TDS Section 194Q vs TCS Section 206C1H

Finance Bill, 2021 vide clause 48 inserted a new section 194 Q relating to deduction of tax at source on payment of certain sum for purchase of goods. This section will come into effect from 01.07.2021. TDS on Service is applicable since long back, but this is first time in the history of Income Tax Act, 1962 that TDS provisions are made applicable on purchase of goods.

It is also pertinent to mention here that TCS on sale of goods was inserted vide section 206 C (1H) with effect from 01.10.2020.

Let us now analyze both these section and relationship between them

DEDUCTION OF TAX AT SOURCE ON PAYMENT OF CERTAIN SUM FOR PURCHASE OF GOODS – SECTION 194 Q

194Q.

1. Any person, being a (1) buyer (2) who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for (3) purchase of any goods of the value or (4) aggregate of such value exceeding fifty lakh rupees in (5) any previous year, shall, at the time of (6) credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, (7) deduct an amount equal to 0.1 per cent. of such sum (8) exceeding fifty lakh rupees as income-tax. Explanation.––For the purposes of this sub-section, (9) “buyer” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
2. Where any sum referred to in sub-section (1) is credited to any account, whether called (10) “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
3. If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
4. Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.
5. The provisions of this section shall not apply to a transaction on which––
   1. (a) (11) tax is deductible under any of the provisions of this Act; and
   2. (b) (12) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.’

ESSENTIAL REQUIREMENT FOR APPLICABILITY OF SECTION 194 Q

1. Applicable on ‘BUYER’ ;
2. On Domestic Transactions i.e. Payment to resident only;
3. On purchase of goods;
4. Aggregate Purchase value exceeding Rs. 50 Lac;
5. In Previous year;
6. At the time of credit or payment;
7. TCS @ 0.1 % deductible.
8. On amount exceeding Rs. 50 Lac;
9. Buyers means whose total receipt exceed Rs. 10 Crore during previous year;
10. TDS deductible even if amount transferred to suspense account;
11. TDS not deductible if tax is deductible under any of the provisions;
12. TDS not deductible if tax is collectible under section 206 C;
13. TDS deductible even if tax is collectible under section 206 C (1H);

COLLECTION OF TAX AT SOURCE ON RECEIPT OF CERTAIN SUM FOR SALE OF GOODS – SECTION 206 C (1H)

(1H) Every person, being a (1) seller, who receives any amount as consideration for (2) sale of any goods of the value or (3) aggregate of such value exceeding fifty lakh rupees in any (4) previous year, (5) other than the goods being exported out of India or (6) goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, (7) at the time of receipt of such amount, collect from the buyer, a sum equal to (8) 0.1 per cent. of the sale consideration (9) exceeding fifty lakh rupees as income-tax:

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent.”, the words “one per cent.” had been substituted:

(10) 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.

Explanation.––For the purposes of this sub-section,––

(a) (11)  “buyer” means a person who purchases any goods, but does not include,––

(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B) a local authority as defined in the Explanation to clause (20) of section 10; or

(C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;

(b) (12) “seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

ESSENTIAL REQUIREMENT FOR APPLICABILITY OF SECTION 206 C (1H)

1. Applicable on ‘SELLER’ ;
2. On Sale of goods;
3. Aggregate Sale value exceeding Rs. 50 Lac;
4. In Previous year;
5. On Domestic Transaction i.e. Receipt from resident only;
6. Not applicable if TDS deducted under section (1) ; (1F) or (1G)
7. At the time of receipt of amount;
8. TCS @ 0.1 % deductible.
9. On amount exceeding Rs. 50 Lac;
10. Seller means whose total receipt exceed Rs. 10 Crore during previous year;
11. ‘Buyer’ does not include Central, State Government, Local Authority, Importer;
12. TCS not deductible if tax is deductible under any of the provisions;

Now we analyze the relationship between TCS u/s. 206 C and TDS u/s. 194 Q of Income Tax Act, 1962.

Common points between these two sections:-

1. Both sections are applicable on goods.
2. Both are applicable in case of domestic transactions.
3. Both are applicable when aggregate value exceeds Rs. 50 Lac in previous year.
4. Both are applicable when gross receipts/turnover exceeds Rs. 10 Cr. In previous year.
5. Threshold for both sections is Rs. 50 Lac in current year.
6. In both sections Rate of Tax is 0.1%.

Difference between these two sections:-

1. TCS is on Seller, whereas TDS is on Buyer.
2. TCS is on Sale, Whereas TDS is on Purchase.
3. TCS is on Receipt, whereas TDS is on Payment.
4. TDS applicable even if amount transferred to suspense account. No such provision in TCS.
5. TCS not applicable on sale to Central / State Government & Local Authority.
6. TDS u/s. 194 Q not deductible if deductible under any other section.
7. TDS u/s. 194 Q not deductible if TCS collectible u/s. 206 C other than 206 C (1H).
8. TDS u/s. 194 Q deductible even if TCS collectible u/s. 206 C (1H).

 It means every single transaction of sale / purchase will be subject to either TDS u/s. 194 Q or TCS u/s. 206 C (1H).

Now, the question arises how to determine whether particular transaction will be subject to TDS by Buyer or TCS by Seller. To understand whether TDS or TCS will be applicable following parts of the sections are relevant:

Section 194 Q :

(5) The provisions of this section shall not apply to a transaction on which––

(a) tax is deductible under any of the provisions of this Act; and

(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.’ 

As per this clause TDS under section 194 Q is required to be deducted even if TCS is leviable under section 206 C (1H). 

Section 206 C (1H) :

(10) 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.

As per this clause TCS is not required to be collected if buyer is liable to deduct TDS and deducted TDS.

After going through both the provisions it is abundantly clear that TDS is primary and TCS is secondary. If the buyer is required to deduct TDS on the purchase then seller is not required to collect TCS on sale in the same transactions.

Now, Seller is required to check following two conditions to check whether TCS will be charged or not:

1. Whether Buyer is required to deduct TDS; and
2. Buyer has deducted TDS.

First condition can be met by taking a declaration from the buyer that whether he is required to deduct TDS or not. Second conditions can be checked at the time of receipt of payment by seeing whether buyer has deducted TDS or not.

Hence, it is very important to make a point in Agreement / Purchase order that if buyer gives a declaration that he is liable to deduct TDS and further deduct TDS, then TCS will be not be charged otherwise TCS at the rate applicable will be on buyer’s account  and will be charged through debit note.

CONSEQUENCES OF NON-COMPLIANCES

Fees for default in furnishing statement:

Quarterly Statement of TDS / TCS is required to be filed under sections 200 (3) and 206 C (3) of Income Tax Act, 1961 by 15^th after the end of the quarter.

As per Section 234 E, a fee of Rupees Two Hundred per day during which the failure continues but shall not exceed the amount tax deductible or collectible.

Interest for late payment of TDS / TCS :

As per section 206 C (7), interest @ 1% per month or part of month is required to be paid along with TCS from the date on which such tax was collectible to the date on which the tax was actually paid.

As per section 201 (1A), interest on late payment of TDS is as follows: –

• 1% for the month or part of month on tax from the date when it was deductible to actual date of deduction.
• 1.5% for the month or part of month on tax from the date when it was deducted to actual date of payment to Government