Summary of section 194Q and 206C(1H)

July 30, 2021 By Damodhar C Off

ANALYSIS OF SECTION 194Q–PROPOSED IN BUDGET 2021-22

Whether TCS u/s 206C (1H) of Income Tax is to be collected on sales of goods above 50 lakhs as

amended by Budget 2020 or TDS u/s 194Q is to be deducted by the buyer as proposed in Budget

2021?

As per Budget 2021, New Section 194Q has been proposed to be inserted which reads as under: –

‘194Q. (1) 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.

Explanation. For the purposes of this sub-section, “buyer” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Rs. 10 crores 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) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account”

or by any other name, in the books of account of the person liable to pay such income, such credit of income

shall be deemed to be the credit of such income to the account of the payee and the provisions of this section

shall apply accordingly.

(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the

previous approval of the Central Government, issue guidelines for the purpose of removing the

difficulty.

(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is

issued, be laid before each House of Parliament, and shall be binding on the income tax authorities

and the person liable to deduct tax.

This section is similar to section 206C(1H) which is applicable for collection of tax at source. The

features of the proposed provisions are listed below:

Rate of TDS under section 194Q

i. Buyer of all goods will be liable to deduct tax at source

>  @0.1% of sale consideration

> exceeding INR 50 Lakhs in a Financial Year

ii. Tax to be deducted @ 5%

> ifthe seller does not provide PAN /Aadhar(as per Memorandum explaining the provisions in the Finance

Bill, 2021).

Turnover for applicability of section 194Q

TDS obligation will be on buyers

who have gross receipts/turnover exceeding INR 10 Crores in preceding financial year

Conditions for applicability of section 194Q

i. TDS obligation will arise

> ifthe payment is made to a resident seller

ii. No requirement of TDS u/s 194-Q on a transaction:

> if TDS is deductible under any other provision or

> TCS is collectible under section 206C [excluding 206C(1H)|

TAX BULLETIN FEBRUARY, 2021 VOLUME – 81 – THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 27