Section 194Q and Section 206C(1H) of Income Tax Act
The intention behind the announcement of ‘Section 194Q and Section 206C(1H) of Income Tax Act’ by the Government is not only to recover the tax and increase the revenue but also to widen the tax base system.
The proposed Section 194Q is most similar to the proposed Section 206C(1H) of the Income Tax Act. In Section 194Q tax would be deducted on purchase of goods while in Section 206C(1H) tax would be collected on sale of goods. This is the first time that TDS will be deducted on purchase of goods.
What is Section 194Q and Section 206C(1H) of Income Tax Act?
Section 194Q:
‘Section 194Q’ was introduced in the Finance Bill, 2021 to the Income Tax Act, 1961 which requires a buyer to deduct tax on purchase of Goods @0.1% if the value or aggregate value exceeds Rs. 50 Lakh in a financial year.
Section 206C(1H):
‘Section 206C(1H)’ was introduced in the Finance Bill, 2020 to the Income Tax Act, 1961 which requires a seller to collect and deposit TCS on the receipts from sale of goods from such buyers whom you received more than Rs. 50 Lakhs during the current financial year. The TCS is payable on the amount receipt which is greater than Rs. 50 Lakhs and must be after 1st of October 2020. The rate of TCS will be 0.1% (25% relaxation i.e 0.075% during FY 2020-21 due to Covid-19 pandemic).
| Particulars | SECTION 194Q | SECTION 206C(1H) |
| Applicable to | Buyer/Purchaser | Seller |
| When It will be applicable | If Buyer’s Turnover is > Rs. 10 Crore in Previous Year | If Seller’s Turnover is > Rs. 10 Crore in Previous Year & Buyer’s Turnover is <= Rs. 10 Crore in Previous Year |
| Applicable on | Purchase of Goods from a seller exceeds Rs. 50 Lakh in a Financial Year | Receipt against sale of Goods to a buyer exceeds Rs. 50 Lakh in a Financial Year. Advertisement
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What is the difference between Section 194Q and Section 206C(1H) of Income Tax Act?
| PARTICULARS | SECTION 194Q | SECTION 206C(1H) |
| NATURE | In Section 194Q tax to be Deducted | In Section 206C(1H) tax to be Collected |
| Applicable to | Buyer/Purchaser | Seller |
| With Effect from | 01-July-2021 | 01-Oct-2020 |
| Applicable If | Turnover/Gross Receipts/Sales from the business of Buyer should exceed Rs. 10 Crore during the Previous Year. | Turnover/Gross Receipts/Sales from the business of Seller should exceed Rs. 10 Crore during the Previous Year |
| When tax will be Deducted or Collected | Payment or Credit, whichever is earlier | At the time of receipt |
| Advances | TDS shall be deducted on advance payments made | TCS shall be collected on advance receipts |
| Rate of TDS/TCS | 0.1% | 0.1%(0.075% for the FY 2020-21) |
| If PAN not available | 5% (Will be deducted as per the provision to Section 206AA of Finance Act, 2021) | 1% |
| When to be Deposited/collected | Tax so deducted shall be deposited with government by 7th day of subsequent month | Tax so collected shall be deposited with government by 7th day of subsequent month |
| Quarterly Statement to be filled | 26Q | 27EQ |
#FAQ on Section 194Q and Section 206C(1H)
What is the definition of Goods?
Goods are not defined under Income Tax Act, 1961. Hence, we’ve to refer to most appropriate definition as per other Act or as per General Clauses Act, 1897.
What are the consequences of non-deduction of TDS under the provisions of Section 194Q?
If buyer fails to deduct and deposit tax at applicable rates, expenditure to the extent 30% will be disallowed under section 40a(ia) of the Income Tax Act.
Is buyer liable to deduct TDS on advance payment made?
If the advance payment made is against purchase of goods, TDS on same will be deductible subject to fulfillment of other conditions.
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