APPLICABILITY:

The tax shall be deducted under Section 194Q by a buyer carrying on a business whose total sales, gross receipts or turnover from the business exceeds Rs. 10 crores during the financial year immediately preceding the financial year in which such goods are purchased. This provision shall be applicable from 01-07-2021.

Thus, the liability to deduct tax under this provision in the financial year 2021-22 shall arise if the turnover of the purchaser was more than Rs. 10 crores in the financial year 2020-21.

DEDUCTION OF TAX:

The tax shall be deducted from the purchases made by a buyer if the following conditions are satisfied:

 (a) There is a purchase of goods from a resident person;

 (b) Goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in any previous year; and

 (c) The buyer should not be in the list of persons excluded from the provision for deduction of tax.

The tax shall not be deducted under this provision if the tax is deductible or collectible under any other provision except Section 206C(1H). Thus, if a transaction is subject to TCS under Section 206C(1H), the buyer shall have the first obligation to deduct the tax. If he does so, the seller will not have any obligation to collect the tax under Section 206C(1H)

Second Proviso to Section 206C(1H) provides that if the buyer is liable to deduct tax under any other provision on the goods purchased by him from the seller and has deducted such amount, no tax shall be collected on the same transaction. Section 194Q(5) provides that no tax is required to be deducted by a person under this provision if tax is deductible under any other provision or tax is collectable under section 206C [other than a transaction on which tax is collectable under Section 206C(1H)].

Though Section 206C(1H) excludes a transaction on which tax is actually deducted under any other provision (which will cover Section 194Q as well), but Section 194Q(5) does not create a similar exception for a transaction on which tax is collectible under Section 206C(1H). Thus, the buyer shall have the primary and foremost obligation to deduct the tax and no tax shall be collected on such transaction under Section 206C(1H). However, if the buyer makes a default, the liability to collect the tax gets shifted to the seller.

RATE OF TAX AND TIMINIG OF DEDUCTION:

The tax shall be deducted by the buyer of goods at the rate of 0.1% of the purchase value exceeding Rs. 50 lakhs if the seller has furnished his PAN or Aadhaar, otherwise, the tax shall be deducted at the rate of 5%.

Tax is required to be deducted 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. The tax shall be deducted even if the sum is credited to the 'Suspense Account'.

EXAMPLE

Scenario 1

Turnover of Seller (In cr.): 8

Turnover of Buyer (In cr.): 12

Who is liable to deduct or collect tax?- BUYER

Scenario 2

Turnover of Seller (In cr.): 20

Turnover of Buyer (In cr.): 8

Who is liable to deduct or collect tax?- SELLER

Scenario 3

Turnover of Seller (In cr.): 18

Turnover of Buyer (In cr.): 18

Who is liable to deduct or collect tax?- BUYER