Understanding TDS and TCS Under Sections 194Q and 206C(1H) of Income Tax Act

Frequently Asked Questions

Q1. What is Section 194Q of the Income-tax Act?

Ans: Section 194Q of the Income-tax Act pertains to TDS on payments made to a resident seller for the purchase of goods. The deduction occurs at the time of credit or payment, depending on which event occurs first.

Q2. Who is responsible for deducting tax at source under Section 194Q?

Ans: The buyer, responsible for payment to a resident seller, must deduct TDS under Section 194Q if:

• They conduct a business.
• They pay any amount for the purchase of goods.
• Their total sales, receipts, or turnover exceeds ₹10 crores in the preceding financial year.
• The value of goods purchased exceeds ₹50 lakhs within the previous year.

Q3. What is the threshold limit for tax deduction under Section 194Q?

Ans: TDS must be deducted from purchase values that exceed ₹50 lakhs.

Q4. When should tax be deducted under Section 194Q?

Ans: Tax must be deducted at the time of credit to the seller's account or at payment, whichever occurs first.

Q5. What is the TDS rate under Section 194Q?

Ans: The TDS rate is set at 0.1%, with no additional surcharges or Health & Education Cess applicable.

Q6. Does Section 194Q apply if the buyer is a non-resident?

Ans: TDS must be deducted by a non-resident buyer only if the purchase of goods is effectively linked to a permanent establishment in India.

Q7. Is tax deduction required if the seller's income is exempt from tax?

Ans: No deductions are necessary if the seller is exempt from income tax. However, this doesn’t apply if only a portion of the seller's income is tax-exempt.

Q8. What TDS rate applies if the seller does not provide a PAN?

Ans: According to Section 206AA, if the seller doesn't provide a PAN, TDS will be deducted at the higher of:

• The prescribed rate in the relevant provisions.
• The current applicable rates.
• 5%.

Q9. What is the TDS rate if the seller is a non-filer of the income-tax return?

Ans: Under Section 206AB, if the seller has not filed their income tax return by the due date, the TDS rate will be the higher of:

• Twice the prescribed rate in the relevant provisions.
• Twice the current applicable rates.
• 5%.

Q10. What TDS rate applies if the seller is both a non-filer and does not furnish a PAN?

Ans: The tax will be deducted at the higher rates specified under either Section 206AA or Section 206AB.

Q11. How is TDS deducted for transactions under both Section 194Q and Section 194-O?

Ans: For transactions falling under both provisions, tax should be deducted only under Section 194-O.

Q12. Do the provisions of Section 194Q apply to transactions via recognized stock exchanges?

Ans: No, Section 194Q does not apply to transactions in securities traded through recognized stock exchanges or settled by recognized clearing corporations.

Q13. How should GST and other levies be treated while deducting tax under Section 194Q?

• When Deducting at Credit: Tax is deducted on amounts credited, excluding GST and other levies, provided:
  • The tax deduction occurs at the time of credit.
  • The agreement indicates GST and non-GST components separately.
• When Deducting at Payment: If payment occurs prior to credit, tax will be deducted on the total amount since future invoice GST and non-GST components cannot be identified.

Q14. How are purchase returns treated for TDS under Section 194Q?

If a seller refunds money for a purchase return, deducted tax may be adjusted against the next purchase. However, if the return is replaced by goods, no adjustment is necessary.

Q15. What is Section 206C(1H) of the Income-tax Act?

Section 206C(1H) addresses TCS from buyers on the sale of goods when sales exceed ₹50 lakhs in a financial year.

Q16. Who is responsible for collecting tax under Section 206C(1H)?

The seller collects tax on amounts exceeding ₹50 lakhs for sales if their total turnover surpasses ₹10 crores in the preceding financial year.

Q17. What is the TCS collection rate under Section 206C(1H)?

The TCS rate is 0.1%, without any surcharge or Health & Education Cess applied.

Q18. What is the threshold for tax collection under Section 206C(1H)?

Taxes must be collected on any sale consideration exceeding ₹50 lakhs received during the year.

Q19. When is tax collected under Section 206C(1H)?

Tax must be collected at the time of payment from the buyer.

Q20. What happens if the buyer fails to provide a PAN?

Per Section 206CC, if the buyer does not furnish a PAN, the tax collected will be at:

• Twice the rate specified in Section 206C(1H), or
• 1%.

Q21. What is the TCS rate if the buyer is a non-filer of income-tax returns?

According to Section 206CCA, if the buyer has not filed their return and the due date has passed, tax should be collected at:

• Twice the relevant rate, or
• 5%.

Q22. What happens if both Sections 206CC and 206CCA apply?

If the buyer does not provide their PAN and has not filed their income tax return, the tax shall be collected at the higher rates from Sections 206CC and 206CCA.

Q23. How to proceed with transactions covered under both Section 194Q and Section 206C(1H)?

In transactions subject to TDS under Section 194Q, the buyer must deduct TDS. Consequently, the seller is exempt from the obligation to collect tax under Section 206C(1H) for the same transaction.

Q24. What if a transaction falls under both Section 194-O and Section 206C(1H)?

Transactions falling under both provisions require tax to be deducted only under Section 194-O. After the tax is deducted by the e-commerce operator, the seller is not obligated to collect tax under Section 206C(1H) for that transaction.

Q25. Is TCS applicable under Section 206C(1H) for exported goods?

No TCS is collected under Section 206C(1H) for goods exported out of India.

Q26. Does TCS apply if the buyer's income is exempt from income tax?

No TCS is collected for goods sold to a buyer who is fully exempt from income tax under the Income-tax Act or any other Act. However, this exemption is not applicable if only a part of the buyer's income is exempt.