STRINGENT PROVISIONS UNDER THE INCOME TAX ACT, 1961- W.E.F. 1ST JULY, 2021

Stringent Provisions Section-194Q, 206AD and 206CCA

DID you KNOW?

The Finance Act, 2021 introduced following stringent provisions under Income Tax Act, applicable from 1stof July, 2021.

  1. TDS ON PURCHASE OF GOODS [SECTION 194Q] (We can check out difference between corresponding section 206C(1H) – W.E.F 01st-Oct-2020)
  2. TDS FOR NON-FILERS OF INCOME TAX RETURNS [SECTION 206AB] (Refer already discussed, you may refer my earlier article or you can provide your email ID in comment section, I will provide you above section in detail understanding)
  3. TCS FOR NON-FILERS OF INCOME TAX RETURNS [SECTION 206CCA] (We will discuss later on)

Now, in this article we can discuss only provision of section 194Q in details and Comparatives between Section 194Q vs 206C (1H) along with practical examples.

TDS ON PURCHASE OF GOODS [SECTION 194Q]

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.

Analysis above section

Explanation of relevant terms used

  1. 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. 
  2. “seller” means a person who is resident.

Analysis of above provision in Layman Language

  • This provision shall be applicable in the hands of Buyer of goods.
  • The buyer has turnover exceeding Rs.10 crores during the immediately preceding financial year.
  • Buyer has purchased Goods whether it may be Input / Capital Goods.
  • Buyer has purchased goods from a resident seller and his PAN is available.
  • Aggregate Value of Purchase from resident seller during the current financial year exceeds Rs. 50 lakhs.
  • Above TDS is deducted @ the time of credit or payment, whichever is earlier.
  • TDS @ 0.1% (If no PAN of seller then TDS @ 5% as per section 206AA).
  • While calculating above threshold limit of Rs 50 purchase made form 1st of April,2021 will be counted but TDS to be deducted on amount of purchase done after 1st of July,2021 only.
  • Above provision is not applicable in following cases
    • Transaction on which TDS isapplicable under any other section of the act(Example- 194C)
    • Transaction on which TCS is applicable under 206C act Except 206(1H)
    • Turnover of buyer (Excluding GST) does not exceed Rs. 10 Crore in preceding F.Y.
    • When Seller is non-resident
    • Value of purchases of goods does not exceed Rs. 50 Lakh during current FY.
  • Where the buyer fails to deduct and deposit TDS, purchase expenditure to the extent of 30% will be disallowed u/s 40a (ia) of the Income Tax Act, 1961 and shall be subject to income tax at applicable tax rate.
  • Conclusion
  • Check points for this section
    • If your turnover in preceding financial year exceeded Rs. 10 crores.
    • Identify your sellers from whom purchases hasexceeded Rs. 50 lakhs during current FY.
    • Obtain PAN from such sellers.
    • Deduct TDS @ 0.1% at the time of credit or payment on amount exceeding Rs. 50 lakhs.

DIFFERENCE BETWEEN SECTION 194Q AND SECTION 206C (1H)

Since both the sections relate to a single transaction but difference between to compliance process pertains to TDS/TCS provision.

Section194Q206C (1H)
W.E.FW.E.F01-July-2021W.E.F01-Oct-2020
PurposeTax to be deducted (TDS)Tax to be Collected (TCS)
Which Transactions?Only Purchaseof Goods not ServicesOnly Sale of Goods not Services
Who is liablefor deduction/collection?Buyer/Purchaseris liable to deduct the taxSelleris liable to collect the tax
Limit of TurnoverTurnover of buyer (Excluding GST) is Exceeding Rs. 10 Crore in preceding  F.Y.Turnover of seller (Excluding GST) is Exceeding Rs. 10 Crore in  preceding F.Y.
Counter PartyResident SellerResident Buyer
Threshold Limit of Purchase/SaleIf value of purchases of goods exceeds Rs. 50 Lakh in a yearIf value of Sale of goods exceeds Rs. 50 Lakh in a year
Point of taxationAt the time of Credit or Payment whichever is EarlierAt the time of receipt of sale consideration
RateIf Pan Available – 0.10% If Pan Not Available– 5% On amount exceeding Rs. 50 LakhsIf Pan Available – 0.10% If Pan Not Available – 1% On amount exceeding Rs. 50 Lakhs
Due dateof payment7th of next month in which taxdeducted (In case of March Month -30th April)7th of next monthin which tax collected
Return FormForm 26QForm 27EQ
Not applicable/ExclusionTransaction on which TDS isapplicable under any other section of the act (Example- 194C)  Transaction on which TCS is applicable under 206C act Except 206(1H)Transaction on which buyer is Central or State Govt, Local Authority, Embassy or Importer. Transaction on which TDS/TCS is applicable under any other section of the act . Therefore, If  TDS is deducted under Sec 194Q then TCS will not collected under provision of 206(1H)
Consequences of  Non-CompliancesSection 40a (ia) disallowance of 30%is attracted on which Tax was liable to be deducted.Example :- If TDS was not deducted on Rs. 50 Lakh (TDS=5,000)then youwill have to do disallowed purchase ofRs. 15 Lakh. Simple Interest@ 1% or 1.5% ( You can refer my earlier article on TDS penality provision for details discussion along with example) Simple Interest@ 1%

Note: –

  • Whether above turnover includes only value of goods or services or both:-

                         While calculating above turnover value of goods and services both are to be included.

  • TDS to be deducted on Taxable Value or Gross amount of Invoice which is including GST

Circular No. 17 dated 29-09-2020 has clarified to include GST on Goods for collecting TCS under Section  206C(1H). However, no such similar clarification has been received pertaining to TDS on Goods. Hence, in absence of specific clarifications, it is advised to deduct TDS on Gross Invoice Amount including GST on amount exceeding Rs. 50 lakhs.

  • If provisions of Section 194Q and Section 206C (1H), both are applicable, then which section shall prevail over?

Provisions of Section 194Q shall prevail i.e., the buyer would deduct TDS u/s 194Q.

  • Currently, provisions for lower deduction of tax u/s 197 of the ITA, 1961 are not applicable. 

PRACTICAL UNDERSTANDING OF SECTION 194Q AND SECTION 206C (1H)

CaseMr.A (Buyer’s) Turnover in Last YearMr.B (Seller’s) Turnover in Last YearValue of Transaction inCurrent FYSection ApplicablePerson LiableComments
15 Cr8 Cr55 LakhsNot ApplicableNo TDS /TCS as both Buyer & Seller Turnover < 10 CR
22 Cr11 Cr65 LakhsTCS u/s 206C (1H)SellerMr B will collect TCS as Mr. B Turnover > 10 Cr &value of Transaction > 50 Lakhs
312 Cr5 Cr62 LakhsTDS u/s 194QBuyerMr A will deduct TDS as Mr A Turnover > 10 Cr and value of Transaction > 50 Lakhs
411 Cr9 Cr70 LakhsTDS u/s 194QBuyer
511 Cr11 Cr75 LakhsTDS u/s 194QMr. A will deduct TDS as Mr A Turnover > 10 Cr and value of  Transaction > 50 Lakhs  (Important to note that Provisions of Section 194Q shall prevail)
615Cr20 Cr. (But Mr. B is Ecommerce operator)80 LakhsTDS u/s 194OECOTDS u/s 194Q/206C(1H) will not be applicable but section 194O is applicable – where TDS will be deducted by E-commerce operator from payment made to Mr.B

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BIO of Author:-

CA JAYPRAKASH PANDEY

The author, CA Jayprakash Pandey is a practicing Chartered Accountant (Founder of Jayprakash P & Company) having Office at Mumbai, with more than 5 years of professional cum practical experience, Direct Tax, International Taxation, Indirect Tax & FEMA related advisory, litigation & compliance matters.

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Disclaimer: The purpose of this is to share knowledge and it is for education purpose only. This does NOT constitute NOR does this form part of neither it is to be construed as, A LEGAL OPINION. The analysis is solely based on the reading abilities of the Author. They may be correct/incorrect as per you. No representation or warranty, express or implied, is made or given in respect of any information provided. UNDER NO circumstances should any recipient rely on this communication as a basis for any legal decision. The views expressed are of personal to the author. They do not reflect the views of any organization he may be directly/indirectly associated with. Neither author nor any of its affiliates accepts any legal liability, or responsibility, for, or provides any assurance or guarantee of accuracy, authenticity, completeness, correctness, dependability, reliability, suitability or timeliness of, any part of this article. The contents of this article are based only on the understanding of the Law, Rules, Notifications, etc. of the author and THEY ARE NOT BASIS FOR ANY LEGAL OPINION.

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