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