Comparative Analysis of Section 194Q & Section 206C(1H)

CA Harshal Jain | Last updated: 18 June 2021

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This article provides a comparative analysis of Section 194Q and Section 206C(1H) of the Income Tax Act, 1961, concerning TDS on purchase of goods and TCS on sale of goods, respectively. It details their effective dates, who is responsible (buyer for TDS, seller for TCS), turnover limits, tax rates, threshold limits, and when they apply. The analysis clarifies that both provisions will not apply to the same transaction, with Section 194Q taking precedence in cases of overlap.

Finance Act 2021 has introduced Section 194Q providing TDS on purchase of goods applicable w.e.f from 1st July 2021. Section 194Q is similar to Section 206C(1H) which was introduced by Finance Act 2020, requiring Seller to collect tax at source on transactions between a buyer and a seller. The below table covers a Comparative analysis of both the Sections of Income Tax Act, 1961 with illustrations simplifying the provisions.

Section 194Q vs 206C(1H): TDS and TCS Explained

Particulars	Section 194Q (TDS)	Section 206C(1H) (TCS)
Effective Date	1st July, 2021	1st October, 2020
Person responsible	Buyer	Seller
Applicability/ Turnover Limit	Turnover of Buyer > Rs 10 Cr in preceding Financial Year	Turnover of Seller > Rs 10 Cr in preceding Financial Year
Counter Party	Resident Seller	Resident Buyer
TDS/TCS Rates	0.1% on amount of Purchase of goods exceeding Rs. 50 Lakhs	0.1% on amount of Sale consideration received exceeding Rs. 50 Lakhs
TDS/TCS Rates	5% (If PAN not available)	1% (If PAN not available)
Threshold Limit	Threshold Limit of Rs. 50 lakhs shall be computed from 01-04-2021.	Threshold of Rs. 50 lakhs shall be computed from 01-04-2020.
Point of Taxation	Payment or Credit whichever is earlier	At the time of receipt
TDS/TCS on Advance Payment/Receipts	Yes	Yes
TDS/TCS Payment	7th of Next Month	7th of Next Month
TDS/TCS Return Form	26Q	27EQ
TDS/TCS Certificate	Form - 16A	Form - 27D
Whether TCS u/s 206C (1H) or TDS u/s 194Q will apply?	Both TDS u/s 194Q and TCS u/s 206C(1H) will not apply on the same Transaction. In case of potential overlap between the above provisions TDS u/s 194Q will apply and TCS u/s 206C(1H) will not apply.
Sample Illustrations	Examples	TCS u/s 206C (1H) or TDS u/s 194Q
	Buyer's Turnover - 20 Cr, Seller's Turnover - 5 Cr & Transaction Value - 1 Cr	TDS u/s 194Q
	Buyer's Turnover - 5 Cr, Seller's Turnover - 20 Cr & Transaction Value - 1 Cr	TCS u/s 206C (1H)
	Buyer's Turnover - 20 Cr, Seller's Turnover - 20 Cr & Transaction Value - 1 Cr	TDS u/s 194Q
	Buyer's Turnover - 5 Cr, Seller's Turnover - 5 Cr & Transaction Value - 1 Cr	NA
	Buyer's Turnover - 20 Cr, Seller's Turnover - 20 Cr & Transaction Value - 25 Lakhs	NA
Non Applicability	If TDS is applicable under any other provisions of the act.	If TDS is applicable under any other provisions of the act.
Non Applicability	Transactions on which TCS is applicable under 206C other than 206C(1H).	If buyer is - a) Importer of goods b) Center/State Govt., Local Authority c) An embassy, High Commission, Consulate and trade representation of a foreign state

Disclaimer: The information contained in this document prepared is for information purpose only. Please consult your professional before making any decision or taking any action using information contained in this document.

FAQ :

Section 194Q deals with Tax Deducted at Source (TDS) by the buyer on the purchase of goods, while Section 206C(1H) deals with Tax Collected at Source (TCS) by the seller on the sale of goods.

For Section 194Q, the buyer's turnover must exceed Rs 10 crore in the preceding financial year. For Section 206C(1H), the seller's turnover must exceed Rs 10 crore in the preceding financial year.

Both sections have a base rate of 0.1% on the amount exceeding Rs 50 lakhs. If the PAN is not available, the rate increases to 5% for Section 194Q and 1% for Section 206C(1H).

Both TDS under Section 194Q and TCS under Section 206C(1H) will not apply to the same transaction. In cases of potential overlap, TDS under Section 194Q will apply, and TCS under Section 206C(1H) will not.

The threshold limit of Rs 50 lakhs for Section 194Q is computed from 1st April 2021, and for Section 206C(1H), it is computed from 1st April 2020.

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About the Author

CA Harshal Jain

Founder : H P J & CO, Chartered Accountants

CA Harshal Jain is a member of Institute of Chartered Accountants of India with 8 years standing in the Profession. He has wide experience in the field of Accounting, Audit Assurance, Income Tax, Goods and Services Tax (GST). He had been associated with leading Private Sector Bank for its work related to Operations, T ... Read more

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