Firstly, vide Finance Act, 2020, sub-section (1H) was inserted into section 206C of the Income Tax Act. As per section 206C(1H), the seller of the goods receiving the consideration of value exceeding INR 50 Lakhs was required to collect TCS @ 0.1%. The provisions are effective from 1st October 2020.

Later on the similar lines, vide Finance Act, 2021, provisions of section 194Q relating to deduction of tax at source on payment of a sum for the purchase of goods were inserted. As per section 194Q, the buyer paying for the purchase of any goods of value exceeding INR 50 Lakhs is made liable to deduct TDS @0.1%. Section 194Q is made effective from 1st July 2021.

In the present article, we are going to briefly deal with the TDS provisions covered under section 194Q of the Income Tax Act.

The purchaser of the goods satisfying the following conditions is liable to deduct TDS under section 194Q –

1. Purchaser is responsible for paying a sum to any resident seller for the purchase of any goods; and

2. Value/ aggregate value is more than INR 50 Lakhs in the Financial Year; and

3. Total sales/ gross receipts/ turnover of the purchaser is more than INR 10 crores in the immediately preceding Financial Year.

Time of deduction of TDS under section 194Q of Income Tax Act

TDS under section 194Q is deductible within earlier of the following –

• At the time of credit of the sum to the seller; or
• At the time of payment by cash/ cheque/ any other mode.

Rate at which TDS is deductible under section 194Q of Income Tax Act

TDS under section 194Q is deductible @ 0.1% on the value exceeding INR 50 Lakhs in the respective Financial Year.

Notably, in case the PAN of the seller is not available, TDS is deductible at the higher rate of 5%.

Exemption from deduction of TDS under section 194Q

TDS under section 194Q of the Income Tax Act is exempt under the following situations –

1. Value/ aggregate value is less than INR 50 Lakhs in the Financial Year;

2. Total sales/ gross receipts/ turnover of the purchaser is less than INR 10 crores in the immediately preceding Financial Year;

3. Tax is deductible under any other provisions of the Income Tax Act;

4. Tax is collectable under any of the provisions of section 206C of the Income Tax Act [other than section 206C(1H)].
 

Applicability of TDS provisions u/s. 194Q vis-à-vis TCS provisions u/s 206C(1H)

As seen in the introduction, firstly TCS provisions were made applicable and later on TDS provisions were made applicable on transactions relating purchasing/ selling of goods. Accordingly, both TDS and TCS provisions can get applicable simultaneously on the same transaction.

Circular No. 13 of 2021 dated 30th June 2021 clarifies the position when both the provision i.e. section 194Q and section 206C(1H) gets applicable simultaneously. The same is explained hereunder –

• When both section 194Q and section 206C(1H) are applicable, the tax is required to be deducted under section 194Q. Accordingly, the said transaction will be out of the purview of provisions of section 206C(1H).
• Once TDS is deducted under section 194Q by the buyer, the seller is not required to collect TCS under section 206C(1H) on the same transaction.
• If TCS is collected by the seller under section 206C(1H) first (before the buyer can collect the TDS). Then, on such a transaction, the buyer is not required to deduct TDS under section 194Q.

In nut-shell, provisions of section 194Q will prevail first. However, both the provisions i.e. section 194Q and section 206C(1H) will not apply simultaneously on the same transaction.

Applicability of TDS provisions u/s. 194Q vis-à-vis TDS provisions u/s 194-O 

Provisions of section 194-O deal with the deduction of TDS on payments of the sum by an e-commerce operator to e-commerce participants. The applicability of provisions of section 194Q and section 194-O is clarified vide Circular No. 13 of 2021 dated 30th June 2021 which is explained hereunder –

• When the transaction is covered within the purview of both provisions of section 194Q and section 194-O, TDS is to be deducted under provisions of section 194-O and not under the provisions of section 194Q;
• When the e-commerce operator has deducted TDS u/s 194-O on all the transactions (which includes transactions relating to section 194Q), then, the said transaction will not be subjected to TDS u/s 194Q.

By CA Sandeep Kanoi