“Budget 2020 has added a provision by way of 206C(1H) in the Income Tax Act- 1961which is neither going to increase the revenue of the Government nor going to widen the tax base. Let us hope that the Budget 2021 is free from all such unnecessary compliance provisions.”

Forget  all the representation & talk on simplifications of tax laws, another complication is added by Budget-2021.

All the trial & error are carried out at the cost of the taxpayers. Taxpayers are treated as laboratory species for all the trials & errors to be done by the law-maker.

Outright rejecting all the representation given by various taxpayers & prominent tax associations of the country,  to abolish the provision u/s 206C(1H), Budget – 2021 has further complicated the procedure by proposing now a new section 194Q in the Income Tax Act – 1961.

For sure, neither section 206C(1H) nor section 194Q is going to widen the tax base nor increase the revenue.

I sincerely hope that the law maker needs to be kind enough to the representation of the taxpayers before introducing any new compliance burden. Taxpayers & Tax Collectors have to understand that ease of business is to be done not by speeches but by action.

Section 194Q & its explanatory memorandum which is self explanatory reads as under:

Section 194Q:

Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, 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, deduct an amount equal to 0.1 per cent. of such sum exceeding fifty lakh rupees as income-tax.

Explanation.––For the purposes of this sub-section, “buyer” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income tax authorities and the person liable to deduct tax.

(5) The provisions of this section shall not apply to a transaction on which
(a) tax is deductible under any of the provisions of this Act; and
(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.

Explanatory Memorandum for Section 194Q:

Tax Deduction at Source (TDS) on purchase of goods Chapter XVIIB of the Act relates to deduction of tax at source. The provisions of this chapter provide for TDS on various payments at rates contained therein. It is proposed to provide for TDS by the person responsible for paying any sum to any resident for purchase of goods. The rate of TDS is kept very low at 0.1%.

To ensure that compliance burden is only on those who can comply with it, it is proposed that the tax is only required to be deducted by those person (i.e buyer‖) whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out. The Central Government is proposed to be empowered by notification in the Official Gazette to exempt a person from obligation under this section on fulfillment of conditions as may be specified in that notification.

Tax is required to be deducted by such person, if the purchase of goods by him from the seller is of the value or aggregate of such value exceeding fifty lakh rupees in the previous year.

It is also proposed to provide that the provisions of this section shall not apply to,- (i) a transaction on which tax is deductible under any provision of the Act; and
(ii) a transaction, on which tax is collectible under the provisions of section 206C other than transaction to which sub-section (1H) of section 206C applies.

This means, if on a transaction a TDS or tax collection at source (TCS) is required to be carried out under any other provision, then it would not be subjected to TDS under this section.

There is one exception to this general rule. If on a transaction TCS is required under sub-section (1H) of section 206C as well as TDS under this section, then on that transaction only TDS under this section shall be carried out.

Board with the approval of the Central Government has been empowered to issue guidelines for removing difficulty in giving effect to the provisions of this section.

Every guideline issued by the Board is required to be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax It is also proposed to consequentially amend sub-section (1) of section 206AA of the Act and insert second proviso to further provide that where the tax is required to be deducted under section 194Q and Permanent Account Number (PAN) is not provided, the TDS shall be at the rate of five per cent.

These amendments will take effect from 1st July, 2021.