The Finance Act, 2020, inserted Sub-Section (1H) in Section 206C to provide for the collection of tax by a seller from the amount received as consideration for the sale of goods if it exceeds Rs. 50 lakhs in any previous year.
On similar lines, Finance Bill, 2021, proposes to insert a new Section 194Q to provide for deduction of tax by a buyer from the purchase of goods.
We have discussed in ensuing paras the new TDS provisions in juxtaposition to TCS provisions in a FAQ format for ease of understanding.
1. Who is liable to deduct tax under Section 194Q?
Under Section 194Q, the tax is to be deducted by a buyer carrying on a business whose total sales, gross receipts or turnover from the business exceeds Rs. 10 crores during the financial year immediately preceding the financial year in which such goods are purchased. This provision shall be applicable from 01-07-2021.
Thus, if the turnover of the purchaser was more than Rs. 10 crores in the financial year 2020-21 then the liability to deduct tax under this provision in the financial year 2021-22 shall arise.
2. When tax shall be deducted under 194Q?
Tax shall be deducted by the buyer at the time of credit in books or payment whichever is earlier. The tax shall be deducted even if the sums are credited to suspense account.
3. What are the conditions for tax deduction under 194Q?
Tax shall be deducted by the buyer at the time of credit in books or payment whichever is earlier if following conditions are satisfied:
The assessee qualifies as buyer as stated in FAQ 1
There is a purchase of goods from a resident person; - Therefore, import transaction are not subject to TDS.
Goods purchased are for a value or aggregate of value exceeding Rs. 50 lakhs during the financial year;
Exception – Transactions subject to TDS under this provisions will not be subject to TCS under Section 206C(1H). Therefore, the buyer has the first obligation to deduct the tax however, there is no clarity on whether the obligation would shift to seller where the buyer defaults.
4. At what rate tax is to be deducted?
Tax shall be deducted at the rate of 0.1% of the purchase value exceeding Rs. 50 lakhs. If the buyer does not furnish PAN or Aadhar then tax shall be deducted at 5% under 206AA.
5. On what amount tax is to be deducted?
Tax shall be deducted on the purchase value exceeding Rs. 50 lakhs. Therefore, if purchase during the year is of Rs. 2 crore, the liability to deduct will apply post 50 lakhs and hence deduction is to be made on 1.5 crores.
6. Where a transaction is covered by both the provisions ie. TDS under Section 194Q and TCS under Section 206C(1H), who shall be liable for deduction/collection of tax?
206C(1H) – This is a TCS provision introduced in Budget 2020 w.e.f. 1 October 2020 requiring seller to collect TCS at 0.1% on goods sold in India value of which exceeds Rs. 50 lakhs. The provision also provides that seller is not liable to collect tax if buyer is liable to deduct TDS under any other provision on goods purchased by him and has deducted such amount.
Section 194Q(5) provides that no tax is required to be deducted by a person under this provision if tax is deductible under any other provision or tax is collectable under section 206C [other than a transaction on which tax is collectable under Section 206C(1H)].
Therefore, section 194Q does not create an exception for section 206C(1H) whereas 206C(1H) creates an exception if tax is deducted under 194Q. Thus, primary responsibility of deducting tax is that on the buyer.
Comments