Section 194Q has been introduced by Finance Act 2021, which will come into effect from 1 July 2021. According to this section, where any buyer is purchasing any goods of value exceeding 50 Lakhs (Aggregate value for whole year to be considered) in a previous year, shall deduct TDS at the rate of 0.1% of a sum exceeding 50 Lakhs. Turnover of the buyer should be in excess of Rs 10 crores during the previous financial year.
Section 206C(1H), which was effective from 1 October 2020 provided that where the seller receives any amount for the sale of goods in excess of Rs 50 Lakhs shall collect 0.1% of the sale consideration in excess of Rs 50 Lakhs as Income tax. Turnover of the seller should be in excess of Rs 10 crores during the previous financial year.
The transaction on which TCS was leviable since 1 October 2020, shall now be under the purview of TDS from 1st July 2021, provided conditions are satisfied.
So now the responsibility of deducting TDS is on buyer instead of applicability of TCS on seller.
The second proviso to Section 206C(1H) provides that TCS shall not be collectible if the buyer is liable to deduct TDS and such TDS has been deducted. However, if the buyer is not liable to deduct TDS then TCS shall continue to be collected.
It can happen that the turnover of the seller is more than Rs 10 Crores and he is selling goods of value more than Rs 50 Lakhs ending up attracting TCS. This transaction will now be liable to deduction of TDS by the buyer from 1 July 2021 onwards. However, if the turnover of the buyer is less than Rs 10 crores, then the buyer is not covered under Section 194Q, and liability to deduct TDS doesn’t arise and TCS shall continue to be collected.
Case scenarios for better understanding
CASE 1
A is Manufacturer, B is a dealer, C is retailer.
A sells to B who further sells to C. – Turnover of all 3 exceeds Rs 10 Crores.
Before 1st July 2021.
- A sells to B and A being a seller collects TCS
- B sells to C and B being a seller collects TCS
1st July 2021 onwards
- A sells to B and B being a buyer deducts TDS
- B sells to C and C being a buyer deducts TDS
CASE 2
A is Manufacturer, B is a dealer, C is retailer.
A sells to B who further sells to C. – Turnover of all A and B exceeds Rs 10 Crores but turnover of C is less than Rs 10 Crores.
Before 1st July 2021
- A sells to B and A being a seller collects TCS
- B sells to C and B being a seller collects TCS
1st July 2021 onwards
- A sells to B and B being a buyer deducts TDS
- B sells to C and B collects TCS because C is not liable to deduct TDS as its turnover doesn’t exceed Rs 10 crores.
