TDS and TCS on purchase and sale of goods

CA. Arpan Jain | Last updated: 18 June 2021

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This article clarifies the distinctions between Tax Deducted at Source (TDS) under Section 194Q and Tax Collected at Source (TCS) under Section 206C(1H) concerning the purchase and sale of goods. Both provisions apply when transactions with a single buyer or customer exceed £50 lakh in a financial year, with a 0.1% rate applied only to the amount exceeding this threshold. The key difference lies in who is responsible: TDS is deducted by the buyer on purchases, while TCS is collected by the seller on sales.

TDS u/s 194Q, which was introduced via Finance 2021 has a stark similarity to Section 206C (1H) which was introduced in Finance Act 2020. As per Section 194Q, TDS will be deducted if purchase from a single buyer exceeds Rs. 50 lakh during the current year (Only on amount exceeding 50 lakh). On the other hand, as per Section 206C(1H) TCS will be collected if the sale to a single customer exceeds Rs. 50 lakh during the Current Year (Only on amount exceeding 50 lakh). Let us understand the difference between the two.

TDS and TCS on Goods: Understand the Differences

Basis	TDS u/s 194Q	TCS u/s 206C(1H)
W.e.f	01-July-2021	01-Oct-2020
On whom	Person having turnover more than 10 crore in Previous Financial Year	Person having turnover more than 10 crore in Previous Financial Year
Transaction	On Purchase	On Sale
From whom	TDS will be deducted only if Purchase from single buyer exceeds Rs. 50 lakh during the current year (Only on amount exceeding 50 lakh)	TCS will be Collected only if sale to single Customer exceeds Rs. 50 lakh during current year (Only on amount exceeding 50 lakh)
Rate	0.1%	0.1%
Time	At the time of credit in books or payment whichever is earlier	At the time of receipt
Time limit to deposit	7^th of the next month	7^th of the next month
Important	Please note From 01 July, If your customer starts deducting your TDS u/s 194Q, then TCS is not to be collected. Eg. If you and your customer both have turnover exceeding Rs. 10 crore in previous Financial Year, then you ought to have been collecting TCS on sales during the period Apr 21 - Jun 21. But, now from 01 July your customer will be liable to deduct TDS on your bill and you will not collect TCS. If you have turnover exceeding Rs. 10 crore in previous Financial Year and your customer has less than 10 crore, then you ought to have been collecting TCS on sales during the period Apr 21 - Jun 21. In this case, since your customer is not liable to deduct TDS on payment, so you will have to continue collecting TCS. If your sales are less than Rs. 10 crore in previous Financial Year, then none of the above section is applicable on you.

FAQ :

Both TDS u/s 194Q and TCS u/s 206C(1H) apply when the purchase from a single buyer or sale to a single customer exceeds £50 lakh during the current financial year. The tax is applicable only on the amount exceeding £50 lakh.

TDS u/s 194Q is deducted by the buyer on purchases, while TCS u/s 206C(1H) is collected by the seller on sales. Both provisions are applicable to persons having a turnover of more than £10 crore in the previous financial year.

The rate for both TDS u/s 194Q and TCS u/s 206C(1H) is 0.1%.

TDS is deducted at the time of credit in books or payment, whichever is earlier. TCS is collected at the time of receipt of payment.

If your customer starts deducting TDS u/s 194Q, then you should not collect TCS. This typically occurs when both the buyer and seller have a turnover exceeding £10 crore in the previous financial year.