section 194Q 

which is applicable w.e.f. 1st July 2021. As per Section 194Q(1),

‘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.’
In short, conditions to be satisfied for applicability of this section are:-
1. Goods must be purchase from a resident.
2. Goods are purchased for a value or aggregate of value exceeding Rs. 50 lakhs in
any previous year.
3. The turnover of the purchaser shall be more than INR 10 crores in the preceding
Financial year. (i.e. to check the applicability of provisons of Section 194Q for FY
2021-22, turnover fo the purchaser during FY 2020-21 shall be more than INR 10
Crores.
4. TDS has not been deducted under any other provisions of the Income Tax Act
1961.
TDS under section 194Q shall 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’.
Whereas Section 206C(IH) pertains to TCS provisions on sale of goods by a buyer.
Thus, there may arise a conflict / a lot of doubts whether it will lead to double
taxation or a either of the two section will supersede the another one. In this regards,
Section 194Q clarifies 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. Further, second proviso to section 206C(1H) provides as under:-
“Provided further that the provisions of this sub-section shall not apply, if the buyer
is liable to deduct tax at source under any other provision of this Act on the goods
purchased by him from the seller and has deducted such amount.”
It means that where a buyer is liable to deduct TDS on a purchase transaction under
Section 194Q, the seller shall not collect TCS on same transaction on which buyer
has already deducted TDS. In other words, the buyer shall have the primary and
foremost obligation to deduct the tax.
Now, considering limb of Equalization levy on such transactions, one may conclude
that where an e-commerce operator sell goods to an Indian resident who qualifies all
the conditions in relation to turnover, the buyer (Indian resident) shall be liable to
deduct TDS on such transaction as well. In this regard, Section 194Q provides that a
buyer is liable to deduct TDS only where the purchase of goods is made from a
resident. So, an e-commerce being a non-resident, applicability of Section 194Q
shall not be triggered in such a scenario and equalization levy shall be charged on
this such transactions.
In practical scenario, insertion of this section shall pose a difficulty while executing
purchase orders and sales. Generally, in order to execute a sale, first, a purchase
order is made by the buyer, then the same is executed by seller and goods are
delivered to the buyer. But payment by the buyer is not made instantly, in many
cases a credit facility is also provided by the seller to buyer. Section 206C(1H) is
applicable only at the time of receipt of payment whereas TDS under Section 194Q
is applicable at the time of payment of credit in books of account, whichever is
earlier.
In such a scenario, an ideal solution would be that a buyer shall deduct TDS at the
time of making the purchase order, in case TCS provisions under section 206C(1H)
and Section 194Q are applicable in  single transaction.
Hypothetical Example
If the turnover of both the seller and buyer exceeds INR 10crores in the preceding
FY, but the sales made by seller in October 2021 exceeds INR 50lakhs and
purchases made by buyer exceeds the threshold limit provided in the section in
January 2021.
In this case, since the receipt of sales by seller exceeds INR 50 lakhs, the seller shall
comply with the provisions of Section 206C(1H) and file the TCS return of Quarter 3,
FY 2021-22 with TCS being collected on sale proceeds exceeding INR 50lakhs. On
the other hand, the buyer shall be under obligation to deduct TDS from January
onwards on purchase exceeding INR 50 lakhs. So, there arise a need for a
declaration through which the buyer may declare that TDS has been deducted under
section 194Q and vice versa for TCS collected by seller under section 206C(1H) so
as to ensure that tax has not been deducted on the same transaction twice.
Comparison of Sec 194Q and 206C(1H) of Income Tax Act, 1961

Particulars 194Q 206C(1H)

Purpose Tax to be DEDUCTED Tax to be COLLECTED

Applicable to Buyer/Purchaser Seller

With effect from 01/07/2021 01/10/2020

When Deducted or Payment or credit, whichever is At the time of receipt

collected earlier

Advances TDS shall be deducted on advance TCS shall be collected on advance receipts
payments made

Rate of TDS/TCS 0.1% 0.1% (0.075% for FY 2020-21)

PAN not available 5% 1%

Triggering point Turnover/Gross Receipts/Sales Turnover/Gross Receipts/Sales from the

from the business of BUYER
should exceed Rs.10cr during
previous year (Excluding GST)
Purchase of goods
aggregate value exceeding
Rs.50Lakhs in P.Y. (The value
of goods includes GST)
business of SELLER should exceed Rs.10cr
during previous year (Excluding GST)
Sale consideration received exceeds
of Rs.50Lakhs in P.Y. (The value of goods
includes GST)
When to Tax so deducted shall be Tax so collected shall be deposited with
deposit/collect deposited with government by 7th government by 7th day of subsequent month
day of subsequent month

Quarterly 26Q 27EQ

statement to be
filed