TDS on Purchase of Goods: Confusion & Clarification

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TDS on Purchase of Goods: Confusion & Clarification

Section 206C(1H) was added in the Income Tax Act- 1961 in the last year which requires every “Seller” with turnover exceeding Rs. 10 Cr to collect Tax at Source (TCS) @ 0.10% from the buyer on an amount exceeding Rs. 50 Lakh. TCS was required to be done at the time of “Receipt of Consideration”. Many taxpayers found it difficult to comply with it on “Receipt of Consideration” and so have implemented the system of collecting it at the “Time of Billing” by adding a suitable column in the bill itself rather than  on “Receipt”. The software & computer programme were modified so as to ensure the compliance with the new TCS provisions and are still trying to adjust with the new TCS system on sale of goods.

To complicate it further, new provision in the form of Section 194Q has been added in the Income Tax Act-1961 by the Finance Act – 2021 which now requires TDS on purchase of Goods. It provides that the “Buyer” of goods will be required to do TDS @ 0.10% if the turnover of such buyer is exceeding 10 Cr and the purchase from any “Seller” is exceeding Rs. 50 Lakh.

There are a lot of confusions & ambiguities with regard to the new TCS & TDS provision on sale & purchase of goods & its interplay. Here is an attempt to simplify the same for its better compliance.

  1. Whether TCS provisions introduced in the last year have been removed now?
    a) TCS provision u/s 206C(1H) is applicable on “Seller” whereas New TDS provision u/s 194Q is applicable on the “Buyer”. TCS provision has remained unaltered and so the seller will be required to do TDS on “Receipt of Money”.
    b) The trigger point is different for TCS & TDS provision. TCS is applicable “Receipt of Consideration”. TDS U/s 194Q which is applicable on purchase of goods or advance payment, whichever is earlier.
  2. d) TCS U/s 206C (1H) is not applicable if the buyer is liable to do TDS in any section of Income Tax Act. In short, if the buyer is doing TDS U/s 194Q then the seller will not be required to do TCS U/s 206C(1H). However, there is no such stipulation in section 194Q. It means that if the seller is doing TCS U/s 206C (1H) then also the buyer would be required to do the TDS U/s 194Q.  Even if the seller has charged or paid the amount of TCS, still the buyer would be required to do TDS.
    e) As far as section 206C (1H) is concerned, taxpayers are ensuring its compliance by any one of the following two mode:
    I) In first mode adopted by few, Taxpayers are complying with the TCS provision by raising the debit note at the time of “Receipt”.
    II) In the second mode adopted by majority, Taxpayers are complying by adding the amount of TCS in the invoice itself and ignoring the “Receipt” criteria altogether. This second mode is implemented by many taxpayers as it is easy & convenient to implement.

At the cost of repetition, let me reiterate that TCS is not applicable if the buyer has done TDS (whereas vice versa, it is not the same).  Now, if the taxpayer is following the first mode of compliance then TCS would not be required since the seller would get to know about the TDS by the buyer at the time of “Receipt of consideration”.  In such case, compliance would be only on one side and so will be the liquidity blockages.

However, if taxpayers are following the second mode of compliance, it may happen that the Seller will be doing TCS & buyer will be doing TDS, resulting in liquidity blockage & compliance burden on either side.

To simplify it further, if the seller gets to know that the buyer will be doing TDS u/s 194Q then the seller may get relieved from the TCS compliance provisions. This will be very much possible if the taxpayer is following the first mode of compliance and would be little difficult or doubtful in the second mode as discussed above.

In short, the new TDS provision now requires a revisit to the mode of making the compliance adopted by the taxpayers earlier. The taxpayers following second mode of compliance as discussed above may rethink to shift to first mode of compliance whereby they will be required to do TCS only if the buyer is not doing the TDS u/s 194Q.

  1. Whether new TDS provision is applicable from 1st April 2021?

No, the date of applicability of new TDS provision is 1st July 2021. It means that the TDS liability will be attracted only on purchase of goods done on or after 01/07/2021. It would again mean that TCS may be required on “Receipt of Consideration” against sale done till 30/06/2021. This TCS will be applicable even from the buyer who may be covered by TDS provision u/s 194Q w.e.f 01/07/2021.

  1. Whether taxpayers may be required to comply with the TCS as well as TDS?

A person may be required to comply with section 206C (1H) as a seller and with section 194Q as a buyer as well. It may happen that the seller with turnover exceeding Rs. 10 Cr may be selling the goods of more than Rs. 50 Lakh to the buyer whose turnover is less than Rs. 10 Cr. In such cases, the seller would be required to do TCS as the buyer may not be required to do the TDS.

  1. What if the buyer is purchasing goods of less than Rs. 50 Lakh in a year but making payment of more than Rs. 50 Lakh in a year?
    Let us consider a case of M/s X ((Seller) & M/s Y (Buyer) both of whom have turnover exceeding Rs. 10 Cr. M/s X has sold goods of Rs. 40 Lakh in the FY 2020-21 and Rs. 15 Lakh in the FY 2021-22. If X receives amount exceeding Rs. 50 Lakh either in the FY 2021-22 or 2022-23 then it may require TCS compliance if X has been following the first mode of compliance as referred above even if the purchase of M/s Y is not more than Rs. 50 Lakh in any of the relevant years. There are multiple situations, permutations & combinations like this and so the taxpayers need to be alert & observant to ensure the TDS/TCS compliance discussed above.
  2. TCS done at the time of billing @ 0.075% till 31/03/2021 but payment received after 01/04/2021 when the TCS rate is 0.10%:
    Concession of 25% in the TDS & TCS rate was offered till 31/03/2021 as a result of pandemics Covid-19. The question emerges as to whether all receipt of money after 31/03/2021 will necessitate collection of balance 0.025% if the taxpayers have been following the second mode of compliance as discussed above. The issue is debatable from either side and it would be better if the CBDT clarifies it suitably considering the overall logic, intent & the convenience of the taxpayers.

Conclusions:

The collection of the same data from multiple sources and thereafter aggregating & communicating it as “High Value Transactions” is harassment to the taxpayers. Almost all the taxpayers with turnover of Rs. 10 Cr (or Rs. 50 Lakh) are already covered by the GST provisions wherein bill-wise, item-wise, Date-wise data is required to be uploaded on monthly or quarterly basis. Compliance with the TDS & TCS provision as discussed above is going to neither widen the tax base nor going to increase the tax revenue. It is surely going to increase the clerical & unproductive workload of the taxpayers. Hope someone in the north block is reading it.

[Readers may forward their feedback & queries at nareshjakhotia@gmail.com.

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1 Comment

  1. May 23, 2021
    Rajender Gupta

    It is increasing only paper work…..very less productive decision……should withdraw immediately.

    Reply

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