In the Union Budget 2020, Section 206CQ of the Income Tax Act, 1961, was introduced with the aim of expanding the tax base and including more transactions within the scope of tax deduction at source (TDS).
You are required to deduct TDS at a rate of 0.1% on the sale of goods that exceed a certain limit. This blog will cover the provisions of Section 206CQ of the Income Tax Act, including its applicability and the impact it has on taxpayers.
Section 206CQ’s Applicability
Section 206CQ is applicable to sellers who receive consideration for the sale of goods that exceeds INR 50 lakhs in any previous year.
This provision applies to all sellers, regardless of whether they are individuals, HUFs, firms, companies, LLPs, etc.
However, this does not apply to the sale of goods for export or to goods on which TDS is deductible under any other provision of the Income Tax Act.
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Section 206CQ provisions
According to Section 206CQ, sellers who have a total sales, gross receipts, or turnover of more than INR 10 crores in the previous financial year are required to collect TDS at a rate of 0.1% on the sale of goods that exceed INR 50 lakhs.
The seller is responsible for collecting TDS from the buyer and depositing it to the credit of the Central Government within the prescribed time.
The seller must provide a statement in Form 26QD, which should include the transaction details and the TDS collected during the quarter, within the specified time.
The buyer is permitted to claim credit for the TDS collected by the seller towards their income tax liability.
How Section 206CQ affects taxpayers
Sellers will be significantly impacted by the introduction of Section 206CQ, which will have a notable effect on taxpayers.
Sellers will face an increased compliance burden due to the provision, as they will be required to collect TDS on the sale of goods exceeding INR 50 lakhs and promptly deposit it with the government.
The sellers must provide a quarterly statement that includes the transaction details and the TDS collected
Small businesses may face cash flow issues due to the provision, as they may lack the liquidity to handle the burden of TDS on the sale of goods.
In addition, buyers may experience increased costs for goods as sellers could potentially transfer the TDS burden onto them.
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Section 206CQ Background
Section 206CQ has been introduced by the government as a measure to combat tax evasion and boost tax collections. In the past, specific types of transactions, such as salary, interest, commission, rent, etc., were subject to TDS.
Unfortunately, the sale of goods did not include any provision for TDS.
Therefore, in order to include a greater number of transactions in the scope of TDS and boost tax collections, Section 206CQ was implemented.
Understanding the Scope of Section 206CQ
Section 206CQ is applicable to sellers of all types, such as individuals, HUFs, firms, companies, LLPs, etc., if their total sales, gross receipts, or turnover from the business exceeds INR 10 crores in the financial year prior to the year in which the sale of goods takes place.
This provision is applicable to the sale of goods above INR 50 lakhs and does not apply to goods for export or on which TDS is deductible under any other provision of the Income Tax Act.
The TDS rate under Section 206CQ
Under Section 206CQ, the TDS rate for the sale consideration is 0.1%. The seller is required to collect TDS at a rate of 0.1% on the sale of goods that exceed INR 50 lakhs from the buyer.
This amount must then be deposited with the government within the specified time. The collected TDS will be credited to the buyer’s account and can be used as a credit to offset their income tax liability.
Submit Form 26QD as required by Section 206CQ.
The seller is required to provide a quarterly statement in Form 26QD, which should include the transaction details and the TDS collected during the quarter.
This statement must be submitted within the specified time frame, as per the provisions of Section 206CQ. The statement should include the buyer’s details, the amount of sale consideration, and the amount of TDS collected.
The effects of Section 206CQ
Section 206CQ will greatly affect taxpayers, especially sellers, with its introduction.
The sellers will face an increased compliance burden, as they will be required to collect TDS on the sale of goods exceeding INR 50 lakhs and deposit it with the government within the specified time.
The sellers must provide a quarterly statement that includes the transaction details and the TDS collected.
Small businesses may face cash flow issues due to the provision, as they may lack the liquidity to handle the burden of TDS on the sale of goods.
In addition, buyers may experience an increase in the cost of goods as sellers could potentially transfer the TDS burden to them.
Conclusion
A new provision, Section 206CQ of the Income Tax Act, 1961, has been introduced to expand the tax base and include more transactions under the scope of TDS.
Goods sold exceeding INR 50 lakhs are subject to a mandatory TDS rate of 0.1%. Taxpayers, especially sellers, will be significantly affected by the provision as they will need to adhere to the new requirements and shoulder the responsibility of TDS on the sale of goods.
The compliance burden and cost of goods for the taxpayers will also be increased by the provision. Taxpayers should take necessary precautions and comply with provisions to avoid penalties or interest.
Frequently Asked Questions
Section 206CQ of the Income Tax Act refers to a specific provision in the tax legislation.
Under the Income Tax Act, 1961, a new provision called Section 206CQ has been introduced. This provision requires the deduction of TDS on the sale of goods that exceed INR 50 lakhs.
This provision applies to all sellers who have total sales, gross receipts, or turnover from the business exceeding INR 10 crores in the previous financial year before the year of the goods sale.
Who is responsible for deducting TDS under Section 206CQ?
Section 206CQ requires the seller to deduct TDS. This provision applies to all sellers, regardless of their type, such as individuals, HUFs, firms, companies, LLPs, etc.
It is applicable if their total sales, gross receipts, or turnover from the business exceeds INR 10 crores during the financial year immediately preceding the year in which the sale of goods takes place.
What is the rate of TDS under Section 206CQ?
0.1% of the sale consideration is the TDS rate under Section 206CQ. The seller is required to collect TDS at a rate of 0.1% on the sale of goods that exceed INR 50 lakhs from the buyer.
The collected amount must be deposited with the government within the prescribed time.
Is there an exemption from TDS under Section 206CQ?
Goods for export or on which TDS is deductible under any other provision of the Income Tax Act are exempt from the provision of TDS under Section 206CQ.
What does Form 26QD under Section 206CQ entail?
The seller is required to provide a quarterly statement in Form 26QD, which should include the transaction details and TDS collected during the quarter.
This statement must be submitted within the specified time frame, as per Section 206CQ. The statement should include the buyer’s details, the amount of sale consideration, and the amount of TDS collected.
What penalty is imposed for failing to comply with Section 206CQ?
Failure to comply with the provisions of Section 206CQ may result in the seller being held responsible for a penalty of INR 200 per day for the duration of the default.
In addition, the seller may also have to pay interest at a rate of 1.5% per month or part of the month for any delay in depositing TDS with the government.
