Format of declaration which should be taken by the seller from the buyer so as to avoid TCS U/s 206C(1H)
Last Year, 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 was 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.
Now, 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.
- Key feature of newly incorporated Section 194Q which is effective from 01/07/2021 is as under:
- Any buyer with turnover in the preceding previous year exceeding Rs. 10 Cr would now be required to deduct tax at source (TDS) on its purchases @ 0.10% w.e.f. 01.07.2021.
- TDS would be applicable only if the purchase or aggregate value of purchase from the seller exceeds Rs. 50 Lakh in a financial year. If the purchase from any seller is not exceeding Rs. 50 Lakh then the buyer would not be required to do any TDS. The sales /gross receipts/ turnover of the FY 2020-21 would be relevant in determining the applicability in the FY 2021-22. TDS applicability would be required to be examined every year on the basis of turnover of preceding previous year.
iii. TDS is applicable only on an amount exceeding Rs. 50 Lakh. Suppose M/s Smart Ltd has purchased goods of Rs. 51 Lakh from M/s X Ltd then the TDS would be required to be done only on Rs. 1 Lakh and not entire Rs. 51 Lakh.
- Liability to do TDS would arise 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. It means that the TDS liability would arise if the buyer makes the advance payment for purchase of goods.
- TDS U/s 194Q would not be required where,
(a) Tax is Deductible under any of the provisions of this Act &
(b) Tax is Collectible under the provisions of section 206C other than a transaction to which section 206C(1H) applies.
- Overall reading with above provisions would make it aptly clear that the TDS would be applicable even if the seller is collecting TCS U/s 206C(1H).
vii. It may be noted that if the buyer is liable for TDS under other provisions of the Act then the TDS would not be applicable u/s 194Q but would be continued subject to the TDS under other provisions.
The question arises as to the applicability of section 206C(1H) after introduction of section 194Q. A person may be required to comply with section 206C(1H) as well as section 194Q as a seller and buyer respectively. TCS U/s 206C(1H) is applicable only on Seller of Goods if the Turnover of seller is more than Rs. 10 Cr in previous financial year. TCS U/s 206C(1H) is applicable “Receipt of Consideration” as against TDS U/s 194Q which is applicable on purchase of goods or advance payment, whichever is earlier. TCS U/s 206C(1H) is not applicable if the buyer is liable to do TDS under any other provision of this 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).
After introduction of section 194Q, whether section 206C1H) would be redundant?
a) For applicability of TCS U/s 206C(1H), Turnover of the seller would be relevant whereas for TDS U/s 194Q, the turnover of the buyer would be relevant. Introduction of section 194Q doesn’t make section 206C(1H) redundant.
b) It may happen that the turnover of the buyer is less than Rs. 10 Cr and so the buyer may not be doing TDS U/s 194Q and as a result seller would be required to do TCS U/s 206C(1H).
c)Now, sellers would be required to enquire & verify with every buyer paying more than Rs. 50 Lakh in a year as to whether such buyer would be making payment after TDS or not. TDS by the buyer would relieve the seller from TCS compliance part u/s 206C(1H). (If the seller has opted for TCS Compliance U/s 206C(1H) on a billing basis then it would be required to check & enquire with every buyer as to the applicability of section 194Q on them before the issue of invoice itself. This can be done by obtaining a declaration by the seller from the buyer that the buyer would be doing the TDS compliance u/s 194Q. This can relieve the seller from the compliance burden of TCS U/s206C(1H).
In all such cases, the seller should obtain from the buyer followoing declaration form so as to avoid the TCS compliances in such cases:
Draft Declaration Format which can be obtained by the seller from the buyer so as to avoid TCS U/s 20C(1H)
(Name of the Seller)
|Subject||:||Declaration with respect to TDS compliance under Section 194Q of the Income-tax Act, 1961|
|Previous Year (PY)||:||2021-22|
|Assessment Year (AY)||:||2022-23|
|Permanent Account Number (PAN)||:||**********|
Declaration for purposes of section 194Q of the Income-tax Act, 1961
- Sales/Gross receipts/Turnover:
This is to declare that my/our sales/gross receipts/turnover for the financial Year 2020-21 exceeds the threshold of INR 10 crores as per section 194Q of Income Tax Act, 1961.
- If yes, compliance to Section 194Q
I/We declare that with effect from 1st July 2021 I/we shall be deducting TDS at the rate of 0.1% on all purchases of goods as per the provisions of section 194Q of Income-tax Act 1961. We shall be sharing TDS certificates with PI and PI is requested not to collect TCS on sale of goods as per section 206C (1H) of Income Tax act 1961.
In case, there is a failure in deducting/depositing taxes under section 194Q of the Income-tax Act, 1961, PI may collect TCS from me/us alongwith applicable interest(s)/penalty(ies).
- Filing of return of income – compliance to Section 206CCA:
As per the provisions of section 206CCA, tax is required to be collected at double the rate specified under the Act or five percent or any other higher rate prescribed under the Act if the person from such amount is received has not filed its Income-tax return for the preceding two financial years (and the timeline to file the same under section 139(1) of the Act has expired).
This is to declare that I/ we have filed Income tax returns for following PYs relevant to respective AYs as on the date of providing the said declaration:
- PY 2019-20 (AY 2020-21)
- PY 2018-19 (AY 2019-20)
- Threshold limit for tax deducted at source (‘TDS’) and tax collected at source (‘TCS’):
For the purpose of section 206CCA, this is to declare that the aggregate of TDS and TCS in my/ our case for each of the above mentioned PYs is equal to or in excess of/less than* INR 50,000/-.
I/ we hereby certify that the declaration made above is true and correct. If there is any change in the above information, I/we would promptly inform PI. Further, I/we would also submit any documents required/needed to support the above declaration, if and when required.
In the event that the above declaration is found to be false or incorrect, due to which PI is held liable for any consequences under the Income-tax Act, 1961 or any other law, then, I/we would indemnify PI towards any loss/ damage incurred in this regard.
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Sir can you please provide Draft Declaration Format which can be obtained by the seller from the buyer so as to avoid TCS U/s 20C(1H) in word format
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