Section 206CQ of the Income Tax Act, 1961, was introduced in the Union Budget 2020 to widen the tax base and to bring more transactions under the ambit of tax deduction at source (TDS). This section mandates TDS at the rate of 0.1% on the sale of goods above a specified limit. In this blog, we will discuss the provisions of Section 206CQ of the Income Tax Act, its applicability, and its impact on taxpayers.
Applicability of Section 206CQ
Section 206CQ applies to a seller who receives consideration for the sale of goods exceeding INR 50 lakhs in any previous year. The provision is applicable to all types of sellers, including individuals, HUFs, firms, companies, LLPs, etc. However, it is not applicable to the sale of goods for export or on which TDS is deductible under any other provision of the Income Tax Act.
Provisions of Section 206CQ
As per Section 206CQ, every seller whose total sales, gross receipts, or turnover from the business exceeds INR 10 crores during the financial year immediately preceding the financial year in which the sale of goods is carried out shall be liable to collect TDS at the rate of 0.1% on the sale of goods exceeding INR 50 lakhs. The seller shall collect TDS from the buyer and deposit the same to the credit of the Central Government within the prescribed time.
The seller shall also furnish a statement in Form 26QD, containing the details of the transactions and TDS collected during the quarter, within the prescribed time. The buyer shall be allowed to claim credit of the TDS collected by the seller against their income tax liability.
Impact of Section 206CQ on taxpayers
The introduction of Section 206CQ will have a significant impact on taxpayers, particularly on sellers. The provision will increase the compliance burden of the sellers, as they will have to collect TDS on the sale of goods exceeding INR 50 lakhs and deposit the same with the government within the prescribed time. The sellers will also have to furnish a quarterly statement containing the details of the transactions and TDS collected.
The provision may also lead to cash flow issues for small businesses, as they may not have the liquidity to bear the burden of TDS on the sale of goods. Moreover, it may also increase the cost of goods for the buyers, as the sellers may pass on the burden of TDS to them.
Background of Section 206CQ
The introduction of Section 206CQ is part of the government’s efforts to curb tax evasion and increase tax collections. Earlier, TDS was applicable on specific types of transactions, such as salary, interest, commission, rent, etc. However, there was no provision for TDS on the sale of goods. Hence, to bring more transactions under the ambit of TDS and to increase tax collections, Section 206CQ was introduced.
Scope of Section 206CQ
Section 206CQ applies to all types of sellers, including individuals, HUFs, firms, companies, LLPs, etc., whose total sales, gross receipts, or turnover from the business exceeds INR 10 crores during the financial year immediately preceding the financial year in which the sale of goods is carried out. The provision applies to the sale of goods above INR 50 lakhs and is not applicable to goods for export or on which TDS is deductible under any other provision of the Income Tax Act.
TDS rate under Section 206CQ
The TDS rate under Section 206CQ is 0.1% of the sale consideration. It means that the seller shall collect TDS at the rate of 0.1% on the sale of goods exceeding INR 50 lakhs from the buyer and deposit the same with the government within the prescribed time. The TDS so collected shall be credited to the account of the buyer and can be claimed as a credit against their income tax liability.
Form 26QD under Section 206CQ
As per the provisions of Section 206CQ, the seller shall furnish a quarterly statement in Form 26QD, containing the details of the transactions and TDS collected during the quarter, within the prescribed time. The statement shall contain the details of the buyer, the amount of sale consideration, and the amount of TDS collected.
Impact of Section 206CQ
The introduction of Section 206CQ will have a significant impact on taxpayers, particularly on sellers. It will increase the compliance burden of the sellers, as they will have to collect TDS on the sale of goods exceeding INR 50 lakhs and deposit the same with the government within the prescribed time. The sellers will also have to furnish a quarterly statement containing the details of the transactions and TDS collected.
The provision may also lead to cash flow issues for small businesses, as they may not have the liquidity to bear the burden of TDS on the sale of goods. Moreover, it may also increase the cost of goods for the buyers, as the sellers may pass on the burden of TDS to them.
Conclusion
Section 206CQ of the Income Tax Act, 1961, is a new provision introduced to widen the tax base and bring more transactions under the ambit of TDS. The provision mandates TDS at the rate of 0.1% on the sale of goods exceeding INR 50 lakhs. The provision will have a significant impact on taxpayers, particularly on sellers, who will have to comply with the new provisions and bear the burden of TDS on the sale of goods. The provision will also increase the compliance burden and cost of goods for the taxpayers. It is advisable for the taxpayers to take the necessary precautions and comply with the provisions to avoid any penalties or interest.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
Q. What is Section 206CQ of the Income Tax Act?
Section 206CQ is a new provision introduced under the Income Tax Act, 1961, that mandates TDS on the sale of goods exceeding INR 50 lakhs. The provision is applicable to all types of sellers whose total sales, gross receipts, or turnover from the business exceeds INR 10 crores during the financial year immediately preceding the financial year in which the sale of goods is carried out.
Q. Who is liable to deduct TDS under Section 206CQ?
The seller is liable to deduct TDS under Section 206CQ. The provision is applicable to all types of sellers, including individuals, HUFs, firms, companies, LLPs, etc., whose total sales, gross receipts, or turnover from the business exceeds INR 10 crores during the financial year immediately preceding the financial year in which the sale of goods is carried out.
Q. What is the rate of TDS under Section 206CQ?
The TDS rate under Section 206CQ is 0.1% of the sale consideration. The seller shall collect TDS at the rate of 0.1% on the sale of goods exceeding INR 50 lakhs from the buyer and deposit the same with the government within the prescribed time.
Q. Is there any exemption from TDS under Section 206CQ?
The provision of TDS under Section 206CQ is not applicable to goods for export or on which TDS is deductible under any other provision of the Income Tax Act.
Q. What is Form 26QD under Section 206CQ?
As per the provisions of Section 206CQ, the seller shall furnish a quarterly statement in Form 26QD, containing the details of the transactions and TDS collected during the quarter, within the prescribed time. The statement shall contain the details of the buyer, the amount of sale consideration, and the amount of TDS collected.
Q. What is the penalty for non-compliance with Section 206CQ?
If the seller fails to comply with the provisions of Section 206CQ, they may be liable to pay a penalty of INR 200 per day for the period of default. Moreover, the seller may also be liable to pay interest at the rate of 1.5% per month or part of the month for the delay in depositing TDS with the government.
