Taxes on Sale & Purchase: Sections 206C(1H) & 194Q Explained

The Finance Acts of 2020 and 2021 introduced two provisions related to taxes on the sale and purchase of goods, which may affect taxpayers.

The first provision, Section 206C(1H), requires sellers with a turnover above Rs. 10 crores to collect tax (TCS) at 0.1% on the sale of goods exceeding Rs. 50 lakhs from one buyer in a year. The tax is to be collected at the time of receipt of the amount of sales consideration, but some buyers, such as governments or if TDS is already deducted, are exempt from this tax.

The second provision, Section 194Q, requires buyers with a turnover above Rs. 10 crores to deduct tax (TDS) at 0.1% on the purchase of goods exceeding Rs. 50 lakhs from one seller in a year. The tax is to be deducted at the time of credit of the sum to the seller's account or at the time of payment, whichever is earlier. Some transactions, such as those involving immovable property or certain exempt entities, are exempt from this tax.

In order to remove this confusion as to who needs to deduct or collect Tax department as released clarification stating: If TCS has already been collected by the seller under Section 206C(1H), the buyer is not required to deduct TDS under Section 194Q on the same transaction. This is to avoid double taxation on the same transaction.