Difference between Section 194Q and Section 206C of Income Tax Act

What are the Differences between 194Q and Section 206C of Income Tax Act?

Introduction

The Income Tax Act of India is a comprehensive legislation that governs the taxation system in the country. Among its provisions, Section 194Q and Section 206C play a vital role in regulating tax collection at source. While both sections are aimed at collecting taxes from specific transactions, they differ in their scope and applicability. In this article, we delve into the intricacies of Section 194Q and Section 206C, highlighting their contrasting features and shedding light on how they impact taxpayers and businesses.

What is Section 194Q?

Section 194Q of the Income Tax Act was introduced in the Union Budget of 2021 with the objective of widening the tax base and ensuring greater compliance. This section applies to buyers who make purchases exceeding Rs. 50 lakh in a financial year. Under Section 194Q, the buyer is required to deduct tax at the rate of 0.1% on the purchase amount exceeding Rs. 50 lakh. The responsibility to deduct and deposit the tax lies with the buyer, making them a withholding agent.

It is important to note that Section 194Q applies to transactions in goods as well as services. The provision primarily targets business-to-business (B2B) transactions and seeks to capture a wide range of purchases made by businesses. However, it does not apply to certain specified transactions such as those made by non-resident buyers or purchases covered under other tax deduction provisions.

What is Section 206C?

Section 206C of the Income Tax Act is a provision that requires the collection of tax collection at source (TCS) by the seller of specified goods. The purpose of this section is to gather tax revenue at the time of sale, ensuring greater compliance and ease of tax administration. Section 206C applies to the sale of specified goods such as scrap, timber, tendu leaves, and more.

Under Section 206C, the seller collects tax at specified rates ranging from 0.1% to 1% depending on the nature of the goods sold. The seller then deposits this collected tax with the government. It is important to note that Section 206C applies only to the sale of goods and does not encompass services or other transactions. This provision applies to both business-to-business (B2B) and business-to-consumer (B2C) transactions, making the seller responsible for collecting tax from the buyer.

What are the differences between 194Q and Section 206C of the Income Tax Act?

Here’s a tabular representation of the key differences between Section 194Q and Section 206C:

	Section 194Q	Section 206C
Definition	As per Section 194Q (1) “buyer” means a person whose total sales, gross receipts, or turnover from the business exceeds	As per Section 206C (1H) “buyer” means a person who purchases any goods, but does not include- a) Government b) Local Authority c) Importer of the goods
Threshold Limit	Buyers making purchases exceeding Rs. 50 lakh	Sellers of specified goods
Responsibility	The buyer is liable to deduct the tax	The Seller is liable to deduct the tax
Scope	Applicable to goods and services	Applicable to specified goods
Transaction Type	Business-to-business (B2B) transactions	Business-to-business (B2B) and business-to-consumer (B2C)
Tax Collection Type	Tax deduction at source (TDS)	Tax collection at source (TCS)
Tax Rate	Fixed rate of 0.1%	Variable rates ranging from 0.1% to 1%
Non-resident Buyers	Excluded	Not applicable
Other Tax Provisions	Applicable	Not applicable

Conclusion

In conclusion, while both Section 194Q and Section 206C of the Income Tax Act aim to collect tax at source, they differ significantly in their applicability, responsibility, scope, and tax rates. Section 194Q focuses on the buyer’s obligation to deduct tax on purchases exceeding Rs. 50 lakh, encompassing both goods and services. On the other hand, Section 206C places the responsibility on the seller to collect tax at specified rates on the sale of specified goods. It is crucial for taxpayers and businesses to understand the distinctions between these provisions to ensure compliance and accurate tax reporting.