TCS OR 194 Q

In the case described, both the buyer and the seller have turnovers exceeding ₹10 crore, and the value of the transaction has crossed the ₹50 lakh threshold. Here is the resolution based on current Income Tax provisions:

1. Which section applies: TDS (194Q) or TCS (206C(1H))?

When a transaction falls under the scope of both TDS under Section 194Q and TCS under Section 206C(1H), TDS under Section 194Q takes precedence.

Since the buyer has a turnover exceeding ₹10 crore in the preceding financial year and is purchasing goods exceeding ₹50 lakh from a resident seller, the buyer is mandatorily required to deduct TDS under Section 194Q. Once the buyer deducts TDS, the seller's obligation to collect TCS is nullified.

2. Is the "including GST" approach correct?

Your query asks if it is correct to start charging tax only after the total supply, including GST, crosses ₹50 lakhs. This is incorrect regarding the tax base for TDS under Section 194Q:

• Exclusion of GST: Under Section 194Q, TDS is to be deducted on the basic value of the goods, excluding GST, provided that the GST component is shown separately in the invoice. If the tax is deducted on the total value (including GST), it is considered an error in calculation.

• Threshold Computation: While the GST component is excluded for the deduction of tax, it is generally included when calculating the ₹50 lakh threshold for the applicability of the section.

• Practical Timing: TDS must be deducted at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier. It should be calculated on the taxable value (excluding GST) once the aggregate purchase value (including GST) for the year has crossed the ₹50 lakh limit.

Summary

• Responsibility: The buyer must deduct TDS under Section 194Q.

• TCS: The seller should not collect TCS if the buyer has provided a declaration that they are deducting TDS under 194Q.

• Calculation Base: TDS should be deducted on the basic value (excluding GST).

• Threshold: The ₹50 lakh limit is calculated on the aggregate value of supplies (including GST). Once this threshold is crossed, TDS is deducted on all subsequent payments/credits for the basic value of goods.