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W.E.F. 1ST JULY, 2021: STRINGENT PROVISIONS UNDER THE INCOME TAX ACT, 1961

The Finance Act, 2021 introduced following stringent provisions under Income Tax Act, applicable from 1st of July, 2021.

  1. TDS ON PURCHASE OF GOODS [SECTION 194Q] (We can check out difference between corresponding section 206C(1H) - W.E.F 01st -Oct-2020)
  2. TDS FOR NON-FILERS OF INCOME TAX RETURNS [SECTION 206AB]
  3. TCS FOR NON-FILERS OF INCOME TAX RETURNS [SECTION 206CCA] (We will discuss later on)

Now, in this article we can discuss only provision of section 194Q in details and Comparatives between Section 194Q vs 206C (1H) along with practical examples.

Stringent Provisions under the Income Tax Act w.e.f 1st July 2021

TDS ON PURCHASE OF GOODS [SECTION 194Q]

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 per cent. of such sum exceeding fifty lakh rupees as income-tax.

Analysis above section

Explanation of relevant terms used

  • 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 out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
  • 'seller' means a person who is resident.

Analysis of above provision in Layman Language

  • This provision shall be applicable in the hands of Buyer of goods.
  • The buyer has turnover exceeding Rs.10 crores during the immediately preceding financial year.
  • Buyer has purchased Goods whether it may be Input / Capital Goods.
  • Buyer has purchased goods from a resident seller and his PAN is available.
  • Aggregate Value of Purchase from resident seller during the current financial year exceeds Rs. 50 lakhs.
  • Above TDS is deducted @ the time of credit or payment, whichever is earlier.
  • TDS @0.1% (If no PAN of seller then TDS @ 5% as per section 206AA)
  • While calculating above threshold limit of Rs 50 purchase made form 1st of April,2021 will be counted but TDS to be deducted on amount of purchase done after 1st of July,2021 only.
  • Above provision is not applicable in following cases -
  1. Transaction on which TDS is applicable under any other section of the act (Example- 194C)
  2. Transaction on which TCS is applicable under 206C act Except 206(1H)
  3. Turnover of buyer (Excluding GST) does not exceed Rs. 10 Crore in preceding F.Y.
  4. When Seller is non-resident
  5. Value of purchases of goods does not exceed Rs. 50 Lakh during current FY.
  • Where the buyer fails to deduct and deposit TDS, purchase expenditure to the extent of 30% will be disallowed u/s 40a (ia) of the Income Tax Act, 1961 and shall be subject to income tax at applicable tax rate.
 

Conclusion

Check points for this section

  • If your turnover in preceding financial year exceeded Rs. 10 crores.
    • Identify your sellers from whom purchases has exceeded Rs. 50 lakhs during current FY.
    • Obtain PAN from such sellers.
    • Deduct TDS @0.1% at the time of credit or payment on amount exceeding Rs. 50 lakhs.

DIFFERENCE BETWEEN SECTION 194Q AND SECTION 206C (1H)

Since both the sections relate to a single transaction but difference between to compliance process pertains to TDS/TCS provision.

Section

194Q

206C (1H)

W.E.F

W.E.F 01-July-2021

W.E.F 01-Oct-2020

Purpose

Tax to be deducted (TDS)

Tax to be Collected (TCS)

Which Transactions?

Only Purchase of Goods not Services

Only Sale of Goods not Services

Who is liable for deduction/collection?

Buyer/Purchaser is liable to deduct the tax

Seller is liable to collect the tax

Limit of Turnover

Turnover of buyer (Excluding GST) is Exceeding Rs. 10 Crore in preceding F.Y.

Turnover of seller (Excluding GST) is Exceeding Rs. 10 Crore in preceding F.Y.

Counter Party

Resident Seller

Resident Buyer

Threshold Limit of Purchase/Sale

If value of purchases of goods exceeds Rs. 50 Lakh in a year

If value of Sale of goods exceeds Rs. 50 Lakh in a year

Point of taxation

At the time of Credit or Payment whichever  is Earlier

At the time of receipt of sale consideration

Rate

If Pan Available - 0.10%

If Pan Not Available - 5%

On amount exceeding Rs. 50 Lakhs

  • If Pan Available - 0.10%
  • If Pan Not Available - 1%
  • On amount exceeding Rs. 50 Lakhs

Due date of payment

7th of next month in which tax deducted

(In case of March Month -30th April)

7th of next month in which tax collected

Return Form

Form 26Q

Form 27EQ

Not applicable/Exclusion

Transaction on which TDS is applicable under any other section of the act

(Example- 194C)

• Transaction on which TCS is applicable under 206C act Except 206(1H)

• Transaction on which buyer is Central or State Govt, Local Authority, Embassy or Importer.

• Transaction on which TDS/TCS is applicable under any other section of the act.

• Therefore, If TDS is deducted under Sec 194Q then TCS will not collected under provision of 206(1H)

Consequences of

Non-Compliances

Section 40a (ia) disallowance of 30% is attracted on which Tax was liable to be deducted.

Example :-

• If TDS was not deducted on Rs. 50 Lakh (TDS=5,000) then you will have to do disallowed purchase of Rs. 15 Lakh.

Simple Interest @ 1% or 1.5%

• You can refer my earlier article on TDS

• Penalty provision for details discussion along with example)

• Simple Interest @1%

 

Note:

1. Whether above turnover includes only value of goods or services or both

While calculating above turnover value of goods and services both are to be included.

2. TDS to be deducted on Taxable Value or Gross amount of Invoice which is including GST

Circular No. 17 dated 29-09-2020 has clarified to include GST on Goods for collecting TCS under Section 206C(1H). However, no such similar clarification has been received pertaining to TDS on Goods. Hence, in absence of specific clarifications, it is advised to deduct TDS on Gross Invoice Amount including GST on amount exceeding Rs. 50 lakhs.

3. If provisions of Section 194Q and Section 206C (1H), both are applicable, then which section shall prevail over?

Provisions of Section 194Q shall prevail i.e., the buyer would deduct TDS u/s 194Q.

4. Currently, provisions for lower deduction of tax u/s 197 of the ITA, 1961 are not applicable.

PRACTICAL UNDERSTANDING OF SECTION 194Q AND SECTION 206C(1H)

Case

Mr.A (Buyer's) Turnover in Last Year

Mr.B

(Seller's) Turnover in Last Year

Value of Transaction in Current FY

Section Applicable

Person Liable

Comments

1

5 Cr

8 Cr

55 Lakhs

Not Applicable

-

No TDS /TCS as both Buyer & Seller Turnover < 10 CR

2

2 Cr

11 Cr

65 Lakhs

TCS u/s 206C (1H)

Seller

Mr B will collect TCS as Mr. B Turnover > 10 Cr & value of Transaction > 50 Lakhs

3

12 Cr

5 Cr

62 Lakhs

TDS u/s 194Q

Buyer

Mr A will deduct TDS as Mr A Turnover > 10 Cr and value of Transaction > 50 Lakhs

4

11 Cr

9 Cr

70 Lakhs

TDS u/s 194Q

Buyer

5

11 Cr

11 Cr

75 Lakhs

TDS u/s 194Q

-

Mr. A will deduct TDS as Mr A Turnover > 10 Cr and value of Transaction > 50 Lakhs

(Important to note that Provisions of Section 194Q shall prevail)

6

15Cr

20 Cr.

(But Mr. B is Ecommerce operator)

80 Lakhs

TDS u/s 194O

ECO

TDS u/s 194Q/206C(1H) will not be applicable but section 194O is applicable - where TDS will be deducted by E-commerce operator from payment made to Mr. B

The author can also be reached at cajayprakashpandcompany@gmail.com


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Category Income Tax, Other Articles by - CAJayprakash Pandey 



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