TDS 194Q vs. TCS 206C(1H)

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TDS 194Q vs. TCS 206C(1H)

Difference between Section 194Q and Section 206C(1H)

Since Sale and Purchase are 2 sides of the same coin and relates to a single transaction, let us analyze the difference between the two sections

Particulars

Section 194Q

Section 206C(1H)

Applicable

If the turnover of the Buyer is more than 10 Crore in Previous FY.

If the turnover of the Seller is more than 10 Crore in Previous FY.

Threshold for Sale/ Purchase

Purchases more than 50 Lakhs

Sales more than 50 Lakhs

Time of Deduction/ Collection

At the time of payment or credit whichever is earlier

At the time of receipt

Rate

0.1%

5% (PAN not available)

5% (2 Yrs ITR not filed)

0.1%

1% (PAN not available)

5% (2 Yrs ITR not filed)

Liability of Deduction/ Collection

Buyer is liable

Seller is liable

The key issue/ perplexity is, whether on the same transaction the buyer is liable for deduction of TDS u/s 194Q and Seller is liable for collection u/s 206C(1H)?

Section 194Q (5) states that no TDS shall be deducted on transactions that are covered u/s 206C [other than 206C(1H)]. And on identical lines, the second proviso to Section 206C(1H) states that TCS under this provision shall not be collected if the transaction is covered under any other provision of the Act.

Hence, having a careful reading of both the provisions, one can conclude that the primary liability is on the buyer to deduct TDS. If the buyer is liable to deduct TDS, then the seller shall not collect TCS on the same, but if the buyer is not liable for TDS deduction, then the seller must collect TCS u/s 206C(1H).

How to ascertain as to whether TDS u/s 194Q shall be deducted by the buyer in purchase transaction of more than INR 50 lacs, which shall exempt the seller from TCS compliance u/s 206C(1H)??

In a said scenario, to avoid double taxation on the transaction, which is not in the spirit of the law, the seller should seek a declaration from the purchaser on whether TDS u/s 194Q applies on the buyer and in case the same shall be complied with. Moreover, the said declaration should include an indemnification clause to protect the seller from any tax/ interest /penalty on account of any wrong declaration from the buyer.

Complexity in filing TDS returns in compliance with Section 194Q

Recently, the CBDT has issued a Notification No. 71/2021 dated 8th June 2021 wherein the department has introduced the Income Tax (17th Amendment) Rules, 2021. Under these rules, the Department has inserted clause (xvi) to Rule 31A(4) of the Income Tax rules, 1962.

“(xvi) furnish particulars of the amount paid or credited on which tax was not deducted in view of sub-section (5) of section 194Q with effect from 1st day of July 2021.”

 As per the rule mentioned above, the department has sought to obtain the details of amounts on which Section 194Q was applicable, but no TDS has been deducted by virtue of sub-section (5) of Section 194Q.

Sub-section (5) of Section 194Q prescribes for no TDS deduction on the purchase of goods u/s 194Q in cases where TDS or TCS (other than Section 206C(1H)) has already been deducted/ collected on a transaction. Now, as per the insertion under the Notification, the Deductor needs to additionally declare the amounts on which TDS has not been deducted by virtue of Section 194Q(5).

Concluding this notification in reference to 194Q, one needs to report in TDS return all the transactions related to purchases of goods exceeding the specified threshold of 50 Lakhs in a Financial Year, even in case of TDS u/s 194Q has not been deducted on such transactions due to any existing TDS/ TCS ((other than Section 206C(1H)) provisions. Compiling such information may become an uphill task for Deductor to comply with such opaque provisions.

Example explaining Applicability

S. No.

Buyer’s Turnover Seller’s Turnover Transaction Value Section Applicable

1

11 Cr. 9 Cr. 60 Lakhs 194Q
2 9 Cr. 11 Cr.

60 Lakhs

206C(1H)

3 11 Cr. 11 Cr. 60 Lakhs

194Q

4

9 Cr. 9 Cr. 60 Lakhs NA
5 11 Cr. 11 Cr. 40 Lakhs

NA

 

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About CA Mehul Gupta 29 Articles
Chartered Accountant in practice, Certified GST Practitioner & Commerce Graduate. He is mainly engaged in the practice of Direct taxes, GST, International taxation, & assurance services. A visiting faculty in the Faridabad Branch of ICAI.

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