any mode other than under a forest lease, any other forest produce not being timber or tendu leaves, scrap, minerals being coal or lignite or iron ore Section 206C(1F) – TCS on sale of motor vehicles
Section 206C(1G) – TCS on foreign remittance
Where buyer is required to deduct TDS on goods purchased from the seller.
Example – Mr. Darshan sold goods to Mr. Raju worth Rs. 60 lakhs. Mr. Raju makes payment on 12-07-2021 for the same. Turnover of business carried on by Mr. Darshan was Rs. 12 crores FY 2020-21. Compute TCS under section 206C(1H).
Case (1) – Where Mr. Raju is importing goods into India.
Case (2) – Where Mr. Darshan is exporting goods outside India.
Case (3) – Where Mr. Raju purchased alcoholic liquor for human consumption from Mr. Darshan.
Case (4) – Where Mr. Darshan sold car to Mr. Raju.
Case (5) – Where Mr. Raju (NRI) remitted sum to Mr. Darshan, a dealer in India.
Case (6) – Where TDS is deductible under section 194Q.
Case (7) – Where Pan or Aadhar number of buyer is not provided.
Solution – Mr. Darshan sold goods to Mr. Raju worth Rs. 60 lakhs which exceeds Rs. 50 lakhs and turnover of business carried on by Mr. Darshan is Rs. 12 crores which exceeds Rs. 10 crores. So, both the conditions are satisfied by Mr. Darshan. Hence, Mr. Darshan is liable to collect TCS on amount in excess of Rs. 50 lakhs. TCS for the above transaction will be Rs. 1000.
Case (1) – In case of importing of goods into India TCS will not be collected as it is exception of this section.
Case (2) – In case of exporting of goods outside India TCS will not be collected as it is exception of this section.
Case (3) – Purchase of alcoholic liquor for human consumption is collected under section 206C(1). Therefore, TCS will not be collected under section.
Case (4) – TCS shall not be collected on sale of car as it is collected under section 206C(1F).
Case (5) – TCS shall not be collected on foreign remittance as it is collected under section 206C(1G).
Case (6) – TCS shall not be deducted under this section where TDS is required to be deducted by the buyer.
Case (7) – TCS shall be collected at 1% rate if Pan or Aadhar number is not provided by the buyer. Therefore, TCS will be Rs. 10000
Example – Mr. Darshan sold goods to Mr. Raju worth Rs. 55 lakhs and 60 lakhs plus 5% GST respectively. Compute TCS for second transaction under section 206C(1H). Mr. Raju makes payment on 12-07-2021 for the same. Turnover of business carried on by Mr. Darshan was Rs. 12 crores FY 2020-21.
Solution – As goods sold to Mr. Raju already exceeded Rs. 50 lakhs in first transaction, TCS will be collected on full amount of Rs. 63 lakhs (including GST). TCS under this section shall be Rs. 6300 followed by circular no. 20/2017.