India 
Canada
When it comes to taxation, businesses must navigate multiple compliance requirements, and two of the most critical ones are Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). The Income Tax Act has provisions for these mechanisms to ensure tax is collected at the point of income generation. Specifically, Section 194Q governs TDS on the purchase of goods, while Section 206C(1H) covers TCS on the sale of goods.
If you are a business owner or a finance professional, understanding the applicability, rates, and compliance requirements of TDS and TCS is crucial to avoid penalties and ensure smooth financial operations.
Overview of TDS and TCS on Purchase of Goods
The table below provides a quick comparison of TDS under Section 194Q and TCS under Section 206C(1H):
| Aspect | TDS (Section 194Q) | TCS (Section 206C(1H)) |
| Applicability | Buyers with a turnover exceeding ₹10 Cr in the preceding financial year must deduct TDS if purchasing goods worth over ₹50 lakh from a resident seller. | Sellers with a turnover exceeding ₹10 Cr in the preceding financial year must collect TCS if selling goods worth over ₹50 lakh to a buyer. |
| Rate of Tax | 0.1% of the purchase value exceeding ₹50 lakh (5% if PAN is not provided). | 0.1% of the sale consideration exceeding ₹50 lakh (5% if PAN is not provided). |
| Point of Deduction/Collection | At the time of credit to the seller’s account or payment, whichever is earlier. | At the time of receipt of sale consideration. |
| Exceptions | – If tax is deductible under any other section. – If TCS is collectible – If goods are under other sections except 206C(1H). |
– If the buyer is liable to deduct TDS and has deducted it. — If goods are exported. |
Interplay Between TDS and TCS
If a transaction meets both TDS (194Q) and TCS (206C(1H)) conditions, who is responsible?
- TDS takes precedence over TCS.
- If the buyer deducts TDS, the seller does not need to collect TCS.
Who Can Deduct TDS and Collect TCS?
1. When TDS (Section 194Q) is Applicable?
✔ Applicable to: Buyers with a turnover above ₹10 Cr in the preceding financial year.
✔ Deduction: 0.1% TDS if purchasing goods above ₹50 lakh.
2. When TCS (Section 206C(1H)) is Applicable?
✔ Applicable to: Sellers with a turnover above ₹10 Cr in the preceding financial year.
✔ Collection: 0.1% TCS if selling goods above ₹50 lakh.
Case Studies with Examples
Case 1: TDS is Applicable (Buyer’s Turnover > ₹10 Cr, Seller’s Turnover < ₹10 Cr)
- Buyer: XYZ Ltd. (Turnover ₹12 Cr in FY 2023-24)
- Seller: ABC Traders (Turnover ₹8 Cr in FY 2023-24)
- Transaction: XYZ Ltd. purchases goods worth ₹60 lakh.
- TDS Deduction: 0.1% of ₹10 lakh = ₹10,000.
- TCS Not Applicable, as the seller’s turnover is below ₹10 Cr.
Case 2: TCS is Applicable (Buyer’s Turnover < ₹10 Cr, Seller’s Turnover > ₹10 Cr)
- Buyer: LMN Pvt. Ltd. (Turnover ₹8 Cr in FY 2023-24)
- Seller: PQR Ltd. (Turnover ₹15 Cr in FY 2023-24)
- Transaction: LMN purchases goods worth ₹70 lakh.
- TCS Collection: 0.1% of ₹20 lakh = ₹20,000.
- TDS Not Applicable, as the buyer’s turnover is below ₹10 Cr.
Case 3: Both TDS & TCS Apply – Who Will Deduct?
- Buyer: DEF Ltd. (Turnover ₹15 Cr in FY 2023-24)
- Seller: GHI Ltd. (Turnover ₹20 Cr in FY 2023-24)
- Transaction: DEF purchases goods worth ₹80 lakh.
- Since both TDS and TCS apply, TDS takes priority.
- TDS Deduction: 0.1% on ₹30 lakh = ₹30,000.
- TCS Not Collected, since TDS was already deducted.
When TDS & TCS Are Not Applicable
1. Both Buyer & Seller’s Turnover is Below ₹10 Cr
o Example: Buyer ABC Pvt. Ltd. (Turnover ₹5 Cr) purchases from Seller XYZ Pvt. Ltd. (Turnover ₹8 Cr) worth ₹75 lakh.
o No TDS or TCS is applicable, as neither party meets the ₹10 Cr turnover threshold.
2. Purchase/Sale Value Does Not Exceed ₹50 Lakhs
o Example: Buyer MNO Ltd. (Turnover ₹12 Cr) purchases from Seller RST Ltd. (Turnover ₹15 Cr) worth ₹40 lakh.
o No TDS or TCS is applicable, as the transaction value is below ₹50 lakh.
3. Buyer is a Government Entity
o Government organizations or non-business entities are not required to deduct TDS under Section 194Q.
Compliance Requirements
✔ Tax Deposit: Deducted/collected tax must be deposited within prescribed timelines.
✔ Reporting: TDS/TCS returns must be filed with transaction details.
✔ Documentation: Issuance of TDS/TCS certificates as proof of tax deduction/collection.
Recent Amendments
Union Budget 2025: TCS on purchase of goods has been removed, effective April 1, 2025. This simplifies tax compliance and reduces business overhead.
Final Thoughts
For businesses engaged in the purchase and sale of goods, compliance with TDS and TCS regulations is crucial. Staying informed about legislative changes, such as the removal of TCS on purchase of goods, will help in better tax planning and compliance.
If you have any questions, please don’t hesitate to reach out to us using the contact details available on our website or the information provided below
Regards,
CA. Akshay
Partner
Mobile:Â 8527238625
Email:Â infodelhi@corporategenie.in
