TDS/TCS Applicability in the Purchase/Sale of Goods

In the Finance Act of 2021, a new section 194Q was added to the Income Tax Act, requiring a buyer to deduct the seller’s TDS while acquiring goods. This section will take effect on July 1, 2021. As per last year, a similar provision of section 206C(1H) was enacted, requiring sellers to collect TCS from buyers while selling items. Because practically all forms of services are covered by TDS/TCS, the government is now attempting to include all sales and purchases of items in the scope of TDS/TCS. It appears that the administration is attempting to widen the tax base. As a result, in the last year, there were back-to-back sections where TDS/TCS regulations would apply to goods sales.

Section 194Q (Effective on July 1, 2021):

  1. Applicable to a buyer of products, where the total sales, gross earnings, or turnover from the firm in the preceding financial year exceeded 10 crore rupees.
  1. A buyer must deduct TDS at the rate of 0.1 percent on any products purchased in the preceding year with an estimated revenue of more than fifty lakh rupees.
  1. When money is credited to any account/Suspense account or under any other name, TDS is deducted.
  1. This section’s requirements do not apply to a transaction in which––
  1. any provision of this Act allows for a tax deduction; and
  1. a transaction for which sub-section (1H) of section 206C applies is collectible under the provisions of section 206C.

Section 206C (1H) (Effective October 1, 2020) :

  1. Applied to a seller of goods whose total sales, gross earnings, or turnover from his firm in the preceding financial year exceeded 10 crore rupees.
  1. A seller is required to collect TCS at a rate of 0.1 percent on receipts of sale consideration for the sale of any products with a value (or an aggregate of such values) of more than Rs. 10,000.
  1. If the buyer does not submit a PAN/Aadhaar number, a 5% TCS must be collected.
  1. These sub-section requirements do not apply if the buyer is required to deduct tax at source on the goods acquired from the seller under any other provision of this Act and has done so.

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