Section 194Q & Section 206C(1H) of Income Tax Act
Finance Act, 2020 had introduced Section 206C (1H) for levy of Tax collected at source (TCS) on sale of goods by a seller from a buyer.
Finance Act, 2021 has introduced Section 194Q to provide for deduction of tax (TDS) by a buyer from the purchase of goods.
It is clarified that where provisions of both TCS on sale of Goods u/s 206C(1H) and TDS on purchase of Goods u/s 194Q are applicable, provisions of TDS u/s 194Q shall prevail.
A. TDS on purchase of goods under Section 194Q (w.e.f. 01-07-2021)
As per Section 194Q of the Income Tax Act, 1961, any person, being a buyer who is responsible for paying any sum to any resident for purchase of any goods of the value where aggregate of such value exceeds Rs. 50 Lacs 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 Rs. 50 Lacs as income-tax (TDS).
Buyer means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs.10 crores during the financial year immediately preceding the financial year in which the purchase of goods is carried out.
B. TCS on Sale of Goods under Section 206C(1H) (w.e.f. 01-10-2020)
As per Section 206 C (1H) of the Income Tax Act, 1961, every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax (TCS)
Seller means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs. 10 crores during the financial year immediately preceding the financial year in which sale of goods is carried out.
C. Comparison between Section 194Q and 206C(1H)
| Basis of Distinction | Section 194Q-TDS on Purchase of Goods | Section 206C(1H)-TCS on Sale of Goods |
|---|---|---|
| Applicable on | Buyer | Seller |
| Applicable From | 01-07-2021 | 01-10-2020 |
| Turnover Limit | Turnover > 10 Cr during preceding FY | Turnover > 10 Cr during preceding FY |
| Threshold Limit | Purchases from Seller > 50 Lacs during FY | Sales to buyer > 50 Lacs during FY |
| Rate | 0.1% of Purchase Value > 50 Lacs during FY | 0.1% of Sales Receipts > 50 Lacs during FY |
| Time of deduction | Credit or Payment – whichever is earlier | At the time of receipt |
| PAN not available | 5% | 1% |
| Quarterly Statement to be filed | 26Q | 27EQ |
| Certificate to be Issued | Form 16A | Form 27D |
D. Points to be Noted & Compliance in Section 194Q / 206C(1H)
- In case the buyer fails to comply with the tax deduction provisions covered under section 194Q, then, as per the provision of section 40a(ia), there would be disallowance of expenditure up to 30% of the value of the transaction.
- No adjustment on account of sales returns, discounts or indirect taxes is required to be made as per CBDT circulars & press release.
- Provisions of section 194Q apply to the purchase of both types of goods i.e. capital as well as revenue as not specifically mentioned.
- Turnover details for vendors & customers has to be maintained for TDS / TCS.
- Declaration has to be obtained from vendors / customers every year in respect of income tax return filing & TDS/TCS exceeding Rs. 50,000/- but as per latest Circular No. 11 of 2021 dated 21/06/2021 by CBDT these compliance burden has been reduced by new functionality called Compliance Check for Sections 206AB & 206CCAavailable at Income Tax Portal.
- Accounting System / ERP has to be updated for every customer / vendor masters.
E. Declaration Format in respect of Section 206AB for deducting TDS u/s 194Q
Declaration in respect of section 206AB of the Income-tax Act, 1961 (“Act”) in order to deduct TDS u/s 194Q
Date:
To
Address of Buyer
We, “Name of Seller” having registered office at “Address of Seller” having PAN “PAN of Seller” and TAN “TAN of Seller” do hereby solemnly affirm and declare that:
Income-tax returns for the below mentioned financial years are duly filed by us as per the prescribed deadline under the Income-tax Act, 1961.
| Financial Year | Income-tax Return Acknowledgement Number | Due date u/s 139(1) for your organization | Date of filing of Income-tax return |
|---|---|---|---|
| FY 2018-19 | |||
| FY 2019-20 |
We declare and certify that aggregate of tax deducted at source and tax collected at source in our case is Rs 50,000 or more in each of the above two Financial Years
We confirm that the above details are true and to the best of our knowledge and any deviation in the same shall be brought to the knowledge of “Name of Buyer” immediately. Further, we would be responsible to “Name of Buyer” for payment of any additional taxes, interest or penalty in case the information is found to be incorrect.
Accordingly, we hereby request you to not deduct TDS as per provisions of section 206AB of the Act.