SECTIONS 194Q vis-a-vis 206C(IH) OF THE INCOME-TAX ACT 1961 W.E.F 01.07.2021-IS IT A CASE OF OVERLAPPING COMPLIANCE

The Central Government has broadened the scope of Tax Deducted at Source (TDS)  and Tax Collected at Source (TCS) extensively in recent times. In fact, it has also brought transaction for Sales and Purchase of goods in the ambit of TDS/TCS provisions. Prior to amendment made by Finance Act 2020, only certain specific goods were covered under ambit of Income-tax Act 1961. The Finance Act 2020 broadened the base of TCS by introducing Section 206C(1H) in the Income-tax Act, 1961 (the “Act”) with effect from 01^st October 2020 which makes it the responsibility of a seller to collect TCS @ 0.1% per cent for supply of goods in excess of Rs 50 Lacs at the time of receipt of sales consideration thereof. The provisions of section 206C(1H) of the Income are applicable for a seller whose turnover is more than Rs. 10 Crores in preceding Financial Year.  (To understand provisions of section 206C(1H) in detail, refer our earlier blog)

Further, the Finance Act 2021 has introduced Section 194Q of the Act w. e. f 01^st July 2021 which makes a buyer responsible for deducting tax at source @ 0.1% per cent for purchases of goods from resident Seller in excess of Rs 50 Lacs. These provisions are applicable for a Buyer whose turnover is more than 10 Crores in preceding Financial Year. (To understand provisions of section 194Q in detail, refer our earlier blog)

The purpose of this Article is to discuss whether with effect from 01.07.2021, in a case  where both the buyer and seller have a turnover are more than Rs. 10 Crores, TDS will be deducted by Buyer under section 194Q or TCS will be collected by Seller under section 206C(1H) of the Act.

(A)      TCS u/s 206C(1H)

As per the provisions of section 206C(1H) of the Act, every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax.

First proviso to section 206C(1H) further provides that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent”, the words “one per cent” had been substituted:

Importantly another proviso lays down further that the provisions of this sub-section shall not apply, 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.

The section further goes on to define the term “Buyer” and the exclusions thereto. It also defines a  “Seller” to mean a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale 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.

(B)      TCS u/s 194Q

With effect from 01.07.2021, a new section 194Q has been introduced by Finance Act 2021 which states any person, being a buyer having a turnover exceeding Rs 10 Crores in preceding Financial Year) 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.’

Here again it has been further clarified through subsection (5) of section 194Q of the Income-tax Act 1961 that 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.

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 ten crore rupees 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. An amendment also been made in section 206AA of the Act to the effect that if a Seller fails to furnish his Permanent Account Number to the Buyer, TDS would be deducted at the rate of 5 per cent for the purpose of section 194Q of the Income-tax Act 1961.

(C)      Reconciling the overlap

Now, insertion of section 194Q creates certain ambiguity as to liability for collection/deduction of TCS/TDS respectively. The interplay of the above statutory provisions of Sections 194Q and 206C(1H) and its applicability can be concluded as under:

Situation	Turnover of seller (Preceeding Financial Year)	Turnover of buyer (Preceeding Financial Year)	Applicability
1	> 10 Crores	< 10 Crores	Section 206C(1H) will be applicable
2	< 10 Crores	> 10 Crores	Section 194Q will be applicable
3	>10 Crores	> 10 Crores	Both provisions will be applicable. However. TDS will be deductedunder section 194Q of the Act by virtue of proviso of section 206C(1H) of the Act and sub- section (5) of section 194Q of the Income-tax Act 1961

 

(D)      Examples

 

S.No	Example 1	Example 2	Example 3
Seller Turnover	Rs 9 Crores	Rs 15 Crores	Rs 15 Crores
Buyer’s Turnover	Rs 15 Crores	Rs 9 Crores	Rs 15 Crores
Receipt or Payment for sale or purchase of Goods in previous year.	Rs 55 Lakhs	Rs 55 Lakhs	Rs 55 Lakhs
Taxable Amount	(Rs 55 Lakhs – Rs 50 Lacs) Rs 5 Lakhs	(Rs 55 Lakhs – Rs 50 Lacs) i.e Rs 5 Lakhs	(Rs 55 Lakhs – Rs 50 Lacs) i.e Rs 5 Lakhs
TDS u/s 194Q	0.1% on Rs 5 Lacs	Not Applicable as Buyer Turnover is less than 10 Crores	0.1% on Rs. 5 lakhs*
TCS u/s 206C(IH)	Not Applicable as TDS deductible u/s 194Q	0.1% on Rs 5 Lacs	Not applicable (see exception).