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Section 194Q which will be effective from 01-July-2021, and applicable to Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 percent. of such sum exceeding fifty lakh rupees as income-tax.

The TDS is only required to be deducted by those people (i.e buyer) 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.

Section 194Q and 206C(1H)

Reason to come up with Section 194Q

Last year the government implemented TCS provision for Seller on Receipt of Sales of Goods, more than Rs. 50 Lakhs as sale consideration, during the current financial year. The TCS is payable on the amount of receipt which is greater than 50 Lakhs and received after 1st. Oct. 2020. The rate of TCS is 0.1% and Due to COVID-19 Pandemic Rate of TCS reduce by 25 % until 31 March 2021 and its effective rate is 0.075%. Another Condition for its applicability was '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.

There were instances where Seller Turnover is less than 10 Crore but his receipt from sales of goods to a particular buyer exceeding Rs.50 Lakhs. Therefore, there was no liability of TCS on seller. To handle this situation Government come up with a similar type of provision for Purchaser (Buyer) via TDS applicability.

Decoding of Provision

  • '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
  • In case Seller provided PAN card details, Rate will be 0.1% otherwise it will deduct @5 % as per Sec 206
  • TDS Amount will be deducted by the buyer on paying sum exceeding Rs.50 Lakhs for purchase of goods in any previous
 

Amount will be deducted on earlier of following

  • Payment Date
  • Credit of such sum to the account of the seller

The provisions of this section shall not apply to a transaction in the following cases:-

  • Tax is deductible under any of the provisions of this Act; and
  • Tax is collectable under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies (TCS).

Key features on TCS as per inserted to Sec.206C(1H) e.f.01.10.2020.

  • TCS under Section 206C(1h) is applicable on all supply of goods except Timber, Tendu leaves, forest products, scrap, minerals i.e. Iron ore etc., because such goods are already covered under TCS as per Sub-Section (1), Sub-section(1C), Sub-Section (1F) and Sub-section (1G) of section
  • New Sec. 206C(1H ) shall be only on the amount on the amount received on or after 1st October 2020 from a particular buyer from 01.10.2020 only. For Ex: If a seller who has received Rs.1Cr before 1st October 2020 from a particular buyer and receives Rs.5 Lakhs after 1st Oct 2020 would be required to collect tax on Rs.5 Lakhs only and not on 55 Lakhs i.e. Rs.1.05 Cr minus Rs.50 Lakhs (Threshold limit) by including the amount received before 1st Oct 2020.
  • TCS is not applicable on export of goods to outside
  • TCS is not applicable on Import of Goods into
  • TCS is not applicable if the buyer is liable to deduct TDS under Sub-section (1)(1C)(1F and (1G) of section 206 of Income Tax Act
  • Threshold limit to apply for TCS is Rs.10 cr. For the purpose of calculation of TCS this threshold of Rs.50 lakhs of supply of goods. The receipts from the beginning of the financial
 
  • TCS will be applicable w.e.f.01.10.2020, sub-section 206C(1H) imposes a responsibility of collection of TCS on every person whose total sales, gross receipts or turnover during the preceding financial year 2019-20 is more than 10 Crores. Such a person is liable to collect TCS @0.1% on the amount exceeding Rs.50 Lakhs during the financial in respect of goods sold to a
  • If the seller is providing his PAN & Aadhaar number, under that circumstances the TCS rate shall be applicable @1% instated 1%.
  • For the purpose of calculating the threshold limit of Rs.10 Crore, the total turnover including gross receipts and sales is to be taken into consideration whereas for computing the threshold of Rs.50 Lakhs only sale of supply of goods under GST Law is to be
  • As per Exclusion provision under Sec194Q, TCS and TDS both will be applicable in case of an exchange of amount between Seller and Buyer, exceeding Rs.50 Lakhs, in any previous
  • But this is been covered under Sec 206C (1H), which specify that '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'.

Illustration

Seller Turn -over (In Crore) Buyer Turn- over (In Crore) Receipt or Payment for sale or purchase of Goods in the previous year (In Lakhs) Amt. on which tax will be calculated Seller PAN Buyer PAN TDS TCS Liable Person Section under IT Act Exclusion Section Reason
7 11 55 5 Available N/A Yes @0.1 % N/A Buyer 194Q Out of scope of Sec 206C (1H) Seller Turnover less than 10 Cr.
16 9 60 10 N/A Available N/A Yes @0.1 % Seller 206C(1H) Out of scope of Sec 194Q Buyer Turno ver less than 10 Cr.
11 13 54 4 Available Available Yes @0.1 % N/A Buyer 194Q Out of scope of Sec 206C (1H) Exclusion Provided under Sec 206C(1H)
8 14 60 10 Not Available N/A Yes @5% N/A Buyer 194Q/ 206AA Out of scope of Sec 206C (1H) Seller Turnover less than 10 Cr.
18 9 55 5 N/A Not Available N/A Yes @1% Seller 206C(1H) / 206AA Out of scope of Sec Buyer Turnover less than 10 Cr.
                    194Q  
8 9 52 0 Available Available N/A N/A N/A N/A N/A N/A

Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a piece of professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information

The author can also be reached at ca.ndsoni@outlook.com

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