What is Section 194Q- TDS on sale of goods introduced by Budget 2021? TDS u/s 194Q vs. TCS 206C(1H)

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Budget 2021, was presented in Parliament on 01.02.2021 wherein although very few amendments were introduced in Direct tax as compared to earlier years.

However one of the major amendment introduced in Budget 2021 was TDS on sale of goods u/s 194Q which is as under:

“(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 ten crore rupees 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.

(5) The provisions of this section shall not apply to a transaction on which––
(a) tax is deductible under any of the provisions of this Act; and
(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.’”

In Memorandum to budget 2021 no specific reason has been provided for introduction of such TDS when TCS u/s 206C(1H) was already introduced by Finance Act, 2020. The only clarification mentioned in memorandum for this section is as under:

“There is one exception to this general rule. If on a transaction TCS is required under sub-section (1H) of section 206C as well as TDS under this section, then on that transaction only TDS under this section shall be carried out.”

Thus as mentioned above there was already TCS provision for sale of goods and now TDS has also been introduced for similar kind of transaction. As we can see all the provisions and conditions are similar and hence department has introduced a clarification that TCS is not required to be collected on transaction where TDS is being deducted.

Hence, now before the transaction the seller and buyer have to communicate with each other that whether buyer will deduct TDS or seller will collect TCS.

Although deducting TDS would be more sensible and more practical in all situation.

Further, the definition of turnover would change in TDS and TCS, as under TDS GST won’t be a part of turnover whereas under TCS GST would form a part of turnover.

Thus, it would be interesting to see as to how people will again change their system and accounting software for such TDS and what is the motive of government behind such TDS.

Also, this TDS provision will be a pathbreaking thing because till date there was no TDS provision on sale of goods as all the TDS provision were for service but now this provision has been inserted.

What are your thoughts comment below.

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