Applicability of TDS and TCS on purchase and sale of goods

The Finance Act 2021 has widened the scope of the Chapter of TDS in the Income Tax Act, 1961 by introducing a new section 194Q dealing with TDS on Purchase of goods w.e.f. 1st July 2021. This new TDS provision is just a replica of section 206C(1H) of the Income Tax Act, 1961 introduced by the Government with effect from 1st October, 2020. The only basic difference between these two sections is that the responsibility of deduction/collection.

Section 194Q: - (TDS on purchase of goods)

Any person, being a buyer responsible for paying any sum to any resident being a seller for purchase of any goods of the value or aggregate of such value exceeding Rs. 50 lakh in any previous year, shall, at the time of credit of such sum 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 Rs. 50 lakh as income-tax.

Explanation: - For the purposes of this section, "buyer" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs. 10 crore 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.

The provisions of this sub-section shall not apply to a transaction on which—

(a)  tax is deductible under any of the provisions of this Act;

(b)  tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies (i.e. Where 194Q & 206C(1H) both are applicable then section 194Q will prevail).

Provisions of this section are applicable w.e.f. 01^st July, 2021 and purchases made between 01^st Apr to 30^th June shall be included while calculating the threshold limit of Rs. 50 lakh.

It is recommended to deducted TDS on the value inclusive of GST until CBDT issues any clarification. Further section applies to all goods whether capital or revenue.

 

Section 206C(1H): - (TCS on sale of goods)

Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding Rs. 50 lakh in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax.

Explanation: — For the purposes of this sub-section —

(a)  "buyer" means a person who purchases any goods, but does not include —

(A)  the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B)  a local authority as defined in the Explanation to clause (20) of section 10; or

(C)  a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose.

(b)  "seller" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs. 10 crore during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose.

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.

TCS shall be collected on the amount inclusive of GST. Further section applies to all goods whether capital or revenue.

Brief comparison between section 194Q and Section 206C(1H)

Particulars	Section 194Q	Section 206C(1H)
Aim	Tax to be deducted	Tax to be collected
Responsible person	Buyer	Seller
Applicable w.e.f.	01-07-2021	01-10-2020
Time of action	Payment or credit, whichever is earlier	Receipt of consideration
Applicability on advance	Yes	Yes
Rate	0.10 %	0.10 %
Rate if Pan not available	5.00 %	1.00 %
Quarterly Statement	Form 26Q	Form 27EQ
Certificate to be issued	Form 16A	Form 27D
Turnover & GST	Turnover of Rs. 10 Cr. shall be considered exclusive of GST whereas purchase of Rs. 50 lakh shall be considered inclusive of GST.	Turnover of Rs. 10 Cr. shall be considered exclusive of GST whereas purchase of Rs. 50 lakh shall be considered inclusive of GST.

 

Some practical examples: -

Mr. X is a Seller and Mr. Y is a Purchaser. The sale of X is Rs.12 Crore for the year ending on 31st. March 2021 and that of Y is Rs. 7 Crores. Now in this situation Section 206C(1H) is applicable and without any confusion the seller X has to collect the TCS.

Mr. X is a Seller and Mr. Y is a Purchaser. The sale of X is Rs. 5 Crore for the year ending on 31st. March 2021 and that of Y is Rs. 15 Crores. Now in this situation Section 194Q is applicable and without any confusion the buyer Y has to deduct TDS.

Mr. X is a Seller and Mr. Y is a Purchaser. The sale of X is Rs.18 Crore for the year ending on 31st. March 2021 and that of Y is Rs. 17 Crores. Now in this situation Section 206C(1H) and Section 194Q both will apply. But section 194Q will prevail over 206C(1H) and buyer Y will deduct TDS u/s 194Q.