Section 194Q: Same as 206C(1H) or Different?
Consider yourself a ‘Purchaser of Goods.’ In the normal course of your business, you have bulk orders to purchase. During the previous year, one of your purchases of goods exceeded Rs. 50 lakhs. Is TDS levied on such a transaction? Let us understand.
As per section 194Q, any buyer who is obligated to pay any sum to any resident seller to purchase any goods or the value or aggregate of value exceeding 50 lakh rupees in any previous year has to pay TDS at the rate of 0.1% of the sum over Rs. 50 lakhs
Yes, indeed! If you carry out such a transaction, you may be required to pay TDS on the amount, but after keeping in mind the following conditions:
- The new section 194Q is applicable with effect from 1st July 2021
- The ‘Buyer’ mentioned in the section is eligible for TDS payment only if his last year’s turnover is more than Rs. 10 Crore.
- The ‘Seller’ mentioned in section 194Q can be any person but must be a Resident.
- If the payee in the transaction, i.e. the Seller, has not submitted a PAN, does not have a PAN, or his PAN is not available, the exemplary rate of TDS will be 5%.
Non-Applicability of the section
- Section 194Q is not applicable if TDS is deductible on the same amount under any other section.
- TDS is also inapplicable if TCS is deductible under section 206C (EXCEPT: 206C(1H)).
- Not applicable on transactions of securities and commodities traded through the recognized stock exchange.
If you are a tax enthusiast, a professional, or someone to whom this section applies, a conflicting section question will arise. The provision of section 194Q resembles the provisions of TCS under section 206C(1H), so, what should a taxpayer do when such a conflict of sections occurs, and both the sections are simultaneously applied to the taxpayer?
Here is a list of scenarios that may assist taxpayers in understanding the overriding power of section 194Q over other sections and vice versa.
- In case of a transaction to which section 206C(1H) and 194Q apply, TDS is to be deducted as per section 194Q
- In case of a transaction to which section 206C(1)/(1F)/(1G) and 194Q applies, TCS to be collected as per section 206C(1)/(1F)/(1G)
- In case of a transaction to which section 194O and 194Q apply, TDS is to be deducted as per section 194O
The Finsights Insights
- Section 194Q becomes effective on 01/07/2021, so anything purchased before that date is not subject to TDS but is included in the turnover calculation for FY 21-22 to see if the threshold limit of Rs. 50 Lakhs has been exceeded or not for the previous year.
- Section 194Q does not apply to non-resident buyers unless the non-resident has a permanent establishment in India, and the purchase concerns that.
- The section applies to buyers whose previous year’s turnover is more than Rs. 10 Crore, but if you are in your first year of incorporation, there will be no previous year, and thus this section will not apply.
- The income considered for calculating the last year’s turnover only includes business income and professional receipts and does not include any non-business income.
- If the Seller’s real income is exempt under the Income Tax Act [like under section 10(23A) or 10(44)], then TDS under section 194Q is Not Applicable.
- TDS u/s 194Q is not applicable on GST Amount if it is separately shown in the invoice; however, if advance payment is made, TDS should be deducted on the total advance payment because GST amount cannot be determined separately on the advance amount.
The Difference (194Q v/s 206C(1H))
The main TWO differences between 194Q and 206C(1H) are
- 194Q governs deducting the tax (TDS) of the Buyer of the Goods and 206C(1H) prescribes the Seller responsibility of collecting the Tax (TCS)
- The tax deduction and collection time period for both sections are different
Section 194Q:
Payment Or credit [Whichever is Earlier].
Section 206C(1H):
At the time of the receipt.
As a result, the two sections are distinct, and anyone who is even remotely entangled between these sections will have a clear understanding of which section to follow and what provisions to comply with. Follow Finsights GST Reconciliation Software Socials and visit the website on a regular basis to stay up to date on all such news, insights, and amendments.
