TDS and TCS are two important concepts of Indian Income Tax law. In this blog post, we will be discussing the applicability of these provisions in light of recent changes effected through Finance Act, 2021. We will also touch upon some general principles applicable to both the cases. It is essential that you know about your tax liability before making any payments or filing returns as inaccurate information may result in penalty or prosecution under the Income Tax Act 1961. This post aims at providing a broad overview on TDS and TCS with respect to recent amendments made by Finance Act, 2021.
A new section 194Q (Deduction of tax at source on payment of certain sum for purchase of goods) is inserted by Finance Act – 2021 effective from 01/07/2021. The provisions of section 194Q of the Act inter alia provides as under:
• Every buyer, on purchase of goods shall be liable to deduct tax at source at the rate of 0.1% on payments made to resident seller, on sum exceeding INR 50 lakhs;
• Buyer has been defined as a person whose total sales/ turnover/ gross receipts from business exceeds INR 10 crores during the preceding the financial year.
TCS section 206C(1H) was inserted by Finance Act, 2020 and was made effective from 01/10/2020.The provisions of section 206C(1H) of the Act inter alia provides as under:
TCS provision was made applicable on ‘Seller of Goods’ who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding Rs.50 Lakhs during a financial year. Hence Seller will be responsible to collect TCS.
“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.
It implies for FY 2020-21, Seller means person whose total sales, gross receipts or turnover from business exceeds Rs.10 crore in the FY 2019-20.
The TCS is payable on the amount of receipt of any sum which is greater than 50 Lakhs and received after 1st. Oct. 2020. The rate of TCS is 0.1% and in Last year due to Pandemic 25% discount has been given in this tax rate till 31 March 2021 and its effective rate was 0.075%.
ANALYSIS OF SEC 194Q & 206C(1H)
Now the new section 194Q has created lots of ambiguity as “Whether TCS u/s 206C (1H) is to be collected on receipt of sales consideration above 50 Lakhs or TDS u/s 194Q is to be deducted by the buyer on purchase of goods exceeding Rs.50 Lakhs?”
This TDS section 194Q is very similar to TCS section 206C(1H). However where both the sections are applicable then Section 194Q always overrides the provisions of section 206C(1H).
The provisions of Section 194Q supersedes Section 206C(1H) and imposes primary liability on buyer to deduct tax.
Let us understand the applicability and all intricacies of both the sections in simple manner. For better comparative analysis, provisions are presented in below tabulated form:
|Particulars||TDS Section 194Q||TCS Section 206C(1H)|
|Applicability||On Purchase of Goods from any resident. However, 194Q will not be applicable in below cases: TDS is deductible in any other provisions of this actTCS under the provisions of 206C except 206C (1H)||On receipt of any sum on Sale of Goods other than goods being exported out of India. However, 206C(1H) will not be applicable in the below cases: Goods covered U/s 206C(1) such as tendu leaves, timber, scrap, alcoholic liquor for human consumption, minerals, Scrap Sales, Forest produce other than tendu leaves and timber wood, Bullion and jewellery that exceeds Rs 2 lakhs and Rs 5 lakhs respectively.Goods being Motor vehicle as specified U/s 206C(1F) 3. Goods being money received by authorized dealer for remittance as specified U/s 206C(1G)Where the buyer is liable to deduct TDS under any other provision of this Act on the goods purchased by him from the seller Hence in case of 1,2 & 3 TCS will be continued to be collected as per the respective sections under the income tax act 1961|
|Effective Date||01st July, 2021||01st October, 2020|
|Who is responsible||Buyer will deduct TDS on the Purchase value||Seller will collect TCS from buyer on receipt of the sale consideration|
|Trigger point & Threshold Limit||At the time of Credit of such sum to the account of the seller in the books of accounts or at the time of payment to the seller whichever is earlier. The tax shall be deducted even if the sum is credited to the ‘Suspense Account’ or any other account by whatever name called in the books of accounts. When purchase value or aggregate of such value exceeds Rs.50 Lakhs during the financial year||On the receipt of sale consideration exceeding Rs 50 lakhs during the financial year|
|Meaning of Buyer||Buyer; A person carrying on business whose total sales, gross receipts or turnover from the business exceeds Rs.10 crores during the previous financial year. (For FY 2021-22, turnover of buyer for the FY 2020-21 has to be considered) Exceptions; i) transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service Centre; (ii) transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC||Buyer; 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 (importer) or any other 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;|
|Meaning of Seller||Not defined in section 194Q||Seller: A person carrying on business whose total sales, gross receipts or turnover from the business exceeds Rs.10 crores during the previous financial year in which the sale of goods is carried out. (For FY 2021-22, turnover of seller for the FY 2020-21 is to be considered) Exceptions: Any person as the Central Government may, by notification in the Official Gazette, specify for this purpose|
|Rate of TDS / TCS||TDS @ 0.10 % of such sum exceeding Rs.50 Lakhs||TCS @ 0.10% of the sales consideration received exceeding Rs.50 Lakhs|
|Effective date from which threshold limit of Rs.50 Lakhs is to be considered||Threshold limit of Rs.50 Lakhs shall be computed from 01/04/2021 (for financial year 2021-22). It implies that if a buyer purchased goods of value exceeding Rs.50 Lakhs up to 30/06/2021 from a seller then TDS under section 194Q shall apply on all purchases on or after 01/07/2021 only. In case of any purchase of goods exceeding Rs 50 lakhs upto 30/06/2021. TDS shall not be deducted on the same. Hence the time period from 01/04/2021 to 30/06/2021 shall be considered only for the purpose of threshold limit computation.||Section 206C(1H) was introduced by the Finance Act, 2020, w.e.f 01/10/2020. For FY 2021-22, Threshold limit of Rs.50 Lakhs shall be computed from 01/04/2021 and TCS will be applicable as and when consideration received (including any previous dues / advance payment) crosses Rs.50 Lakhs limit.|
|Whether TDS / TCS to be made on Including GST or Excluding GST value||The circular no.13 of 2021 dated 30th June,2021, refers Circular No. 23/2017, which gave clarification for GST on Services. If component of “GST on services” is indicated separately, the TDS shall be deducted on the amount paid or payable without including such “GST on services” component.||In the CBDT Circular No. 17/2020 dated 29/09/2020, it was clarified that TCS U/s 206C(1H) is applicable on amount of sales consideration and no adjustments on account of indirect taxes (including GST) is required to be done. Till the time any clarification is issued in this respect, applying the principles of this recently issued circular for TCS, it is suggestible to deduct TCS, on including GST value, to avoid any litigation.|
|What if Buyer / Seller holds multiple GSTINs||Threshold limit of Rs.10 crore as well as Rs.50 Lakhs shall be computed annually on PAN basis and not GSTIN basis||Threshold limit of Rs.10 crore as well as Rs.50 Lakhs shall be computed annually on PAN basis and not GSTIN basis|
|Whether Buyer / Seller can apply for Lower / Nil Deduction certificate (Section 197 / 197A)||No. Since no consequential amendments introduced in section 197 / 197A to extend the benefit to assessee to apply for a certificate for deduction of tax at lower rates or to file declaration for nil deduction in respect of transactions covered under Section194Q||No. Since no consequential amendments introduced in section 197 / 197A to extend lower / nil rate benefit. Section 206C(1H) also does not allow the buyer to apply for the lower or nil TCS certificate.|
TDS u/s 194Q or TCS u/s 206C (1H) which is applicable for me?
What if Buyer & Seller both fulfilled the criteria for applicability of Section 194Q & 206C(1H)?
As explained in the above table, as per second proviso to section 206C(1H) – 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, then provision of section 206C(1H) shall not apply.
Although primary responsibility to deduct TDS in this case is of buyer but it should also be that buyer has actually deducted such amount.
Any failure on the part of Buyer to deduct TDS in this case will make Seller liable for TCS.
Basic question which arises is “How the Seller would know whether Buyer is liable to deduct TDS or Not?”
It is suggested that Seller should obtain an undertaking / declaration to this effect from the Buyer to safeguard himself.
To simplify your compliances we have attached below the Sample formats of declarations to be submitted to the Vendors and Customers.
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