INTRODUCTION
Finance Act, 2020 had introduced provisions relating to TCS on sale of goods u/s 206(1H). Finance Act, 2021 introduced provisions relating to TDS on purchase of goods u/s 194Q to cover those transactions which were left uncovered by section 206C(1H). These amendments have increased the compliance burden for the taxpayer as it impacts the most basic transactions of purchase and sale of goods. An interplay of the above sections has added to the practical difficulties faced by the taxpayers entering into above transactions, especially with possibilities of overlap between the TDS and TCS provisions. Therefore, it becomes important to understand the basic provisions and application of both these sections.
Section 206(1H) – TCS on sale of goods
- Seller is responsible to collect TCS.
- At the time of receipt.
- W.E.F 01-10-2020
- For Sale of any goods
- @0.1% of such sum exceeding Rs. 50 Lacs.
- On Value exceeding Rs. 50 Lacs in a FY (Incl GST).
Notes:
Seller means a person whose total sales/gross receipts/ turnover from business carried on by him exceed Rs 10 Crores in immediately preceding previous year (excluding GST). Hence not applicable in first year.
No TCS applicable in the following cases:
1. Buyer is Central/State Government, local authority, Embassy, High Commission, legation, Consulate of foreign state
2. If TDS is deducted under any other provision on the said transaction.
Section 194Q – TDS on purchase of goods
- Buyer is responsible to deduct TDS.
- At the time of payment or credit to resident seller.
- W.E.F 01-07-2021.
- For purchase of any goods.
- 0.1% of such sum exceeding Rs. 50 Lacs.
- On value exceeding Rs. 50 Lacs in a F.Y.
Notes:
Buyer means a person whose total sales/gross receipts/turnover from business carried on by him exceed Rs 10 crores in immediately preceding FY (excluding GST). Hence not applicable in first year.
The period from April to June, 2021 to be considered for computing threshold limit of Rs 50 lakhs for each seller (including GST).
Important Points:
No liability under section 194Q in following scenarios:
1. TDS is deducted under any other provisions or TCS is collectible except u/s 206C(1H). There is still
reporting requirement under Form 26Q.
2. In relation to transactions involving purchase of immovable property.
3. If seller is Central/State Government, Reserve Bank of India, corporations established by Central
Act which are exempt from Income Tax and Mutual Funds covered under section 10(23D)
4. Any other person as Government may notify
If there is purchase/sales return then TDS/TCS must have been deducted/collected as per provisions, hence such TDS/TCS will have to claimed at the time of filing income tax TDS Credit shall be allowed in the financial year in which income corresponding to such TDS. The fixed assets and capital assets will also be covered u/s 194Q as the provisions of this section apply to all types of goods. In case of potential overlap on a transaction, section 194Q will prevail. However, if buyer defaults then obligation shifts on seller.
Summary of section 194Q and 206C(1H)
| Particulars | 194Q | 206C(1H) |
| Who is responsible? | Buyer | Seller |
| Applicable from? | 01/07/2021 | 01/10/2020 |
| When to be deducted or collected? | Payment or credit, whichever is earlier | At the time of receipt |
| Rate of TDS/TCS | 0.1% | 0.1% |
| Penal Rate of TDS/TCS if PAN not available | 5% (if provides PAN/Aadhar but has not filed income tax return for last two financial years of which the due date to file return has expired and amount of TDS or TCS is Rs 50,000/- or more in each of those two years) | 1% |
| When is TDS/TCS to be deducted? | Purchase of goods of aggregate value exceeding Rs 50 lakhs in a year (incl GST) | Sale consideration received exceeds Rs 50 lakhs in a year (incl GST) |
| Quarterly statement to be filed | 26Q | 27EQ |
| Certificate to be issued | Form 16A | Form 27D |
