TDS on Purchase of Goods U/S 194Q &
TCS on Sale of Goods U/S 206C(1H)
Table of Contents
Sr. Particulars Page No.
No.
1 Distinction Between 194Q 3-5
& 206C(1H)
2 Scenarios 6
3 FAQ’s 7-13
4 Due Dates 14
5 Interest on Late payment 15
& late fees on late filing
Distinction between 194Q & 206C(1H)
Basis of Distinction TDS on Purchase of Goods TCS on Sale of Goods
Section 194Q Section 206C(1H)
With effect from July 1 , 2021 October 1, 2020
Who is liable for Buyer Seller
deductions /
collections
Turnover Limit The total sales, gross The total sales, gross
receipts or turnover of the receipts or turnover of the
buyer from the business collector from the business
should exceed Rs.10 crores should exceed Rs.10 crores
during the financial year during the financial year
immediately preceding the immediately preceding the
financial year in which such financial year in which such
goods are purchased goods are sold
Threshold limit of If the value of Purchases If the value of sales exceed
Purchase / Sale exceed Rs.50 Lakhs Rs.50 Lakhs
(inclusive of GST) (inclusive of GST)
Distinction between 194Q & 206C(1H)
Basis of Distinction TDS on Purchase of Goods TCS on Sale of Goods
Section 194Q Section 206C(1H)
Rate 0.1% 0.1%
Amount on which On the amount of purchase On the amount of sale
tax to be deducted / in excess of Rs.50 Lakhs consideration in excess of
collected Rs.50 lakhs
Time of deductions/ At the time of credit or At the time of receipt
Collections payment, whichever is
earlier
Preference to be Purchaser is first liable to Seller shall be liable to
given deduct the tax if the collect the tax only if the
transactions could be purchaser is not liable to
subject to both provisions. deduct the tax or purchaser
failed to deduct the Tax.
Distinction between 194Q & 206C(1H)
Basis of Distinction TDS on Purchase of Goods TCS on sale of Goods
Section 194Q Section 206C(1H)
Non furnishing of 206AA 206CC
PAN Higher rate @5% Higher rate @ 1%
Default in filing ITR 206AB 206CCA
for previous 2 years Twice the rate specified or in Twice the rate specified or
& aggregate of force or 5% 5%
TDS/TCS is > 50,000
in the both the years
Both PAN is not Higher of rate of section Higher of rate of section
available and ITR 206AA & 206AB 206CC & Section 206CCA
not filed for 2 years
Scenarios
Scenario Turnover Turnover Turnover TDS u/s TCS u/s
of Buyer of Seller 194Q 206C(1H)
I > 10Cr > 10Cr > 50Lakhs 0.1% NA
II > 10Cr > 10Cr < 50Lakhs NA NA
III > 10Cr < 10Cr > 50Lakhs 0.1% NA
IV < 10Cr > 10Cr > 50Lakhs NA 0.1%
V < 10Cr < 10Cr > 50Lakhs NA NA
VI < 10Cr > 10Cr < 50Lakhs NA NA
FREQUENTLY ASKED QUESTIONS-
Q1. What if both the sections 194Q and 206C (1H) are applicable to a
transaction?
Both the sections are mutually exclusive i.e.; if one will apply other will not be
applicable.
Section 206C (1H) states that TCS will not be applicable if buyer is liable to deduct
TDS under any other provisions of the Act. On the contrary, Section 194Q does not
create any such exception for the transactions on which tax is collectible under
Section 206C (1H).
The provisions of Section 194Q supersedes Section 206C (1H) and imposes primary
liability on buyer to deduct tax. In such a situation, Buyer will have to convey to
Seller to refrain from collecting TCS as Buyer will deduct TDS u/s 194Q.
Q2. From when are the provisions of Section 194Q applicable?
The provisions of Section 194 Q are made applicable with effect from July 1st, 2021.
Point of Taxation: TDS shall be deducted (i) at the time of credit of such sum to the
account of the seller or (ii) at the time of payment thereof by any mode; whichever
is earlier.
TDS is to be deducted even if such amount is credited to “Suspense Account”.
FREQUENTLY ASKED QUESTIONS-
Q3. What will be implication of payment of outstanding balance as on 30th June
2021 or an advance payment made before 30th June 2021?
Point of Taxation is date of payment or date of credit whichever is earlier. In
referred scenario, one of the triggering event occurred before the point of taxation
and ideally Tax should not be deductible on such sum.
However, department may want to take a contrary view. Therefore, as a prudence
measure to avoid litigation, it is advisable to deduct TDS on such sum. A clarification
from CBDT would be much appreciated in this regard.
Q4. What constitutes goods?
Goods are not defined under Income Tax Act, 1961. Therefore, we have to refer
to most appropriate definition as per other Act or as per General Clauses Act,
1897. Sale of Goods Act, 1932 defines goods as follows:
Goods’ means every kind of movable property other than actionable claims and
money; and includes stock and shares, growing crops, grass, and things
attached to or forming part of the land which are agreed to be severed before
sale or under the contract of sale”
FREQUENTLY ASKED QUESTIONS-
Q5. What are the consequences of non-deduction of TDS under the provisions of
Section 194Q?
If buyer fails to deduct and deposit TDS at applicable rates, expenditure to the
extent of 30% will be disallowed under Section 40a (ia) of the Act
Q6. Do we have to deduct TDS on payment to a seller residing abroad?
If a person being a buyer has to make payment for the goods imported in India, then
TDS is not required to be done as this Section is applicable on payments made to
resident seller.
Q7. Is buyer liable to deduct TDS on advance payment made?
Since the advance payment is made against purchase of goods, TDS on same shall be
deductible subject to fulfilment of other conditions.
FREQUENTLY ASKED QUESTIONS-
Q8. Whether TDS u/s 194Q is required to be deducted on the total invoice
amount inclusive of GST or only on the value of goods excluding GST?
The provisions of Section 194Q are silent on applicability of TDS on amount of GST.
However, on perusal of the Circular 17/2020 dated 29.09.2020, CBDT clarifies TCS
under Section 206C (1H) is applicable on amount of sales consideration and no
adjustments on account of indirect taxes (including GST) is required to be done.
However, applying the principles of recently issued circular for TCS, since 194Q is to
be deducted on purchase value, it is advisable to deduct TDS on GST inclusive
amount till a clarification is issued by CBDT to avoid litigation.
Q9. Whether the threshold for TDS is to be reckoned for each seller separately?
TDS is to be deducted on payment made to a resident seller for purchase of goods in
excess of Rs. 50 lakhs in a year. The limit is to be calculated separately for each
seller and for every financial year.
FREQUENTLY ASKED QUESTIONS-
Q10. Whether Loading & Unloading Charges, Packaging Charges, Freight Charges
and other incidental charges form part of consideration for “goods”?
As long as such incidental charges are mentioned in the same invoice, it forms part
of intrinsically linked with goods and TDS shall be applicable on total invoice value
including such incidental charges.
However, if a separate invoice is issued for the same, no TDS would be applicable as
Packing Charges alone would not constitute goods.
Q11. Goods includes Stocks and Shares. Whether TDS will be required in case of
investment in Units of Mutual Funds?
Goods includes every kind of movable property including stocks and shares. Hence,
mutual fund units would also be covered under the definition of goods and would
be liable for TDS. It is worthwhile to mention here that CBDT had issued a Circular
No 17/2020 dated 29th September, 2020 to exclude transaction in securities and
commodities carried out on recognized stock exchange from purview of TCS u/s
206C(1H). Similar exemption in case of TDS u/s 194Q can be expected.
FREQUENTLY ASKED QUESTIONS-
Q12. Whether effect of Credit Notes or Debit Notes is required to be given to
identify deductible amount?
As per the provisions of 206C(1H) and corresponding clarification issued by CBDT
vide Circular No. 17/2020 in respect of 206C(1H). TCS is collectible on “any amount
as consideration for sale of any goods of the value or aggregate of such value…”
CBDT mentioned that “no adjustment on account of sale return or discount or
indirect taxes including GST is required to be made for collection of tax u/s
206C(1H) since the collection is made with reference to receipt of amount of sale
consideration.”
TDS u/s 194Q is deductible on any sum payable “for purchase of any goods of the
value or aggregate of such value…”.
Therefore, purchase value should not be adjusted to give effect to debit and credit
notes issued for purchase return, discount, rate changes, etc.
Due dates
Particulars TDS TCS
Due date of Payment
Every Month ( other than 7th day of next month 7th day of next month
March)
For the month of March 30th April of Next year 7th day of next month
Due date of Return Filing
April to June (Q1) 31st July 15th July
July to September (Q2) 31st October 15th October
October to December (Q3) 31st January 15th January
January to March (Q4) 31st May 15th May
Interest on Late Payment & Late Fees on
Late Filing of Returns
Non-Deduction of TDS
• Rate of Interest: 1% pm for a month or part of the month.
Late payment of TDS after deduction
• Rate of Interest: 1.5% pm for a month or part of the month.
Interest on late payment of TCS
• Rate of Interest: 1% pm for a month or part of the month.
Late filing fees under section 234E
• As per section 234E, where a person fails to file the TDS/TCS return on or
before the due date prescribed in this regard, then he shall be liable to pay, by
way of fee, a sum of Rs. 200 for every day during which the failure continues.
The amount of late fees shall not exceed the amount of TDS.
Disclaimer
This tax update is only for the purpose of information and does not constitute or
purport to be advice or opinion in any manner. The information provided is not
intended to create an advisor-client relationship and is not for advertising or
soliciting. The author is not responsible for any error or mistake or omission in
this article or for any action taken or not taken based on the contents of this
article. This is for guidance purposes only. No legal action against the writer or
presenter can be taken. Refer to relevant provisions and facts of the case.
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