Shaleen Shah[By Shaleen Shah (Partner), VNCA]
A new section 194Q for Tax Deduction at Source (TDS) on purchase of goods is inserted by Finance Act – 2021 effective from 01/07/2021.
Earlier section 206C(1H) was inserted by Finance Act, 2020 and was made effective from 01/10/2020 for Tax Collection at Source (TCS) on sale of goods. Refer our earlier update – Widening the scope of TCS (Tax Collection at Source) from 1st Oct 2020
Comparison between the two is given in the following table:
| Particulars | Section 194Q | Section 206C(1H) |
|---|---|---|
| Applicable on | Purchase of Goods | Receipt of consideration on Sale of Goods |
| Effective Date | 01st July, 2021 | 01st October, 2020 |
| Who is responsible for TDS / TCS | Buyer will deduct TDS | Seller will collect TCS from buyer |
| Threshold for TDS/TCS | – Buyer’s Turnover in previous year exceeds Rs.10 Crores; and – aggregate value of goods purchased from a single seller exceeds Rs.50 lacs in any previous year | – Seller’s Turnover in previous year exceeds Rs.10 Crores; and – aggregate consideration received by the seller from a single buyer towards sale of goods exceeds Rs.50 lacs in any previous year |
| Meaning of Buyer | Buyer means: – a person carrying on business – total sales, gross receipts or turnover exceeds Rs.10 Croress during the financial year immediately preceding the financial year in which such goods are purchased. (For FY 2021-22, turnover of buyer for the FY 2020-21 is to be considered) | Buyer means a person who purchases any goods Exclusions: a) Government, Embassy, High Commission, consulate, etc. b) Local Authority c) Importer of the goods |
| Meaning of Seller | Any resident | Seller means: – a person carrying on business – total sales, gross receipts or turnover exceeds Rs.10 Crores during the financial year immediately preceding the 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) |
| Rate of TDS / TCS | TDS @ 0.10% of such sum exceeding Rs.50 Lacs | TCS @ 0.10% of the sales consideration received exceeding Rs.50 Lacs |
| Rate of TDS / TCS if PAN / Aadhaar not furnished | TDS @ 5% | TCS @ 1% |
| Effective date from which threshold limit of Rs.50 Lacs is to be considered | Threshold limit of Rs.50 Lacs shall be computed from 01/04/2021 (for financial year 2021-22). | For FY 2021-22, Threshold limit of Rs.50 Lacs 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 Lacs limit. |
| Time of deduction / Collection | Credit to the account of seller or Payment, whichever is earlier. TDS to be deducted even if the sum is credited to ‘Suspense Account’ | Receipt of consideration from the buyer |
| Non-Applicability / Overriding effect | Section 194Q will not apply if: i) Tax is deductible (TDS) under any other section; ii) Tax is collectible (TCS) under provisions of section 206C other than a transaction to which section 206C(1H) applies. | Section 206C(1H) will not apply: i) where consideration is received on account of export of goods out of India ii) to Goods covered U/s 206C(1) iii) to Goods being Motor vehicle as specified U/s 206C(1F) iv) to Goods being money received by authorized dealer for remittance as specified U/s 206C(1G) v) If the buyer is liable to deduct TDS under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount |
| Whether TDS / TCS to be made on Including GST or Excluding GST value | It is suggested to deduct TDS on including GST value. No specific clarification / circular for TDS is issued in this regard. Till such clarification, principles laid down for TCS may be followed. | TCS is required to be collected on value including GST amount [CBDT Circular No. 17/2020 dated 29/09/2020] |
| What if Buyer / Seller holds multiple GSTINs | Threshold limit of Rs.10 Crores as well as Rs.50 Lacs shall be computed annually on PAN basis and not GSTIN basis | Threshold limit of Rs.10 Crores as well as Rs.50 Lacs shall be computed annually on PAN basis and not GSTIN basis |
| Time Limit to Deposit of TDS / TCS | Within 7 days from end of the month in which TDS is deducted, and 30th April for TDS deducted in March | Within 7 days from the end of the month in which TCS is collected. |
| Which Statement (Return Form) to furnish for TDS / TCS | Quarterly in Form 26Q | Quarterly in Form 27EQ |
| Time Limit to furnish TDS / TCS Statement (Return) | Within 1 month from the end of the quarter, and 2 months for the quarter ended in March | Within 15 days from the end of the quarter, and 45 days for the quarter ended in March |
| Certificate of Deduction / Collection of Tax | Form 16A | Form 27D |
| Implications for Failure to Deduct / Collect Tax | – Disallowance of 30% of expenditure; and – Penalty of amount of tax | – Penalty of amount of tax |
Action Point:
Primary responsibility is on the buyer to deduct TDS. So, the buyer should give an intimation to the seller not to collect TCS.
