NEW YEAR!!! ANOTHER NEW TDS COMPLIANCE!!!
I would like to start this article by wishing you all for a great start of the new financial year. I hope you achieve your financial targets & stability in this year, by maintaining staunch compliance with all the statutory requirements.
Change is the only permanent thing!!!
With start of this new year there is lot of statutory changes knocking at your door. If you are an enterprise with turnover of more than 10 crore then this new section in Income Tax Act is for you. This article is aimed at providing an insight into the brand new addition, Section 194Q.
What is section 194Q?
Introduced in budget 2021-22, Section 194Q is TDS on payment of certain sum for purchase of goods.
Applicability:
As per this section, 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 Rs. 50 lakhs (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 lakhs’ rupees.
Who is buyer?
“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.
Twist in the tale:
The point requiring attention is that this section is applicable even where any sum is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person (Buyer) liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee (Seller) and the provisions of this section shall apply accordingly.
TDS rates and contradiction with other sections:
0.1% on sum exceeding Rs. 50 lakhs in any previous year
5% in case PAN number of Seller is not available (section 206AA).
It implies that if on a transaction, TDS or tax collection at source (TCS) is required to be deducted under any other provision, then it would not be subjected to TDS under this section. However, there is one exception to this general rule, that, if on a transaction, TCS is required under sub-section (1H) of section 206C as well as TDS under this section, then on such transaction, only TDS u/s 194Q shall be deducted.
Let’s get to know what is Section 206C (1H):
The following is a briefing on Section 206C (1H), along with examples, to provide extensive clarity.
The new provisions of TCS have come into force with effect from 1 October 2020, according to which, if your turnover is more than 10 crores in the previous financial year i.e., the year ended 31 March 2020, then this year you will have to collect and deposit TCS on your receipts from sale of goods from such buyers from whom you received 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%.
End Note:
On reading the above two section TDS u/s 194Q and TCS u/s 206C (1H), one can understand that the discussions under both sections are similar, wavering only in perspective. Section 194Q is compliance for the buyer and Section 206C(1H) being Tax Collected at Source (TCS) is compliance for the seller. TDS, TCS and Advance tax forming greater part of periodical revenue for Government, can be claimed as an indispensable source to meet out the expenditure incurred. Keeping this factor in consideration, an extensive analysis from different view-points and consequent taxation is accordingly facilitated.
Examples to assist better understanding of both the Sections and their relevant applicability:
Scenario 1:
Seller’s Turnover: Rs. 5 Crores
Buyer’s Turnover: Rs. 12 Crores
Receipt or Payment for sale or purchase of Goods in previous year: Rs. 55 lakhs
Taxability:
Buyer’s Turnover is more than Rs. 10 Crores
Taxable amount: Rs. 5 lakhs (Rs. 55 lakhs-Rs.50 lakhs)
TDS u/s194Q 0.1% on Rs. 5 lakhs
TCS u/s 206C(1H): not applicable as Seller’s turnover is less than 10 Crores.
Scenario 2:
Seller’s Turnover: Rs. 15 Crores
Buyer’s Turnover: Rs. 9 Crores
Receipt or Payment for sale or purchase of Goods in previous year : Rs. 55 lakhs
Taxability:
Buyer’s Turnover is less than Rs. 10 Crores
Seller’s Turnover is more than Rs. 10 Crores
Taxable amount: Rs. 5 lakhs (Rs. 55 lakhs-Rs.50 lakhs)
TDS u/s194Q: Not applicable
TCS u/s 206C(1H): 0.1% on Rs. 5 lakhs.
Scenario 3:
Seller’s Turnover: Rs. 20 Crores
Buyer’s Turnover: Rs. 12 Crores
Receipt or Payment for sale or purchase of Goods in previous year: Rs. 55 lakhs
Taxability:
Buyer’s Turnover is more than Rs. 10 Crores
Seller’s Turnover is more than Rs. 10 Crores
Taxable amount: Rs. 5 lakhs (Rs. 55 lakhs-Rs.50 lakhs)
TDS u/s194Q: 0.1% on Rs. 5 lakhs*
TCS u/s 206C(1H): When both section 194Q and 206C(1H) applies, section 194Q is superior than section 206C(1H). Therefore, when Tax has been deducted under section 194Q there is no requirement to collect tax under section 206C(1H)
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