Highlights of Sec. 194Q
- It requires deduction of tax at source by a purchaser of goods whose turnover (exclusive of GST) for FY 2020-21 has crossed Rs. 10 Crs.
- The seller should be a resident of India. In other words, import purchases are not covered in this new section.
- TDS @ 0.1% shall apply if purchases from a seller exceeds Rs. 50 Lacs during a financial year.
- If a particular transaction qualifies for deduction of TDS u/s 194-Q, then the same transaction shall not attract TCS u/s 206C(1H)
Illustrative Guide on its Applicability
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Scenario
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Purchases before
01-07-2021
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Purchases on or after
01-07-2021
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Amount on which TDS shall apply
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(I)
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60 L
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20 L
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20
L
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(II)
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20
L
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40 L
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10
L
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(III)
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70 L
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-
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-
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(IV)
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-
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60 L
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10
L
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Note: In Scenario (I), since the threshold limit of Rs. 50 Lacs has crossed before the effective date of implementation of this section, hence provisions shall apply on all transactions effected on or after the effective date.
Comparative analysis of Sec. 194-Q and Sec. 206C(1H)
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Particulars
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Sec. 194-Q
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Sec. 206C(1H)
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Purpose
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Deduction of Tax (TDS)
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Collection of Tax (TCS)
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Person Responsible
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Buyer of Goods
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Seller of Goods
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Applicable For
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Those buyers whose
turnover > Rs.
10 Crs. during last FY
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Those sellers whose turnover > 10 Crs. during last
FY
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Effective From
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01/07/2021
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01/10/2020
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Threshold Limit per FY
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Rs. 50 Lacs (Including GST)
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Rs. 50 Lacs (Including GST)
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Rate of Tax (PAN is furnished)
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0.1% on amount exceeding Rs.
50 Lacs
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0.1% on amount exceeding Rs. 50 Lacs
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Rate of Tax (PAN is NOT furnished)
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5% on amount exceeding Rs. 50 Lacs
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1% on amount exceeding Rs.
50 Lacs
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Timing of applicability
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Payment or credit, which is earlier (including advance
payments)
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At the time of receipt of consideration (including
advance receipts)
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Compliances involved –
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(a) Due date to deposit tax
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7th day of subsequent month for April to February and
30thApril for March
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7th day of subsequent month
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(b) Form to be filed
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Form No. 26Q
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Form No. 27EQ
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(c) Certificate to be issued
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Form No. 16A to seller
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Form No. 27D to buyer
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Note: Memorandum to Finance Bill, 2021 has expressly clarified that if on a transaction both TDS u/s 194-Q as well as TCS u/s 206C(1H) applies, then TDS u/s 194-Q shall hold good and will be considered.
Also read : Higher Rates of TDS/TCS For ITR Non-Filers U/s206AB/206CCA
Checkpoints From Buyer's Perspective
The buyer should have a valid "Tax Deduction & Collection Account Number" (TAN). There is no requirement to obtain a fresh TAN if the buyer entity is already in possession of an existing TAN.
- Identify those domestic suppliers with whom transaction value is expected to exceed Rs. 50 Lacs during FY 2021-22.
- Check applicability of TDS u/s 194-Q with transactions from such domestic suppliers.
- Deduct TDS u/s 194-Q and deposit on or before due date.
- File quarterly TDS return in Form No. 26Q.
- Issue Form No. 16A to deductee-suppliers.
Checkpoints From Seller's Perspective
- Identify those domestic customers with whom transaction value is expected to exceed Rs. 50 Lacs during FY 2021-22.
- Issue a "Payment Advice" to customers for convenience for both parties to clearly understand TDS, GST & net payments to be effected for each transaction.
- Create a receivable ledger by the name of "TDS u/s 194-Q" to record all deductions that shall be made by their customers.
- Reconciliation of balance in the above stated ledger with Form No. 26AS or, Form No. 16A on a periodic basis.
Way Forward
Prima facie it appears that financial implication of each transaction is as low as 0.1%, although the repercussions in the event of any lapse may be significantly higher. For administrative convenience, the buyer and seller may consider to mutually decide on how the flow of compliances shall be observed. Sec. 194-Q(3) states that guidelines may be issued by CBDT to remove difficulties circumventing the implementation of these provisions. One may expect that such guidelines will act as a boon to foster better compliances and smoothen activities for such entities.
In addition to above, we request you to not collect Tax collected at source (‘TCS’) under section 206C(1H), as section 194Q(5) specifically provides that in case buyer has deducted TDS under section 194Q, then the seller is not required to collect TCS on the same transaction.
Section 206AB & 206CCA W.e.f. 01-07-2021
New sections 206AB and 206CCA have been introduced providing that every person liable to deduct / collect tax at source has to collect information from the deductee that if in his case amount of TDS / TCS in last two previous years has been Rs. 50,000/- or more, whether he has filed returns of income for those assessment years. In case returns have not been filed by him for both the assessment years rate of TDS / TCS will be higher of the following rates: -
- Twice the rate specified in the relevant provisions of the Act, or
- Twice the rates in force or
- Rate of 5%
Accordingly, we request you to submit the following details as mentioned in Annexure 1 below, to allow us to withhold tax only at applicable rates instead of higher rates as mentioned u/s 206AB & 206CCA of the Act.
Annexure 1:
We (…………..) confirm and declare that we have filed the tax return under section 139 of the Income Tax Act, 1961 for the previous two financial years, the details of which are as below:
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Financial Year
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Assessment Year
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E-filing acknowledgment Number
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Date of filing tax return
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