ANALYSIS OF SECTION 206(1H) ENACTED IN BUDGET 2020 AND SECTION 194Q ENACTED IN BUDGET 2021

[RAJENDRAKUMAR RATHI]

Whether TCS u.s.206C(1H) is to be collected on receipts from sale of goods exceeding ₹ 50.00 as proposed by Finance Bill 2020 or TDS u.s. 194Q is to be deducted by the buyer on purchase of goods as proposed by Finance Bill 2021.

As per Finance Bill 2021, a new section 194Q has been inserted which reads as under

194Q. (1) 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 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 per cent. of such sum exceeding fifty lakh rupees as income-tax.

Explanation. For the purposes of this sub-section, "buyer" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ₹ 10 crores 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.

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person 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 and the provisions of this section shall apply accordingly.

(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income tax authorities and the person liable to deduct tax.

(5) The provisions of this section shall not apply to a transaction on which––

(a) tax is deductible under any of the 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.’

A new Section 194Q is introduces in Finance Bill 2021 requiring a person to deduct tax at source an amount equal to 0.10 percent for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value exceeding ₹ 50.00 lakhs in any previous year. The provisions of this section are applicable w.e.f. 01.07.2021.

TDS is required to be deducted at the time of such credit to the account of the seller or at the time of making payment thereof by any mode whichever is earlier.

A person is required to deduct tax for any payment made to a seller if his total turnover exceeds 10.00 crore during the financial year immediately preceding the financial year, 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.

The provisions of this section will not apply if tax is deductible under any other provisions of this Act or tax is collectible under the provisions of section 206C other than Section 206(1H) of the Act.

Tax is deductible at the rate of 0.10 percent on sum exceeding ₹ 50.00 lakhs if PAN is provided by the seller. If PAN is not provided by seller, then rate will be 5 percent of the amount.

If on any transaction TCS u.s. 206(1H) is required to be collected by the seller and TDS u.s. 194Q is required to be deducted, then on that transaction, provisions of section 194Q will apply.

This section is similar to section 206(1H) which is applicable for collection of tax at source. However, section 206(1H) introduced by Finance Bill 2020 is already a part of Income Tax Act and has been applicable w.e.f. 01.10.20. Section 206(1H) requires the seller to collect tax at the rate of 0.10 percent of the amount collected from the buyer exceeding ₹ 50.00 lakhs. Section 206(1H) specifically excludes a transaction on which tax is deductible under any other provisions of this Act including that of Section 194Q. However, Section 194Q does not exempt a transaction on which tax is required to be collected under section 206(1H). The primary and foremost obligation to deduct tax shall be of the buyer of goods. However, if the buyer makes a default, then seller will be liable to collect tax from the buyer.

Comparisons of provisions of both the sections are outlined in a table below –

Basis of comparison	TDS on purchase of goods u.s.194Q	TCS on sale of goods u.s.206(1H)
Liability of deduction/ collection	Buyer of goods	Seller of goods
Liability of deduction	Buyer is liable to deduct tax	Seller is liable to collect tax
Date of application	01/07/2021	01/10/2020
Rate of Tax	0.10%	0.10% (0.075% up to 31.03.2021)
Turnover limit	Total turnover should exceed 10 crores during the financial year immediately preceding the financial year in which goods are purchases	Total turnover should exceed 10 crores during the financial year immediately preceding the financial year in which consideration is received
Thresh hold limit	Value of purchase must exceed ₹ 50.00 lakhs	Sale consideration must exceed 50.00 lakhs
Amount on which tax to be deducted or collected	Purchase of goods of aggregate value exceeding ₹ 50 lakhs during the year	Sale consideration exceeding ₹ 50.00 lakhs during the year
Time of deduction or collection	At the time of credit or payment whichever is earlier	At the time of receipt
Preference	Purchaser is first liable to deduct tax if both the sections 194Q and 206(1H) are applicable	Seller shall be liable to collect tax only if section 194Q is not applicable or purchaser failed to deduct tax
GST	Purchase value includes GST	Consideration includes GST
Forms to be filed	Forms 26Q	Form 27EQ
Certificate to be issued	Form 16A	Form 27D

Examples
Particulars Scenario 1 Scenario 2 Scenario 3 Turnover of seller (in cr.) 11 9 11 Turnover of buyer (in cr.) 9 11 11 Sale or purchase of goods 3 3 3 Sale consideration received 1 1 1 Taxable Amount 1 3 3 Liable person Seller Buyer Buyer Rate of tax 0.10% 0.10% 0.10% Amount 5000.00 25000.00 25000.00
In any business organization, purchase of goods is an ongoing process and it is extremely difficult to keep a tab to identify that purchase from a particular supplier exceeds 50.00 lakhs especially in a very big organization having turnover in lakhs of crores. For complying with the provisions of section 194Q, automation is the only solution. The buyer has to identify the vendors from whom purchases exceeding ₹ 50.00 lakhs have been made in previous year and alter the master menu of these vendors with activation of TDS option in accounting software.
Alternatively, buyer has to arrange changes in accounting software so that software can automatically identify and deduct TDS or alert to deduct TDS as and when purchases exceed 50.00 lakhs from any of the suppliers. It will increase the compliance burden of the organization/professionals for deposit and filing of TDS returns. It will also increase cost of organization. Though the rate of tax is 0.10 percent but Government will get tax in advance every month in the form of TDS which would have been available to the Government on 15th June, 15th September, 15th December and 15th March at the time of payment of installments of advance tax. Some clarifications are also required from the Government on the following – 1.Whether TDS is to be deducted on total invoice value including GST. A similar issue has been raised in respect of section 194J. The CBDT wide Circular No. 23/2017 dated 19.07.2017 has clarified that if in the terms of agreement or contract GST component is separately indicated, then TDS has to be deducted on amount paid or payable without including GST component. However, this clarification is issued in respect of GST on services only and not in respect of goods. However, in respect of section 206(1H), the CBDT Vide circular No.17 dated 29.09.20, has clarified that TCS is to collected on receipt of consideration and no adjustment is required to be made on account of indirect taxes including GST.
2. From which date the limit of ₹ 50.00 lakhs will be computed? As per section 194(1), a person is liable to deduct tax on purchase of any goods exceeding ₹ 50.00 lakhs during any previous year. Whether this limit of ₹ 50.00 shall be reckoned from the financial year 2021-22 or from 01.04.21 or 01.07.21
A similar confusion arose when Finance Bill 2020 introduced section 206(1H). The CBDT vide Circular no. 17 dated 29.09.20 has clarified that threshold limit of ₹ 50.00 lakhs w.r.t. the previous year is applicable from 01.04.20. If a seller has already received consideration exceeding ₹ 50.00 lakhs up to 30.09.20, TCS provisions of section 206(1H) on receipts of sale consideration shall apply from 01.10.20.

A clarification in this regard from the CBDT will help to remove confusion among business organizations