Insights into new provisions of TDS and TCS effective July 2021

Section 194Q (TDS) and Section 206C (1H) (TCS)

In the last  year, the Government implemented TCS  provisions  u/s. 206C(1H) for “Seller of Goods” on receipts / advances from / for sales of goods exceeding Rs. 50 Lakhs as consideration during a financial year. “Seller” means a person whose total sales, gross receipts or turnover from the business carried on by him / it exceeded Rs. Ten crores during the financial year immediately preceding the financial year in which consideration / advance exceeding Rs. 50 Lakh are received.

There were cases where the turnover of the Seller was less than Rs. 10 crores but the receipts from sale of goods to buyers were exceeding Rs. 50 Lakh. Under such circumstances, there was no obligation to collect TCS from the seller. The Government has now come up with a similar type of provision for the Purchasers (Buyers) by introducing TDS applicability u/s. 194Q to resolve such a situation.

Let us understand both these provisions.

PARTICULARS

SECTION   194Q

SECTION  206C(1H)

Purpose

Tax to be deducted

Tax to be collected

Applicable to the

Buyer / Purchaser

Seller

Who  is the

Counter Party?

Resident Seller

Resident Buyer

Effective Date

01/07/2021

01/10/2020

Meaning of

Buyer

Explanation to Section 194Q (1) mentions:  “buyer”  means a person whose total sales, gross receipts or turnover from the business carried by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out

Explanation    (a)   to    Section

206C(1H)    mentions: “buyer” means  a  person  who purchases   any   goods,   but does not include – a) Government  b)  Local Authority c) Importer of the goods

Meaning of

Seller

Not defined

Explanation    (b)    to    Section

06C(1H)      mentions: “seller” means a person whose total sales,  gross  receipts  or turnover from the business carried   by   him   exceed  ten crore rupees during the financial year immediately preceding the financial year in

which  the  sale   of  goods   is carried out

What is the trigger point?

When the turnover/ Gross receipts/ sales (excluding GST) from business of the Buyer exceeds  Rs. 10  crores during the year

When the turnover/ Gross receipts/  sales  (excluding GST) from business of the Seller exceeds Rs. 10  crores during the year

Purchase      of       goods      of aggregate value exceeds Rs.

50 Lakhs

Sale   consideration   received exceeds Rs. 50Lakhs

Rate of TDS / TCS

An amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as Income Tax.

A sum equal to @ 0.1 percent of the sales consideration exceeding fifty lakh rupees as Income Tax

Rate of TDS / TCS where PAN

/ Aadhar not

furnished

If PAN not  furnished  by seller, then @ 5% in place 0.1%

If buyer does provide PAN or Aadhaar Number, the @ 5% in place of 0.1%

Time of Deduction  / Collection

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

At the time  of receipt  of such amount, collect from buyer, a sum equal  to  0.1  percent of the sale consideration exceeding fifty lakh rupees a

Over-riding the other TDS  / TCS Sections of the Act

Section 194Q(5) provides: The provisions of this section shall not  apply to  a transactions on which-   a)   Tax  is   deductible under     any     provisions      of this  Act: and b) tax is collectible under the provisions of Section

206C,         other       than       a

transaction to     which     sub- section   (1H)  of  Section 206C applies

Second  proviso    to   Section

206C(1H)            provides “the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provisions of this      Act      on       the goods purchased by him from the seller and has deducted such amount

When to deduct /

collect?

At the time of payment or credit, whichever is earlier

At the time of receipt

Advances

TDS     to     be    deducted    on advance payment made

TCS     to    be   collected    on advance receipts

Rates

0.10%

0.1% (0.75%  for FY 2020-21)

5% if PAN is not available

1% if PAN is not available

On  amount exceeding  Rs. 50 lakhs

On  amount exceeding  Rs. 50 lakhs

Not applicable to

Transactions on  which TDS  is applicable  under  other provisions of the Act

Transactions on which TCS  / TDS is applicable under other provisions   of   the  Act   (e.g. where TDS  is  applicable  u/s.

194Q,    this   section   will   not

apply)

Exclusions

If the buyer is an

Importer of goods or

Central Government, State Government  or  Local Authority or

Embassy,  HC,  Consulate, trade representative of a foreign country

Is TAN required

Yes

Yes

When to  deposit

/ collect?

Tax  so  deducted  should   be deposited by 7th of next month

Tax  so  collected   should   be deposited by 7th of next month

Which   form    to file the Return

26Q

27EQ

Certificate to be issued in which form?

Form 16A

Form 27D

TCS provisions are already in force and now, TDS provisions u/s. 194Q will become effective from 01/07/2021, there would be interesting situations.

When the buyers and sellers both are having turnover in excess of Rs. 10 Crore in preceding financial years and are covered by the Section 194Q and 206C(1H):

SITUATIONS

SECTION   194Q

SECTION  206C(1H)

Where the Buyer has purchased goods or made advance payment

Buyer would be deducting the TDS @ 0.1% on the payment / advance made for purchase of goods after 01/07/2021

As TDS has already been deducted u/s 194Q,  seller

would not collect any TCS from the buyer

Buyer has paid the dues out  of the payable balance as on

30/06/2021

Buyer would not deduct TDS

Seller would collect the TCS on such amount received

Buyer has bought the goods but returned later on  without crediting in the

Seller’s Account

No obligation to deduct TDS

No amount received

Buyer has bought the goods but returned later on  after crediting in the

Seller’s Account and debiting on return of the goods

TDS would have to be deducted from the credited amount despite subsequent debit by way of return of goods. Therefore, accounting entry of credit should be

passed after full acceptance of

the goods

No amount received

Buyer was liable but  did  not deduct TDS

Seller would be liable to collect TCS as second proviso to Section 206C  (1H) fails to operate.

Conclusion:

In a nutshell, it can be said that only  if conditions of Sec 194Q  are not satisfied and the sale of goods exceed Rs 50L where the seller’s TO in the previous year is >Rs.10 Crores then Sec 206(1H)  shall apply and TCS at the rate as specified.

POINTS TO PONDER:

  1. a) How would the buyer deduct the TDS of A Public Sector Companies/ Undertakings (PSU). If the PSU is collecting the TCS in their `Sale Bills’ and now, when the buyer would become liable to TDS, then how would the buyer deduct TDS and make balance payment to the PSU?

The PSU would ask the buyers to deposit the TDS first and thereafter, claim reimbursement from PSU on the basis of Form 16A.

  1. b) Electric Distribution Companies called DISCOMs of the various states are collecting TCS in their Electricity bills since `Electricity’ is goods. How would such DISCOMs accept `Net of TDS’ payment?

They may also follow the same route as mentioned above.

  1. c) How would the `Seller’ come to know that `Buyer’ is liable to deduct TDS u/s

194Q?

The Income Tax Rules should bring out   the form   for submission to the `Seller’ by the buyer to this effect. Without standard format, buyers would be designing their own formats. A case in point is the declaration being furnished by Transporters u/s. 194C (6) where, in the absence of a standard format, every transporter   has   developed   the   format as   per   their convenience.

Disclaimer & Confidentiality

Information is being made available in this document purely for the benefit of the readers. Whilst every care has been taken in the preparation of this document, it may contain errors for which we should not be held responsible. The information given in this document provides a bird’s eye view on the changes brought out in the provisions. This above represents our perception of the matter, in the outcome of which we do not have any interest, pecuniary or otherwise.  It should not be relied for the purpose of economic or financial decisions. Each such decision would call for specific reference of the relevant statutes and consultation of an expert. If any tax authorities take a position different from the one discussed in this note, you may consider agitating the same before successive appellate forum.

S Y Lodha and Associates

Chartered Accountants

Unit 309, 3rd Floor, New Sonal Link Industrial Service Premises,

New Link Road,

Malad West,

Mumbai 400064


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