Decoded TCS-Section 206C(1H) & TDS-Section 194Q

TCS Provisions on Sale of Goods under Section 206C(1H) along with TDS Provision on Purchase Transactions under Section 194Q

TCS Provisions on Sale of Goods under Section 206C(1H):

Finance Act 2020 had inserted a new sub-section (1H) under section 206 of the Income Tax Act. This new provision specifies the collection TCS on Sale of goods with some conditions, For this CBDT issued a circular No. 17 on 29th Sept 2020 for a better understanding of this provision. This section came into force with effect from 1st Oct 2020.

Applicability of Section 206C(1H):

The tax shall be collected by the seller only if turnover is more than 10 crores in the preceding financial year.
The seller “receives” any amount for consideration for the “sale of goods” of the value or aggregate of such value exceeding INR 50 lakhs in any previous year from such buyer.

Then TCS collected by the seller at the rate of 0.1% on the sale consideration received exceeding Rs.50 lakhs on and after 1st Oct, 2020 and deposited the same within 7 days from the end of the month. The limit of 50 lakhs is per buyer per year.

The Guidance note clearly said that any transaction with various exchanges like recognized stock exchanges, recognized clearing corporations, and transaction with power exchanges not considered for the provision of Sec 206C(1H) as there is no one to one contract of buyer and seller.

In short, if the turnover of the seller exceeds 10 crores in the last year and the amount received from a buyer in the current year exceeds 50 lakhs then TCS should be collected on such sum exceeding 50 lakhs on and after 1st Oct,2020.

TDS Provisions on TDS on Purchase Transactions Section 194Q :

Finance Act 2021 had inserted a new Section 194Q- TDS on Purchase Transactions. This new section says Tax to be deducted on transactions with some conditions; this section is effect from 1st July 2021.

Applicability of Section 194Q:

The tax shall be deducted by the buyer only if turnover is more than 10 crores in the preceding financial year.
a buyer who is responsible for paying any sum to the seller for “purchase of goods” of the value or aggregate of such value exceeding INR 50 lakhs in any previous year,

Then TDS to be deducted by the buyer at the rate of 0.1% on the payment exceeding Rs.50 lakhs on and after 1st July, 2021 and deposited the same within 7 days from the end of the month. TDS deducted at the time of payment and Seller must be resident.

In short, if the turnover of the Buyer exceeds 10 crores in the last year and the amount need to pay to the seller by such buyer in this year is exceeds 50 lakhs then TDS should be deducted on such sum exceeding 50 lakhs on and after 1st July,2021.

Summary:

Seller

Buyer

T/O last Year	Sale Value	TCS	T/O last Year	Purchase Value	TDS
Less than 10 CR	Less than 50 Lakhs	N.A	Less than 10 CR	Less than 50 Lakhs	N.A
Less than 10 CR	More than 50 Lakhs	N.A	Less than 10 CR	More than 50 Lakhs	N.A
More than 10 CR	More than 50 Lakhs	Yes	Less than 10 CR	More than 50 Lakhs	N.A
Less than 10 CR	More than 50 Lakhs	N.A	More than 10 CR	More than 50 Lakhs	Yes
More than 10 CR	More than 50 Lakhs	No	More than 10 CR	More than 50 Lakhs	Yes

Why section 194-Q and section 206 C (1H) was required by Law?

The motive behind Govt. having implemented these sections seems to be very clearly brought about a change where large amount of transactions are being traced without any trail where GST amounts is being misappropriated. Govt. intends to bring all such purchase and sales transactions under some audit trail so that fake or frivolous transactions could be tracked or bring under the trail of TDS and TCS provisions and checked in future, if required.