Whether TCS on sale of Goods is applicable after introduction of TDS on Purchase of Goods?


Whether TCS on sale of Goods is applicable after introduction of TDS on Purchase of Goods?



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 programmer 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.

Whehter TCS will be applicable even if the buyer is doing the TDS is the most common question which is asked by the taxpayers now.

Let us know about it.

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.

c) 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.

d) As far as section 206C (1H) is concerned, taxpayers are ensuring its compliance by any one of the following two mode:
1.) In first mode adopted by few, Taxpayers are complying with the TCS provision by raising the debit note at the time of “Receipt”.

2.) 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.

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