Categories: TDS

Analysis & Comparison of Section 194Q & 206C (1H)

TDS on purchase of goods Section 194Q V/s  TCS on Sale of goods Section 206C (1H):

Q.:  Is the new section mentioned u/s 206C(1H)?

  • The new TCS statutes went into effect on 1 October 2020, and if your turnover was more than 10 crores in the past financial year, i.e. the year ended 31 March 2020,
  • you will have to collect and deposit TCS on your receipts from sales of goods from buyers who paid you more than Rs. 50 lakhs as sale consideration during the current financial year.
  • The TCS is due on any receipt that is larger than 50 lakhs and is received after October 1, 2020. The TCS rate is 0.1 percent, and due to the current Corona Pandemic, a 25% discount has been applied to this tax rate until March 31, 2021, making the effective rate 0.075 percent.

Q.:  Is the new section mentioned u/s 194Q  TDS on purchases of goods?

Person Responsible for Deducting TDS

Basically Buyer is responsible for paying to any resident for the purchase of goods of the value or aggregate of such value in excess of INR 50 Lakh in any last year is liable to deduct TDS.

Applicability of Section 194Q

  • The provisions of this section will be applicable to the Buyer if the sale of Buyer is more than INR 10 Crore during the FY immediately preceding the FY in which the purchase takes place.
  • Section 194Q requires a buyer with a turnover, gross revenues, or total sales of more than Rs. 10 crores in the financial year immediately preceding the relevant financial year to deduct tax at a rate of 0.1 percent on the value exceeding Rs. 50 lakhs at the time of: –

Rate of TDS in case Purchase of goods

  • In case the Seller has PAN: 0.1%
  • In case the Seller does not has PAN: 5%

TDS on purchase of goods Section 194Q V/s  TCS on Sale of goods Section 206C (1H):

The buyer has the primary and main obligation to deduct the tax under Section 206C, and no tax shall be collected on the transaction (1H). Nevertheless, the seller is accountable for collecting the tax if the buyer fails to do so.

If a transaction is subject to both TDS and TDS under section 194Q, the TDS under section 194Q will apply. TDS u/s 194Q is not applicable if TCS is eligible to be collected under any other provisions of Section 206C.

Read also : Extention of TDS/TCS statement filing Date

TDS u/s 194Q (TDS on purchase of goods) and TCS U/S 206C (1H) (TCS on Sale of goods) Interaction:

  • So far, we’ve gone through in detail the newly added TDS rules proposed by Finance Act 2021 u/s 194Q, which will take effect on July 1, 2021.
  • As previously stated, the provisions of TCS u/s 206C(1H) added by Finance Act 2020, which took effect on October 1, 2020, are identical in every way to those that apply to sales of products and must be collected by the seller.
  • As a result, whenever the value of the sale/purchase exceeds Rs.50 lakhs in a financial year, both TDS u/s 194Q and TCS u/s 206C(1H) will apply to the same transaction.
  • Finance Act 2020, w.e.f. 1-10-2020, included Sec 206C(1H) for the first time. TDS on Purchase of Goods is regulated in the Finance Act of 2021. Section 194Q will become effective on July 1, 2021.
  • If we try to establish a clear distinction between these two regulations, Section 206C(1H) casts responsibility of collecting TCS on Sale of Goods on Seller and Section 194Q casts responsibility of deducting TDS on Buyer in case of Purchase of Goods
  • Section 206C(1H) provides a clear exclusion for TCS applicability in cases where TDS has already been deducted by the buyer when making payment for the purchase of goods.
  • Taking these two provisions of TDS and TCS into account, we are attempting to identify possible practical scenarios in which the TDS/TCS provisions will become applicable for a business concern.
  • The influence of TDS and TCS on the purchase and sale of goods is discussed in the following paragraphs.

More read for related blogs are: New revise TDS/TCS due date for filing Return and Payment for the year 2020

Q.: What should you do if TDS is required to be deducted under another section and TDS u/s 194Q also applies to a transaction?

The provisions of Section 194Q are not applicable if TDS is required to be deducted under any other section of the Income Tax Act.

Comparison of 194Q and 206C (1H):

Basis of comparison

TDS on purchase of goods
[Section 194Q]

TCS on Sale of goods
[Section 206C(1H)]

Who is liable for deduction/collection Buyer is liable to deduct the tax Seller is liable to collect the tax
Turnover limit of deductor or collector The total sales, gross receipts or turnover of the buyer from the business should exceed Rs. 10 crores during the financial year immediately preceding the financial year in which such goods are purchased The total sales, gross receipts or turnover of the collector from the business should exceed Rs. 10 crores during the financial year immediately preceding the financial year in which such goods are sold
Effective date 1st July 2021 1st October 2020
Rate 0.1% 0.1% (0.075% for FY 2020-21)
Amount on which tax to be deducted/collected On the amount of purchase in excess of Rs. 50 lakhs On the amount of sale consideration received in excess of Rs. 50 lakhs
PAN not available 5% 1%
Time of deduction/collection At the time of credit or payment, whichever is earlier At the time of receipt
Exclusions Not applicable if

a.   Tax is deductible under other provisions of the act

b.   Tax is collectible under 206C other than 206C (1H)

If Buyer is

a.  Importer of goods

b.  Central/State Government, Local Authority

c.   An embassy, High Commission, legation, commission, consulate and trade representation of a foreign state

Preference to be given Purchaser is first liable to deduct the tax if the transaction could be subject to both provision Seller shall be liable to collect the tax only if the purchaser is not liable to deduct the tax or purchaser failed to deduct tax
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
  • Please note that if the Buyer’s PAN is not provided, the rate under section 206(1H) will apply.
  • It’s also worth noting that Section 194Q doesn’t differentiate between capital goods and stock in commerce. If the transaction meets the Section’s monetary limits, the provisions of Section 194Q will apply equally to the purchase of capital goods.

Read also : key features of TCS on goods sale section-206c

Priority between TDS 194Q or TCS 206C(1H)

  • Yes, TDS 194Q will take precedence over TCS 206C(1H) if both provisions are applicable to the buyer and seller in the same transaction. It indicates that if a buyer is required to deduct TDS on a purchase transaction under Section 194Q,
  • the seller is not permitted to collect TCS on the same transaction for which the buyer has already deducted TDS. In other words, the buyer is responsible for deducting the tax first and foremost.
  • In theory, this is straightforward, but in practise, it will be difficult for both parties to determine whether the seller will collect TCS or whether the buyer must deduct TDS. Both parties must discuss and share their perspectives on applicability.

Bill To Bill Bifurcation of receipts is not required

  • In most circumstances, the seller keeps a running account of the buyer, in which payments are not tied to a specific sale invoice. As a result, in order to make the collector’s compliance easier,
  • it should be highlighted that this TCS requirement will apply to the amount of all sale consideration received on or after
  • 1st October, 2020, without any adjustments for amounts received in connection with sales made prior to that date. requiring the collector to identify and exclude amounts received on or after the 1st of October, 2020 from amounts received on or after the 30th of September, 2020 would have imposed an unreasonable compliance burden on the collector as well as increased the risk of litigation.

Example 1

Particulars (assumed that the transactions have occurred after    01st July 2021) Scenario 1 Scenario 2 Scenario 3
Turnover of Seller (In cr.) 12 6 12
Turnover of Buyer (In cr.) 6 12 12
Sale of goods (In cr.)                                    (A) 2 2 2
Sales consideration paid during the year

(In cr.)                                                         (B)

1 1 1
Who is liable to deduct or collect tax? Seller Buyer Buyer
Rate of Tax (Seller/Buyer has provided PAN and has satisfied section 206AB) 0.1% 0.1% 0.1%
Amount on which tax to be deducted or collected (In Cr.)

[Amount in excess of Rs. 50,00,000 is the taxable amount]

0.5

[(B) – 0.5]

1.5

[(A) – 0.5]

1.5

[(A) – 0.5]

Tax to be deducted or collected 5,000 15,000 15,000

Example 2

Seller’s Turnover Buyer’s Turnover Sale or purchase consideration for goods (after 1st July 2021) Taxable amount Seller / Buyer PAN TDS TCS Obligated Person to deduct or collect tax Relevant Section
(in Crores (in crores) (in lakhs)
7 15 55 5 Yes 0.10% NA Buyer Section 194Q
15 6 59 9 Yes NA 0.10% Seller Section 206C(1H)
18 16 65 15 Yes 0.10% NA Buyer Section 194Q
5 11 53 3 No 5% NA Buyer Section 194Q/ 206AA
16 7 56 6 No NA 5% Seller Section 206C(1H)/ 206AA

Example 3 –

Mr. A, a buyer with an annual revenue of INR 50 crores. Mr. A buys products valued INR 52 lakhs from Mr. B, a seller.

The following is an analysis of the applicability of section 194Q in the current transaction:

  • Because the buyer’s turnover exceeds INR 10 crores, the provisions of section 194Q apply.
  • In addition, the customer has acquired things worth more than INR 50 lakhs.

The buyer will be able to deduct TDS under section 194Q in the following way:

Particulars Amount
Taxable amount (INR 52 Lakhs – INR 50 Lakhs) INR 2 Lakhs
Rate at which TDS deductible under section 194Q 0.1%
Amount of TDS deductible INR 200

Example 4 –

Mr. X, a buyer, has INR 40 crores in gross receipts. Mr. X purchases goods worth INR 60 lakhs from Mr. Y. Notably, Mr. Y, a seller, has a revenue of INR 15 Crores.

The following is a description of how the provisions of Section 194Q were applied in the above transaction:

  • Section 194Q provisions apply if the buyer’s gross receipts exceed INR 10 crores.
  • However, if a seller’s turnover exceeds INR 10 crores, the provisions of section 206C(1H) become applicable.
  • The applicability of TDS/TCS provisions is examined below.

Because both provisions, namely sections 194Q and 206C(1H), are applicable. TDS is only deductible under Section 194Q, as shown in the table below.

Particulars Amount
Taxable amount (INR 60 Lakhs – INR 50 Lakhs) INR 10 Lakhs
Rate at which TDS deductible under section 194Q 0.1%
Amount of TDS deductible INR 1000

Read also : New TDS deduction No cash transactions exceeding 1 Crore -Section 194N

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Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders. Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields. We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.

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