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TDS & TCS on purchase & sale above Rs.50 Lacs

[By Shaleen Shah (Partner), VNCA]

A new section 194Q for Tax Deduction at Source (TDS) on purchase of goods is inserted by Finance Act – 2021 effective from 01/07/2021.

Earlier section 206C(1H) was inserted by Finance Act, 2020 and was made effective from 01/10/2020 for Tax Collection at Source (TCS) on sale of goods. Refer our earlier update – Widening the scope of TCS (Tax Collection at Source) from 1st Oct 2020

Comparison between the two is given in the following table:

Particulars Section 194Q Section 206C(1H)
Applicable on Purchase of Goods Receipt of consideration on Sale of Goods
Effective Date 01st July, 2021 01st October, 2020
Who is responsible for TDS / TCS Buyer will deduct TDS Seller will collect TCS from buyer
Threshold for TDS/TCS – Buyer’s Turnover in previous year exceeds Rs.10 Crores; and
– aggregate value of goods purchased from a single seller exceeds Rs.50 lacs in any previous year
– Seller’s Turnover in previous year exceeds Rs.10 Crores; and
– aggregate consideration received by the seller from a single buyer towards sale of goods exceeds Rs.50 lacs in any previous year
Meaning of Buyer Buyer means: – a person carrying on business – total sales, gross receipts or turnover exceeds Rs.10 Croress during the financial year immediately preceding the financial year in which such goods are purchased. (For FY 2021-22, turnover of buyer for the FY 2020-21 is to be considered) Buyer means a person who purchases any goods  

Exclusions:
a) Government, Embassy, High Commission, consulate, etc.
b) Local Authority
c) Importer of the goods

Meaning of Seller Any resident Seller means:
– a person carrying on business
– total sales, gross receipts or turnover exceeds Rs.10 Crores during the financial year immediately preceding the financial year in which the sale of goods is carried out (For FY 2021-22, turnover of seller for the FY 2020-21 is to be considered)
Rate of TDS / TCS TDS @ 0.10% of such sum exceeding Rs.50 Lacs TCS @ 0.10% of the sales consideration received exceeding Rs.50 Lacs
Rate of TDS / TCS if PAN / Aadhaar not furnished TDS @ 5% TCS @ 1%
Effective date from which threshold limit of Rs.50 Lacs is to be considered Threshold limit of Rs.50 Lacs shall be computed from 01/04/2021 (for financial year 2021-22). For FY 2021-22, Threshold limit of Rs.50 Lacs shall be computed from 01/04/2021 and TCS will be applicable as and when consideration received (including any previous dues / advance payment) crosses Rs.50 Lacs limit.
Time of deduction / Collection Credit to the account of seller or Payment, whichever is earlier. TDS to be deducted even if the sum is credited to ‘Suspense Account’ Receipt of consideration from the buyer
Non-Applicability / Overriding effect Section 194Q will not apply if:
i) Tax is deductible (TDS) under any other section;
ii) Tax is collectible (TCS) under provisions of section 206C other than a transaction to which section 206C(1H) applies.
Section 206C(1H) will not apply:
i) where consideration is received on account of export of goods out of India
ii) to Goods covered U/s 206C(1)
iii) to Goods being Motor vehicle as specified U/s 206C(1F)
iv) to Goods being money received by authorized dealer for remittance as specified U/s 206C(1G)
v) If the buyer is liable to deduct TDS under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount
Whether TDS / TCS to be made on Including GST or Excluding GST value It is suggested to deduct TDS on including GST value. No specific clarification / circular for TDS is issued in this regard. Till such clarification, principles laid down for TCS may be followed. TCS is required to be collected on value including GST amount [CBDT Circular No. 17/2020 dated 29/09/2020]
What if Buyer / Seller holds multiple GSTINs Threshold limit of Rs.10 Crores as well as Rs.50 Lacs shall be computed annually on PAN basis and not GSTIN basis Threshold limit of Rs.10 Crores as well as Rs.50 Lacs shall be computed annually on PAN basis and not GSTIN basis
Time Limit to Deposit of TDS / TCS Within 7 days from end of the month in which TDS is deducted, and 30th April for TDS deducted in March Within 7 days from the end of the month in which TCS is collected.
Which Statement (Return Form) to furnish for TDS / TCS Quarterly in Form 26Q Quarterly in Form 27EQ
Time Limit to furnish TDS / TCS Statement (Return) Within 1 month from the end of the quarter, and 2 months for the quarter ended in March Within 15 days from the end of the quarter, and 45 days for the quarter ended in March
Certificate of Deduction / Collection of Tax Form 16A Form 27D
Implications for Failure to Deduct / Collect Tax – Disallowance of 30% of expenditure; and – Penalty of amount of tax   – Penalty of amount of tax  

Action Point:

Primary responsibility is on the buyer to deduct TDS.  So, the buyer should give an intimation to the seller not to collect TCS.