Comparison of 194Q (TDS on Purchases) and 206C(1H) (TCS on Sales)

CACSCMA com
June 19th 2021


In this post, I will try to compare the requirements of Section 194Q (TDS on Purchases) and 206C(1H) (TCS on Sales)

Sec 194Q - applicable from 1st Jul 2021 - Buyer is required to deduct TDS @ 0.1% if the Value of Purchase >50 Lakh
Sec 206C(1H) - applicable from 1st Oct 2020 - the SELLER is required to collect the tax (TCS) if the sale of goods to buyers exceeds Rs.50 lakhs.

 

Sound confusing? Let me try and compare and help you with further analysis.

 

What are these 2 sections:

  • Under section 194Q the buyer is liable to deduct the tax (so that Seller's Income in coming under tax remit)
  • Under section 206C(1H) the seller is required to collect the tax (so that Buyer's Purchasing power / Income in coming under tax remit)


From when it is applicable

  • Section 194Q - applicable from 1st July 2021 - Finance Act 2021 inserted a new section 194Q which says that the BUYER is required to deduct the tax if the purchase of goods from the seller exceeds Rs. 50 lakhs
  • Section 206c(1H)- applicable from 1st Oct 2020 -  Finance Act 2020 had amended section 206C of the Income-tax Act 1961 by inserting a new subsection (1H) which says that the SELLER is required to collect the tax if the sale of goods to buyers exceeds Rs.50 lakhs.


Definition of Buyer & Seller

As per Section 194Q (1) “buyer” means a person whose total sales, gross receipts, or turnover from the business exceeds 10 Crores during the financial year immediately preceding the financial year in which the purchase of goods is carried out. The seller is not Defined here.

While as per Section 206C (1H) “buyer” means a person who purchases any goods, but does not include
a) Government
b) Local Authority
c) Importer of the goods. 
As Section 206C(1H) mentions: “seller” means a person whose total sales, gross receipts, or turnover from the business carried on by him exceeds 10 Crores during the financial year immediately preceding the financial year in which the sale of goods is carried out.


Deduction and Threshold limit

  • Under Section 194Q, the rate of TDS/ TCS is 0.1% if the Value of Purchase >50 Lakh. If the PAN is not Furnished then 5%. 
  • Under Section 206C(1H), the rate of TDS/ TCS is 0.1%, if the Value of Sales >50 Lakhs. If the PAN is not Furnished then 5%.

Time of Deduction/ Collection- 

  • Under Section 194Q- Credit to seller or Payment to the seller, whichever is earlier. 
  • Under Section 206C(1H)- At the time of Receipt


Which section will prevail:

Section 194Q (5) Specifies: The provisions of this section shall not apply to a transaction on which: –
Tax is deductible under any provisions of this Act: and
Tax is collectible under the provisions of Section 206C, other than a transaction to which subsection (1H) of Section 206C applies.

It can be said that the 194Q will Prevail over 206C (1H) if both seller and Buyer are liable for compliance.

The second proviso to Section 206C(1H) provides “the provisions of this subsection shall not apply if the buyer is liable to deduct tax at source under any other provisions of this Act on the goods purchased by him from the seller and has deducted such amount.

Resident / Non Resident
Both the Provisions will apply only in the case where Buyer and Seller both are Resident, if one of them is Non-Resident then these Provisions will not Apply.


Example
Section 194Q - If seller have already issued invoice of worth INR 40 Lakhs, and again issuses invoice of INR 25 Lakhs, for the the sale of goods. The buyer shall deduct and deposit TDS on an amount of INR 15 Lakhs i.e (40+25-50)*0.1% which is INR 1500.

Section 206C(1H) - Supppose seller receives INR 60 Lakhs in a FY from a buyer.Then TCS amount to deposited to government can be computed as follows –
Consider, INR 10 (Exlusive of TCS) Lakhs.
TCS = INR (10,00,000*0.1/100) i.e. INR 1000/-
And issue debit note of such amount to buyer.
 

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