June 18, 2024



Interaction of area 194Q with portion 206C(1H)

7 min read

Introduction: The interaction among Area 194Q and Area 206C(1H) of the Profits Tax Act, 1961, introduces particular obligations for purchasers and sellers in higher-worth transactions. Segment 206C(1H) mandates sellers to gather TCS on receipts exceeding INR 50 Lakhs, when Segment 194Q demands potential buyers to deduct TDS on payments exceeding the exact threshold. This guideline explores these provisions, their exemptions, and clarifications to be certain compliance and right tax managing.
As for every area 206C(1H) of the IT Act, every single person, who is a vendor and receives a thought for sale of any products (besides for these goods exported out of India) of an mixture worth exceeding INR 50 Lakhs, these kinds of human being shall acquire a sum of .1% of such sum which exceeds this sort of INR 50 Lakhs, at the time of receipt of these kinds of total.
wherever, vendor indicates as a person whose total product sales, gross receipts or turnover from the enterprise carried on by him exceeds INR 10 Cr through the financial yr instantly previous the money 12 months in which the transaction of sale of merchandise is carried out.
As per Area 194Q of the IT Act, any man or woman, getting a buyer who is accountable to fork out for the invest in of any ‘goods’, a sum exceeding INR 50 Lakhs, is expected to deduct an sum equal to .1% of this kind of sum which exceeds such INR 50 Lakhs, at the time of credit rating of these kinds of some to the account of the vendor or the payment to these kinds of vendor, whichever is before.
where, buyer is defined as a human being whose full product sales, gross receipts or turnover from the enterprise carried on by him exceeds INR 10 Cr through the financial yr straight away preceding the money 12 months in which the purchase of products is carried out.
Further more as for every circular no. 13 of 2021, it has been clarified that the turnover restrict will not be calculated basis the receipts of non-organization activities carried on by the customer. Appropriately, a ‘person’ must be carrying out a small business/ professional activity to qualify as a ‘buyer’.
Having said that, as per part 194Q(5), the provisions of this area shall not utilize to a transaction on which-

tax is deductible below any of the provisions of the Act and
tax is collectible beneath the provisions of portion 206C other than a transaction to which sub-part (1H) of segment 206C applies.

Accordingly, it can be concluded that section 206C(1H) overrides portion 194Q of the Act.
Clarifications in relation to interaction of part 194Q and section 206C(1H)
Q.1 No matter if section 194Q will be application to non-inhabitants?
Ans. Basis circular no.13 of 2021, it has been clarified that the provisions of portion 194Q shall not use the place the customer is a non-resident, whose purchase of products from seller resident in India is not successfully related with the everlasting institution of this sort of non-resident in India.where by, lasting institution implies a fastened area of enterprise through which the enterprise of the enterprise is wholly or partly carries on.
Q.2 Regardless of whether unlisted shares are protected in the definition of ‘goods’?
Ans. As for every area 2(7) of the Revenue of Goods Act, 1930, ‘goods’ usually means every single sort of moveable assets other than actionable promises and cash and involves inventory and shares
For part 194Q – As per circular no. 13 of 2021, it has been clarified that the provisions of area 194Q of the IT Act shall not be applicable to transactions in securities and commodities which are traded by means of recognized stock exchanges or cleared and settled by the identified clearing company.
For area 206C(1H) – As per round no 17 of 2021, it has been clarified that the provisions of segment 206C(1H) of the IT Act shall not be relevant to transactions in securities and commodities which are traded by way of acknowledged inventory exchanges or cleared and settled by the recognized clearing corporation.
The unique carve-out in portion 206C(1H) for transactions involving export and import indicates that the provision is meant to only deal with those merchandise which are normally considered as able of currently being exported and imported. Due to the fact the transactions in shares/ securities are not commonly deemed as ‘export’ or ‘import’, a person can argue that these types of transactions are not meant to be lined underneath segment 206C(1H) albeit intended to cover only other actual physical merchandise and commodities.
Appropriately, owning regard to the extensive which means of ‘goods’ less than SOGA, and the broad scope of part 206C(1H) and 194Q emerging from the Circular, it would be complicated to exclude ‘shares/ securities’ from the ambit of ‘goods’.
Q.3 No matter whether the transferor of shares/ securities qualifies as a ‘seller’ for the goal of part 206C(1H)?
Ans. Guidance Observe on tax audit under section 44AB issued by the ICAI presents that sale proceeds received from the sale of shares, securities, debentures, and so on. held as expenditure will not type element of turnover. Nevertheless, if they are held as stock-in-trade, the sale proceeds thereof will sort section of turnover.More, as for every CBDT clarification F No 225/12/2016/ITA.II dated 2 Might 2016, money arising from the transfer of unlisted shares would be earnings underneath the head ‘capital gains’ irrespective of the time period of holding of these types of shares. Appropriately, for non-resident buyers/ expenditure keeping organization, etcetera.it can be argued that the exercise of keeping investments in India is not carrying on business enterprise in India so as to bring about implications beneath area 206C(1H).
Accordingly, unique promoters of firms advertising their shares and not carrying on any business on their have (even however organization is carried out by means of organizations, and many others.) should also not qualify as a ‘seller’ for the function of part 206C(1H). On the other hand, an alternate watch it’s possible taken that in case non-resident investors/ promoters run the organization of the entity becoming offered, the cash flow of the entity it’s possible thought of to be the revenue of the non-resident traders/ promoters and accordingly, the non-resident investor/ promoter may well qualify as a seller for the goal of section 206C(1H).
Q.4 No matter if collection of TCS in respect of transactions involving non-people can be mentioned to be extra-territorial in procedure?
Ans. Area 206C(1H) calls for ‘every human being becoming a seller’ to acquire tax at supply. A basic looking at of the provision suggests that non-residents may perhaps also be included in just its ambit. In the context of segment 195, Supreme Courtroom in the situation of Vodafone Worldwide Keeping B.V experienced held that a literal building of “any man or woman accountable for paying” as together with non-residents would lead to absurd effects.
Q.5 No matter whether adjustment of acquire returns is required when deduction of TDS u/s 194Q?
Ans. As for every circular no. 13 of 2021, it has been clarified that if the tax is deducted at the time of payment or credit, whichever is earlier, thus, prior to buy return occurs, the tax need to have currently been deducted less than section 194Q of the Act on that purchase. In that scenario, if the cash is refunded by the vendor, then this tax deducted may be altered in opposition to the next buy in opposition to the very same vendor.On the other hand, no adjustment is needed if the buy return is changed by the merchandise by the vendor as in that circumstance the acquire on which tax was deducted less than part 194Q of the Act has been finished with items changed.
Q.6 Regardless of whether adjustment of GST and other taxes is necessary when deduction of TDS u/s 194Q?
Ans. As per round no. 13 of 2021, it has been clarified that if the part of GST and other taxes comprised in the quantity payable to the vendor is indicated separately, tax shall be deducted u/s 194Q of the Act on the amount of money credited with no including this sort of GST and other taxes.Even so, if the tax is deducted on payment foundation since the payment is previously than the credit history, the tax would be deducted on the complete total as it is not feasible to recognize that payment with GST and other taxes component of the quantity to be invoiced in long term.
Q.7 No matter if any adjustment on account of sale return, price cut or oblique taxes can be designed u/s 206C(1H)?
Ans. As for every round no. 17 od 2021, it has been clarified that no adjustment on account of sale return or low cost or oblique taxes including GST is essential to be built for selection of tax u/s 206C(1H) of the Act because the assortment is created with reference to receipt of quantity of sale thing to consider.
Q.8 Regardless of whether sale of shares/ securities to a non-resident qualify as ‘export of products outside the house India’?
Ans. A look at possibly taken that, in a situation where by the share certificates of an Indian firm are bodily taken out of India, arguably it can drop inside the phrase ‘goods being exported out of India’.
Having said that, considering the fact that the situs of shares/ securities of an Indian enterprise will be in India even right after share certificates are taken out of India, there could still be a chance of not qualifying it as an ‘export’.
Q.9 Regardless of whether acquirer of shares/ securities qualify as ‘buyer’?
Ans. The that means of ‘buyer’ for the reason of segment 206C(1H) inter alia excludes a person importing merchandise into India. Where the shares/ securities are in dematerialised form, it might not be feasible to say that items are imported in India. However, if actual physical share certificates are introduced into India, there might be a probability for these types of acquirer of shares/ securities not to qualify as a ‘buyer’.
Conclusion: Knowledge the nuances in between Segment 194Q and Segment 206C(1H) is important for businesses engaged in major transactions. By adhering to the defined thresholds and situations, corporations can navigate their TDS and TCS obligations correctly. The clarifications supplied by the tax authorities further more assist in guaranteeing exact tax tactics, mitigating pitfalls of non-compliance, and fostering a clear fiscal natural environment.

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